Commission staff working document - Annex to the: annual report on the cohesion fund (2007) {COM(2008)752 final}
Date: 2008-11-14
Institutions: European Commission
Subjects: Cohesion Fund, activity report, economic convergence, economic development, environmental policy, impact study, transport policy

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 14.11.2008 
SEC(2008) 2816 

COMMISSION STAFF WORKING DOCUMENT 

Annex to the: 

ANNUAL REPORT ON THE COHESION FUND (2007) 

{COM(2008)752 final} 

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TABLE OF CONTENTS 

1. 

General Context ........................................................................................................... 5 

1.1. 

Convergence and economic development in the beneficiary Member States.............. 5 

1.1.1  Greece .......................................................................................................................... 5 

1.1.2.  Spain............................................................................................................................. 6 

1.1.3.  Portugal ........................................................................................................................ 6 

1.1.4.  Cyprus .......................................................................................................................... 7 

1.1.5.  Czech Republic ............................................................................................................ 8 

1.1.6.  Estonia.......................................................................................................................... 8 

1.1.7.  Hungary........................................................................................................................ 9 

1.1.8.  Latvia.......................................................................................................................... 10 

1.1.9.  Lithuania .................................................................................................................... 11 

1.1.10.  Malta .......................................................................................................................... 11 

1.1.11.  Poland......................................................................................................................... 12 

1.1.12.  Slovakia...................................................................................................................... 13 

1.1.13.  Slovenia...................................................................................................................... 14 

1.2. 

Conditionality............................................................................................................. 14 

2. 

2.1. 

2.2. 

2.3. 

3. 

Financial execution of the 2000-2006 period in 2007 and closure of projects .......... 16 

Payments made in 2007 for projects adopted under the 2000-2006 period............... 16 

Outstanding commitments from the 2000-2006 period ............................................. 18 

Closure of projects from the 2000-2006 period ......................................................... 20 

The implementation of the 2000-2006 projects by Member States ........................... 21 

3.1. 

Greece ........................................................................................................................ 21 

3.1.1.  Environment............................................................................................................... 21 

3.1.1.  Transport .................................................................................................................... 22 

3.2. 

Spain........................................................................................................................... 23 

3.2.1 

Environment and transport......................................................................................... 23 

3.3. 

Portugal ...................................................................................................................... 24 

3.3.1.  Environment and transport......................................................................................... 24 

3.4. 

Cyprus ........................................................................................................................ 25 

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3.5. 

Czech Republic .......................................................................................................... 25 

3.5.1.  Environment............................................................................................................... 25 

3.5.2.  Transport .................................................................................................................... 25 

3.6. 

Estonia........................................................................................................................ 26 

3.6.1.  Environment............................................................................................................... 26 

3.6.2.  Transport .................................................................................................................... 26 

3.7. 

Hungary...................................................................................................................... 27 

3.7.1.  Environment............................................................................................................... 27 

3.7.2.  Transport .................................................................................................................... 27 

3.8. 

Latvia.......................................................................................................................... 28 

3.8.1.  Environment............................................................................................................... 28 

3.8.2.  Transport .................................................................................................................... 28 

3.9. 

Lithuania .................................................................................................................... 29 

3.9.1.  Environment............................................................................................................... 29 

3.9.2.  Transport .................................................................................................................... 29 

3.10.  Malta .......................................................................................................................... 29 

3.10.1  Environment............................................................................................................... 29 

3.10.2.  Transport .................................................................................................................... 30 

3.11. 

Poland......................................................................................................................... 30 

3.11.1.  Environment............................................................................................................... 30 

3.11.2.  Transport .................................................................................................................... 31 

3.12. 

Slovakia...................................................................................................................... 31 

3.12.1.  Environment............................................................................................................... 31 

3.12.2.  Transport .................................................................................................................... 32 

3.13. 

Slovenia...................................................................................................................... 32 

3.13.1.  Environment............................................................................................................... 32 

3.13.2.  Transport .................................................................................................................... 32 

4. 

Monitoring, controls and irregularities ...................................................................... 33 

4.1. 

Monitoring: committees and missions ....................................................................... 33 

4.1.1.  Greece ........................................................................................................................ 33 

4.1.2.  Spain........................................................................................................................... 33 

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4.1.3.  Portugal ...................................................................................................................... 34 

4.1.4.  Cyprus ........................................................................................................................ 35 

4.1.5.  Czech Republic .......................................................................................................... 35 

4.1.6.  Estonia........................................................................................................................ 35 

4.1.7.  Hungary...................................................................................................................... 35 

4.1.8.  Latvia.......................................................................................................................... 35 

4.1.9.  Lithuania .................................................................................................................... 36 

4.1.10.  Malta .......................................................................................................................... 36 

4.1.11.  Poland......................................................................................................................... 37 

4.1.12.  Slovakia...................................................................................................................... 37 

4.1.13.  Slovenia...................................................................................................................... 38 

4.2. 

Inspections.................................................................................................................. 38 

4.2.1.  Greece ........................................................................................................................ 39 

4.2.2.  Spain........................................................................................................................... 39 

4.2.3.  Portugal ...................................................................................................................... 39 

4.2.4.  Cyprus ........................................................................................................................ 40 

4.2.5.  Czech Republic .......................................................................................................... 40 

4.2.6.  Estonia........................................................................................................................ 40 

4.2.7.  Hungary...................................................................................................................... 40 

4.2.8.  Latvia.......................................................................................................................... 40 

4.2.9.  Lithuania .................................................................................................................... 40 

4.2.10.  Malta .......................................................................................................................... 41 

4.2.11.  Poland......................................................................................................................... 41 

4.2.12  Slovakia...................................................................................................................... 41 

4.2.13  Slovenia...................................................................................................................... 41 

4.3. 

Irregularities ............................................................................................................... 41 

5. 

6. 

6.1. 

6.2. 

Evaluation .................................................................................................................. 42 

Information and publicity........................................................................................... 43 

Information to/from the Member States..................................................................... 43 

Commission measures on publicity and information................................................. 43

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1. 

GENERAL CONTEXT 

1.1. 

Convergence and economic development in the beneficiary Member States 

1.1.1  Greece 

In 2006 Greece's real GDP grew by 4.2% and GDP per capita1 in PPS reached 98% 
of  the  EU-27  average.  In  2007,  real  GDP  growth  decelerated  marginally  to  4%, 
reflecting the slowdown of private consumption and the fading of the previous year's 
extraordinary  dynamism  in  residential  investment  activity.  The  current  external 
deficit appears to have widened further in 2007, exceeding 16% of GDP, compared 
with 14¼% in 2006 and 13¼% in 2005. The general government deficit outcome for 
2007 was 2.8% of GDP, including a net one-off deficit-increasing impact of around a 
quarter of a percentage points of GDP, which compares with the official budgetary 
target  of  2¼%.  This  deviation  of  about  half  a  percentage  point  of  GDP  reflects  an 
expenditure overrun of almost ¼% of GDP and a net one-off deficit increase of the 
same amount. The debt-to-GDP  ratio  declined one percentage point from  95.2% of 
GDP in 2006 to 94.2%. 

Greece  submitted  the  most  recent  update  of  its  stability  programme  for  the  period 
2008-2010  on  27  December  2007.  According  to  the  programme,  real  GDP  growth 
should  remain  at  4%  over  the  programme  period  on  the  back  of  buoyant  domestic 
demand.  The  update  targets  a  reduction  of  government  deficit  to  1.6%  of  GDP  in 
2008,  0.8%  in  2009  and,  eventually,  a  balanced  budget  in  nominal  terms  by  2010, 
mainly  through  higher  tax  revenues.  The  budgetary  strategy  outlined  in  the 
programme  is  aimed  at  speeding  up  fiscal  consolidation  towards  the  medium-term 
objective (MTO) of a balanced budget in structural terms (i.e. in cyclically-adjusted 
terms net of one-off and other temporary measures), by reducing the structural deficit 
by more than half a percentage point per year. The programme does not specify the 
target year for attaining the MTO. 

In  its  Opinion  of  4  March  on  the  update,  the  Council  noted  that  the  fiscal 
consolidation strategy is subject to risks as the underlying macroeconomic scenario is 
favourable and the revenue-enhancing measures after 2008 are not fully spelled out. 
Ensuring a strong fiscal consolidation path would help address the imbalances of the 
Greek  economy,  notably  persistent  inflation,  competitiveness  losses  and  a  large 
external  deficit.  The  level  of  debt  which  remains  is  among  the  highest  in  the  euro 
area  and,  coupled  with  the  projected  increase  in  age-related  spending,  will  affect 
negatively the long-term sustainability of public finances, which remains at high risk. 
The Council invited Greece to carry out the envisaged adjustment towards the MTO 
and  use  any  budgetary  over-performance  to  speed  up  the  consolidation  process  in 
order  to  reach  the  MTO  within  the  programme  period.  The  Council  also  called  for 
pursuing the ongoing tax administration reforms and, in view of the level of debt and 
the  projected  increase  in  age-related  expenditure,  improvement  in  the  long-term 
sustainability of public finances through reforms of the pension system. 

1 

According  to  Eurostat  press  release  as  of  29  October  2007,  in  2006-2007  the  National  Statistical 
Service of Greece (NSSG) has carried out an in-depth revision of the Greek national accounts, leading 
to a rise of 9.6% in GDP for the base year 2000. This increase affects the whole period 1995-2006. 

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1.1.2.  Spain 

In 2006, Spain's GDP per capita in PPS reached 105% of the EU-27 average while 
real  GDP  in  2007  grew  by  3.8%.  Consumer  price  inflation  has  risen  by  2.8%  on 
average  (3.6%  in 2006), although inflationary  pressures increased to 4% in the last 
quarter  of  2007.  According  to  the  April  2008  EDP  notification,  the  general 
government  balance  has  reached  a  surplus  of  2.2%  of  GDP,  well  above  the  initial 
targets.  This  better  result  stems  from  higher-than-expected  revenues,  whereas 
expenditures  would  have  been  implemented  broadly  as  planned.  Additionally,  the 
debt-to-GDP ratio declined to 36.2% in 2006 compared to 39.7% in 2006. 

Spain  submitted  its  ninth  update  of  its  stability  programme,  covering  the  period 
2007-2010,  on  21  December  2007.  The  macro-economic  scenario  underlying  the 
programme  projects  real  GDP  growth  of  3.1%  in  2008,  3%  in  2009  and  3.2%  in 
2010. Growth should be exclusively underpinned by domestic demand, implying that 
the  contribution  of  net  exports  would  still  be  negative.  The  update  aims  at 
maintaining  macroeconomic  and  budgetary  stability,  fostering  productivity  and 
contributing  to  market  efficiency  through  transparent  and  efficient  regulation.  The 
general  government  surplus  is  envisaged  to  decline  from  2.2%  of  GDP  in  2007  to 
about 1.2% in 2008 and remain stable for the subsequent duration of the programme. 

In its Opinion of 4 March 2008 on the update, the Council considered the medium-
term  budgetary position  to  be  sound  with high general government surpluses and a 
relatively low debt ratio. However, the economic growth assumptions were assessed 
as favourable and, as a result, the projected government revenue might turn out to be 
on  the  high  side.  The  Council  pointed  out  that  fostering  productivity-enhancing 
expenditure items, such as R&D, infrastructure and education is needed to underpin a 
smooth  adjustment  of  the  economy  in  the  light  of  large  external  imbalances,  the 
contraction of the housing sector and the existing inflation differential with the euro 
area.  Additionally,  while  maintaining  a  strong  budgetary  position,  the  Council 
invited Spain to further improve the long-term sustainability of public finances with 
additional measures to contain the future impact of ageing on spending programmes. 

1.1.3.  Portugal 

Portugal’s  GDP  per  capita  in  PPS  attained  75%  of  the  EU-25  average  in  2006.  In 
2007,  GDP  grew  by  1.9%  in  real  terms  driven  by  greater  dynamism  of  domestic 
demand, especially investment, and a robust export performance. The unemployment 
rate reached 8% in 2007, thus continuing the upward trend observed in recent years. 
According  to  the  March  2008  EDP  notification,  the  general  government  deficit 
represented 2.6% of GDP in 2007, which compares with an outturn of 3.9% of GDP 
in 2006. This deficit reduction stems both from the revenue and the expenditure side. 
The  overachievement  of  the  initial  budgetary  target  for  2007  benefited  from  the 
benign base effect created by the 2006 budgetary execution, which itself turned out 
to  be  some  ¾%  of  GDP  better-than-expected.  It  was  further  helped  by  additional 
revenue  buoyancy.  The  debt-to-GDP  ratio  fell  to  63.6%  in  2007,  after  the  upward 
trend observed in recent years. 

The most recent update of the stability programme of Portugal, covering the period 
2007-2011,  was  submitted  on  14  December  2007.  The  macroeconomic  outlook 
underlying the programme projects real GDP growth at 2.2% in 2008, 2.8% in 2009 

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and  3%  in  both  2010  and  2011.  Growth  is  expected  to  be  increasingly  driven  by 
domestic  demand,  particularly  investment.  The  update  targets  a  reduction  of 
government deficit to 2.4% of GDP in 2008, 1.5% in 2009, and eventually 0.2% in 
2011. Last March, the deficit target for 2008 was revised to 2.2% of GDP, following 
the  publication  of  the  2007  better-than-estimated  budgetary  outcome.  The  stability 
programme  plans  fiscal  consolidation  to  be  achieved  mainly  via  moderation  of 
primary expenditure, with some further support from an increasing revenue ratio. 

In  its  Opinion  of  4  March  2008  on  the  update,  the  Council  considered  that  the 
programme is consistent with a correction of the excessive deficit no later than 2008, 
stressing  that  it  might  be  achieved  in  2007  if  the  better-than-expected  budgetary 
execution  were  to  be  confirmed.  At  the  same  time,  the  Council  considered  that  the 
programme  aims  at  further  fiscal  consolidation  over  the  medium  term,  although  it 
pointed out that achieving the objectives is subject to an effective implementation of 
the  measures  announced  in  the  programme  and  may  require  additional  efforts, 
notably  in  the  light  of  lower-than-projected  economic  growth.  The  Council  invited 
Portugal  to  implement  with  determination  the  fiscal  consolidation  envisaged  in  the 
programme  so  as  to  secure  the  correction  of  the  excessive  deficit,  carrying  out  the 
planned adjustment towards the MTO and ensuring a rapid reduction of the debt-to-
GDP  ratio.  Additionally,  the  Council  called  on  Portugal  to  maintain  expenditure 
moderation  in  a  permanent  way,  enhancing  the  quality  of  public  expenditure,  and 
further improving the budgetary framework. 

1.1.4.  Cyprus 

In 2006, Cyprus' GDP per capita in PPS attained about 92% of the EU-27 average. In 
2007, while real GDP grew by 4½%, inflation remained at the 2006 levels of 2.2%, 
under  conditions  of  almost  full  employment.  In  2007,  the  general  government 
balance recorded a surplus of about 3¼% of GDP, compared with a deficit of 1¼% 
of  GDP  in  2006.  This  would  imply  that  the  medium-term  objective  for  a  balanced 
budget in structural terms (i.e. cyclically-adjusted net of one-off and other temporary 
measures)  has  been  already  comfortably  overachieved.  The  marked  turnaround  in 
2007 is attributed to an unexpected rise in total revenues, due to especially high tax 
receipts  brought  by  the  strong  profitability  of  the  financial  sector  and  the  booming 
investment in real estate. The risk related to this outlook is that part of the increase in 
tax  bases  and  in  the  associated  revenues  would  not  be  permanent  and  would  fade 
over time on the back of decelerating growth of revenues to more normal trends. In 
2007,  the  debt-to-GDP  ratio  decreased  to  about  60%  from  almost  65%  of  the 
previous year. 

Cyprus submitted its first stability programme, covering the period 2007-2011, on 7 
December  2007.  The  update  envisages  GDP  growth  of  around  4%  over  the 
programme period. After achieving a budgetary surplus in 2007, the programme aims 
at consolidating the budgetary outcome. The general government balance is expected 
to maintain a surplus until 2011. 

In its Opinion of 4 March 2008 on the stability programme, the Council noted that 
based on the estimated outturn for 2007 and taking account of the balance of risks to 
the  budgetary  targets,  the  programme  puts  forward  a  more  ambitious  medium-term 
objective of a balanced position in structural terms (compared to a deficit of 0.5% of 
GDP  previously),  which  has  already  been  over-achieved  in  2007.  The  budgetary 

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targets,  which  are  significantly  better  than  in  the  previous  programme,  could  be 
overachieved in 2008 and 2009 given the better 2007 outcomes. The Council invited 
Cyprus  to  avoid  pro-cyclical  fiscal  policies  by  further  improving  the  control  of 
current  expenditures,  while  using  revenue  windfalls  to  further  reduce  debt. 
Moreover,  the  Council  invited  Cyprus  to  contain  public  expenditure,  notably  by 
reforming the pension system and with timely implementation of the adopted reforms 
in health care in order to improve the long-term sustainability of the public finances. 

1.1.5.  Czech Republic 

The  Czech  economy  grew  by  6.5%  in  real  terms  in  2007.  GDP  per  capita  in  PPS 
reached 81% of the EU-27 average. While inflation remained relatively low in 2006 
(2.1%),  it  accelerated  in  the  last  quarter  of  2007  mainly  as  a  result  of  rises  in 
commodity  prices  and  climbed  to  7.5%  (year-on-year  basis)  in  the  first  quarter  of 
2008 as a consequence of increases in administrative prices. The general government 
deficit  in  2007  was  1.6%  of  GDP  compared  to  an  estimated  deficit  of  3.4%  in  the 
November 2007 convergence programme. The better outturn was due to expenditure 
restraint  and  higher  revenues  from  stronger-than-anticipated  growth  including  the 
public  sector  wage  bill.  Strong  employment  growth  provided  a  boost  in  terms  of 
higher social contributions and a lower-than-expected increase in social expenditure. 

The  Czech  Republic  submitted  its  latest  convergence  programme,  covering  the 
period 2007-2010 on 30 November 2007. The macro-economic scenario underlying 
the programme estimated real GDP growth at 5.9% in 2007 and about 5% of GDP 
for the rest of the period. Growth is likely to be mainly driven by domestic demand 
while the contribution of net exports is expected to remain positive. The main aim of 
the  budgetary  strategy  is  to  correct  the  excessive  deficit  by  the  EDP  (excessive 
deficit  procedure)  deadline  of  2008.  The  programme  targeted  a  deficit  of  2.9%  of 
GDP  in  2008  declining  to  2.3%  of  GDP  in  2010.  However,  given  the  better-than-
expected  budgetary  outcome  in  2007,  the  government’s  most  recent  target  is  to 
contain the deficit in 2008 at the same level as 2007, namely 1.6% of GDP. 

The Council delivered its opinion on the convergence programme on 4 March 2008. 
The overall conclusion was that the programme is consistent with correction of the 
excessive deficit in 2008 based on continuing expenditure restraint. In addition, due 
to the anticipated better budgetary outturn in 2007, the Council considered that there 
was  ample  opportunity  to  achieve  stronger-than-targeted  fiscal  consolidation  after 
correction  of  the  excessive  deficit.  The  Council  also  invited  the  Czech  Republic  to 
exploit the high rate of growth in the economy by further strengthening the pace of 
adjustment  so  as  to  build  a  safety  margin  against  breaching  the  reference  value  as 
soon as possible, and speed up the achievement of the mid-term objective. Finally, it 
was  noted  that  the  Czech  Republic  remains  at  high  risk  with  respect  to  the 
sustainability of public finances, while the first steps have been taken on health care 
reform. 

1.1.6.  Estonia 

In 2006, GDP per capita in PPS reached 69% of the EU-27 average, while real GDP 
growth in 2007 slowed to 7.1% from 11.2% in 2006. Inflation in 2007 rose sharply to 
6.7% (4.4% in 2006), coming close to 10% in the last quarter of the year. According 
to  the  April  2008  EDP  notification,  in  2007  Estonia  posted  a  general  government 

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surplus of 2.8% of GDP, a stronger result than the target surplus of 1.2% set in the 
December  2006  convergence  programme.  The  result  reflected  carryover  from  a 
better outcome for 2006 than expected in that convergence programme, together with 
revenue  growth during  2007 exceeding the  targeted  figure  by  a  higher  margin  than 
that  of  expenditure.  The  general  government  debt-to-GDP  ratio  declined  further  to 
3.4% at end-2007 from 4.2% at end-2006. 

Estonia  submitted  the  fourth  update  of  its  convergence  programme,  covering  the 
period 2007-2011, on 29 November 2007. The programme projects real GDP growth 
rising  from  5.2%  in  2008  to  7.0%  in  2011,  averaging  6.2%  over  the  programme 
period.  A  moderation  in  domestic  demand  growth  in  2008  and  2009,  with  positive 
contributions  from  net  exports,  will  give  way  thereafter  to  more  vigorous  domestic 
demand  and  resumption  of  a  negative  growth  contribution  from  net  exports.  The 
programme  aims  at  maintaining  the  conditions  for  rapid  real  convergence  through 
macroeconomic  stability  as  well  as  internal  and  external  balance.  The  general 
government  surplus  was  projected  to  decline  from  2.6%  of  GDP  in  2007,  as  then 
foreseen in the programme, to 0.8% in 2011. 

In its Opinion of 4 March 2008, the Council concluded that the programme is aimed 
at  maintaining  a  sound  budgetary  position  throughout  the  period  with  continued, 
albeit somewhat declining, surpluses above Estonia's medium-term objective (MTO) 
of  structural  balance.  The  Council  considered  that  macroeconomic  imbalances 
accumulated during the years of high growth, notably wage growth exceeding that of 
productivity, price pressures and high net borrowing vis-à-vis the rest of the world, 
were expected to moderate only gradually and the deceleration path of the economy 
was surrounded by downward risks. Setting budgetary strategy with a view to over-
achieving  the  MTO  was  therefore  a  step  forward  in  addressing  the  macroeconomic 
challenges.  The  Council  invited  Estonia  to  contribute  to  reducing  risks  to 
macroeconomic  stability  by  aiming  for  a  broadly  neutral  fiscal  stance  in  2008  and 
beyond so as to contribute to an orderly adjustment towards a balanced convergence 
path,  and  complementing  the  recommended  fiscal  stance  with  appropriate  public 
wage policy and further labour market reforms so as to contain inflationary pressures 
and sustain rapid productivity growth. 

1.1.7.  Hungary 

In  2007,  GDP  growth  slowed  down  considerably  to  1.3%  annually,  while  inflation 
doubled to an annual average of 8%. GDP per capita in PPS reached 65% of the EU-
27  average.  Due  to  the  consolidation  measures  (including  expenditure  freezes  and 
subsidy reductions as well as revenue-increasing measures) the general government 
balance  was  5.5%  in  2007,  substantially  lower  than  both  the  target  (6.2%)  and  in 
2006 (9.2%). Nevertheless, the debt-to-GDP ratio increased to 66% in 2007. 

Hungary  submitted  the  most  recent  update  of  its  convergence  programme  on  30 
November  2007,  covering  the  period  2007-2011.  The  baseline  macroeconomic 
scenario is for real GDP growth to decelerate to below its long-term average in 2008 
and to return to 4% or above from 2009 onwards. The anticipated recovery is based 
on an increasing contribution from domestic demand components in parallel with a 
sustained  growth  in  net  exports.  The  main  goal  of  the  programme  is  to  correct  the 
excessive deficit by 2009 (reducing it from 6.2% of GDP in 2007 to 3.2% of GDP in 
2009)  and  to  further  reduce  it  to  2.2%  of  GDP  in  2011.  The  update  confirms  the 

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medium-term objective (MTO) for the budgetary position of a 0.5% of GDP deficit 
in  structural  terms,  which  is  not  expected  to  be  achieved  within  the  programme 
period. 

In  its  Opinion  of  12  February  2008  on  the  update,  the  Council  concluded  that  the 
programme is designed to continue the correction of past years' high deficits through 
a necessary frontloaded adjustment effort and envisages modest progress towards the 
MTO  after  the  planned  correction  of  the  excessive  deficit  in  2009.  From  2009, 
achievement  of  the  budgetary  targets  is  subject  to  greater  risks,  linked  mainly  to 
possible expenditure overruns and reliance on better-than-expected revenues, which 
cannot  be  counted  on  after  2008.  Thus,  the  durability  of  the  planned  adjustment 
hinges  on  the  reinforcement  of  fiscal  governance  as  well  as  on  completing  the 
structural  reforms.  Finally,  Hungary  was  invited  to  rigorously  implement  the  2008 
budget  and  to  take  adequate  action  to  ensure  correction  of  the  excessive  deficit  by 
2009;  given  the  insufficient  margin  in  2009,  there  is  a  need  to  allocate  the  better-
than-expected revenues to further deficit reduction and to continue to enhance fiscal 
rules  and  institutions  as  well  as  to  improve  the  long-term  sustainability  of  public 
finances  by  making  rapid  progress  towards  the  MTO  and  continuing  to  reform  the 
pension system. 

1.1.8.  Latvia 

In  2006,  Latvia's  GDP  per  capita  in  PPS  reached  54%  of  the  EU-27  average  while 
real GDP in 2007 grew by 10.3%. Consumer price inflation in 2007 rose to 10.1% on 
average (6.6% in 2006) and inflationary pressures increased to above 15% in the first 
quarter  of  2008.  The  April  2008  excessive  deficit  procedure  (EDP)  notification 
indicates  a  balanced  budget  position  for  2007  (0.0%  of  GDP).  The  outturn  was 
clearly  better  compared  with  the  December  2006  convergence  programme  target, 
reflecting higher-than-expected revenues, only partly offset by higher-than-budgeted 
expenditure  growth.  The  debt-to-GDP  ratio  declined  to  9.7%  in  2007  compared  to 
10.7% in 2006. 

The 2007 update of Latvia’s convergence programme covering the period 2007-2010 
was submitted on 29 November 2007. The budgetary strategy of the programme aims 
to foster macroeconomic stability by achieving the medium-term objective (MTO) of 
a  structural  deficit  of  1%  of  GDP  over  the  programme  period.  The  general 
government balance is planned to improve to a surplus of 0.7% of GDP in 2008 and 
to  1.0%  and  1.2%  of  GDP  respectively  in  2009-2010,  while  the  macroeconomic 
scenario underlying the programme  envisages a soft landing with real GDP growth 
decreasing  from  10.5%  in  2007  to  7.5%  in  2008,  7.0%  in  2009  and  6.8%  in  2010. 
However,  growth  remains  driven  by  domestic  demand  with  a  continuing  strongly 
negative contribution from net exports. 

In  its  opinion  of  4  March  2008  on  the  convergence  programme,  the  Council 
concluded  that  the  programme  seeks  to  reduce  economic  imbalances  and  excessive 
demand pressure by setting slightly increasing but overall modest surplus target for 
2008-2010,  in  excess  of  Latvia's  medium-term  objective.  However,  the  risks  to  the 
achievement  of  the  budgetary  targets  were  considered  high,  primarily  due  to  large 
macroeconomic uncertainty and a track record of slippages from expenditure plans. 
Moreover,  a  considerably  tighter  fiscal  policy  stance  was  deemed  to  be  urgently 
needed  to  meet  the  programme's  aims  in  the  context  of  an  economy  vulnerable  to 

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instability, stemming from inflationary pressures, deteriorating cost competitiveness 
and sharply increasing net foreign liabilities. The Council invited Latvia to contribute 
to reducing overheating pressures and potential macroeconomic instability by aiming 
for  significantly  more  ambitious  budgetary  targets;  carefully  prioritising  public 
expenditure  and  re-examining  taxation  instruments  to  avoid  demand  stimulus  in 
sectors which do not significantly strengthen the economy's medium- and long-term 
supply potential; and adopting further policies to contain inflationary pressures. 

1.1.9.  Lithuania 

In  2006  Lithuania's  GDP  per  capita  in  PPS  reached  56.1%  of  the  EU-27  average 
while  real  GDP  in  2007  grew  by  8.8%.  Consumer  price  inflation  in  2007  rose  to 
5.7% on average (3.7% in 2006). The April 2008 excessive deficit procedure (EDP) 
notification  indicates  a  budget  deficit  of  1.2%  of  GDP  for  2007,  a  weaker  outturn 
than the target deficit of 0.9% of GDP, as higher-than-budgeted revenues were more 
including  unscheduled 
than  offset  by  higher-than-planned 
compensation of 0.6% of GDP for pensions underpaid in previous years. The debt-
to-GDP ratio declined to 17.3% in 2007, compared to 18.2% in 2006. 

expenditures, 

The  2007  update  of  Lithuania’s  convergence  programme  was  submitted  on  28 
December  2007  and  covers  the  period  2007-2010.  The  budgetary  strategy  of  the 
programme  aims  to  foster  macroeconomic  stability  by  achieving  the  medium-term 
objective (MTO) of a structural deficit of 1% of GDP or below by 2009 and to reach 
a balanced or surplus budget in later years. From a planned deficit of 0.5% of GDP in 
2008, the general government balance is projected to improve to a surplus of 0.2% in 
2009  and  0.8%  in  2010,  while  the  macroeconomic  scenario  underlying  the 
programme envisages real GDP growth slowing rather sharply from 9.8% in 2007 to 
5.3% in 2008, 4.5% in 2009 and 5.2% in 2010. However, growth remains driven by 
domestic demand with a continuing strongly negative contribution from net exports. 

In  its  March  2008  opinion  on  the  convergence  programme,  the  Council  concluded 
that  the  programme  is  aimed  at  tackling  Lithuania's  macroeconomic  imbalances  by 
tightening  fiscal  policy  but  that  the  budgetary  targets  seem  modest  in  the  light  of 
high  economic  growth.  Moreover,  the  programme  envisages  only  a  back-loaded 
adjustment  effort.  The  Council  considered  that  the  achievement  of  the  budgetary 
targets  was  insufficiently  backed  by  announced  measures  while  the  medium-term 
framework  had  to  be  strengthened.  The  revenue  projections  seem  optimistic  given 
the  planned  direct  tax  cuts  and  a  reliance  on  improved  tax  collection.  The  Council 
invited  Lithuania  to  contribute  to  reducing  overheating  pressures  by  aiming  for 
significantly more ambitious budgetary outturns; notably by restraining expenditure 
growth,  saving  windfall  revenues  and  reinforcing  the  binding  character  of  the 
medium-term  expenditure  ceilings  as  well  as  by  tackling  inflationary  pressures, 
including by promoting wage moderation and removing labour market bottlenecks. 

1.1.10.  Malta 

In  2006,  Malta's  GDP  per  capita  in  PPS  stood  at  77%  of  the  EU-27  average.  Real 
GDP grew by 3.8% in 2007, driven by strong domestic demand and to a lesser extent 
by  a  positive  contribution  of  net  exports.  Inflation  in  2007  eased  to  0.7%  but  was 
very volatile, with a significant deceleration in the first part of the year followed by 
an acceleration in the second part. The general government deficit in 2007 amounted 

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to 1.8% of GDP, which compares with a target of 1.6% of GDP in the 2007 stability 
programme.  The  difference  is  mainly  due  to  lower  deficit-reducing  one-off 
operations. The debt-to-GDP ratio continued to decline, falling from 64.2% in 2006 
to 62.6% in 2007. 

On  1  January  2008,  Malta  joined  the  euro  area.  Malta’s  first  stability  programme 
covering  the  period  2007-2010  was  submitted  on  30  November  2007.  The 
programme  foresees  a  slow  down  in  the  pace  of  economic  activity  from  3.5%  in 
2007  to  around  3.1%  in  2008  and  2009,  and  acceleration  by  the  end  of  the 
programme  period.  According  to  the  programme,  GDP  growth  is  forecast  to  be 
mainly  underpinned  by  domestic  demand  over  the  reference  period.  The  budgetary 
strategy  outlined  in  the  programme  aims  at  pursuing  fiscal  consolidation  with  the 
overarching  objective  of  achieving  a  balanced  position  by  2010.  According  to  the 
stability  programme,  the  general  government  deficit  is  projected  to  decline  further 
over the forecast horizon, reaching 1.2% of GDP in 2008 and a balanced budget in 
2009. By 2010, the general government balance is anticipated to turn into a surplus 
of around 1% of GDP. 

In its Opinion of 4 March 2008 on the stability programme, the Council noted that 
although Malta plans continued progress towards reaching its medium-term objective 
(MTO) through expenditure restraint and in a context of sustained economic growth, 
there are risks to the achievement of the budgetary targets, especially after 2008. The 
Council  invited  Malta  to  pursue  further  fiscal  consolidation  towards  the  medium-
term objective as envisaged in the programme, ensure that the debt-to-GDP ratio is 
reduced  accordingly  and  enhance  the  efficiency  and  flexibility  of  public  spending, 
including  by  accelerating  the  design  and  implementation  of  a  comprehensive 
healthcare reform. 

1.1.11.  Poland 

In 2006, Poland’s GDP per capita in PPS reached 52% of the EU-27 average while 
real  GDP  in  2007  grew  by  6.5%.  Consumer  price  inflation  has  risen  by  2.6%  on 
average  (1.3%  in  2006)  with  inflationary  pressures  increasing  strongly  in  the  last 
quarter  of  2007  to  3.7%.  According  to  the  April  2008  excessive  deficit  procedure 
(EDP)  notification,  the  general  government  deficit  decreased  to  2.0%  of  GDP  in 
2007, well below the initial targets. This better result stems from both higher-than-
expected revenues and expenditures executed below the planned levels. 

Poland submitted its most recent convergence programme, covering the period 2008-
2010, on 26 March 2008. The macro-economic scenario underlying the programme 
projects real GDP growth of 5.5% in 2008 and 5% for the rest of the period. Growth 
is likely to be mainly underpinned by domestic demand while the contribution of net 
exports  would  be  negative.  The  update  aims  at  maintaining  macroeconomic  and 
budgetary stability, increasing labour force participation, especially of older groups, 
and  fostering  productivity  by  increasing  infrastructure,  human  and  technological 
capital. The general government balance is envisaged to improve by 0.5 percentage 
points of GDP over the period 2007-2010, to 1.5% of GDP. However, the deficit is 
expected to deteriorate to 2.5% of GDP in 2008 mainly as a result of a reduction in 
social contributions. 

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In  its  Opinion  of  8  July  2008  on  the  update,  the  Council  considered  that  the 
envisaged deterioration of the general government balance by 0.5 percentage point of 
GDP in 2008 was not in line with the Stability and Growth Pact. Progress towards 
the MTO (a structural deficit of 1% of GDP) in the following years was back-loaded 
in a context of favourable growth prospects. Given the risks to the budgetary targets 
from  2009,  mainly  due  to  a  lack  of  specified  measures,  the  MTO  might  not  be 
achieved  by  2011  as  planned  in  the  programme.  The  Council  invited  Poland  to 
exploit  the  favourable  growth  conditions  to  strengthen  the  pace  of  structural 
adjustment  towards  the  MTO,  including  in  the  light  of  possible  inflationary 
pressures. 

1.1.12.  Slovakia 

Slovakia's GDP per capita in PPS reached 64% of the EU-27 average in 2006 while 
economic  growth  accelerated  to  10.4%  in  2007  from  8.5%  recorded  in  2006. 
Unemployment fell significantly to roughly 11% in 2007 from 13.4% in the previous 
year.  Inflation  decreased  to  just  below  2%  in  2007  (4.3%  in  2006)  on  the  back  of 
strong  appreciation  of  the  SKK  and  lower  increases  in  energy  prices.  According  to 
the  April  2008  excessive  deficit  procedure  (EDP)  notification,  the  2007  general 
government deficit was 2.2% of GDP, well below the initial target of 2.9% envisaged 
in the December 2006 update of the convergence programme. The over-performance 
was mainly induced by higher-than-expected GDP  and employment growth, lower-
than-budgeted co-financing for the EU funds and a larger-than-expected pre-stocking 
with cigarettes at the end of 2007, triggered by a hike in the excise tax on tobacco in 
January 2008. 

Slovakia  submitted  the  most  recent  update  of  its  convergence  programme  on  29 
November 2007, covering the period 2007-2010. According to the macro-economic 
scenario underlying the programme, real GDP growth will decelerate from 8.8% in 
2007  to  5.0%  in  2010.  Growth  should  be  mainly  driven  by  domestic  demand  but 
external  growth  is  also  set  to  continue  its  positive  contribution.  The  general 
government  deficit  is  projected  to  decrease  from  2.5%  of  GDP  in  2007  to  0.8%  of 
GDP in 2010. The main goal of the budgetary strategy is to reach the medium-term 
objective (MTO) for the budgetary position of a structural deficit of just below 1% of 
GDP by 2010. 

In its opinion of 12 February 2008 on the programme update, the Council concluded 
that  the  update  is  consistent  with  correction  of  the  excessive  deficit  by  2007. 
Thereafter, it envisages back-loaded progress towards the MTO in a context of strong 
growth prospects; in 2008, the envisaged structural improvement is not in line with 
the  Pact  and  should  be  more  ambitious.  Given  risks  to  the  budgetary  targets  from 
2009 onwards, the MTO may not be achieved by 2010 as planned in the programme 
and  therefore  additional  efforts  might  be  required.  Moreover,  should  inflationary 
pressures  emerge,  a  tighter  fiscal  stance  than  foreseen  in  the  programme  would  be 
required  along  with  further  structural  reforms  to  improve  the  labour  market 
performance.  With  respect  to  medium-term  challenges,  the  programme  does  not 
envisage  any  progress  in  reallocating  expenditure  towards  R&D  and  innovation 
while it states that education spending should increasingly rely on European funds. 

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1.1.13.  Slovenia 

In  2006,  Slovenia's  GDP  per  capita  in  PPS  reached  88%  of  the  EU-27  average.  In 
2007, the year Slovenia joined the euro area, real GDP grew by 6.1%, mainly driven 
by  strong  investment.  Due  to  external  commodity  price  impulses  amplified  by 
domestic  factors,  such  as  strong  demand  pressures,  inflation  picked  up  markedly, 
reaching 3.8% for the year as a whole, the highest value in the euro area. According 
to  the  April  2008  excessive  deficit  procedure  (EDP)  notification,  a  general 
government deficit of 0.1% of GDP was recorded in 2007, against an initial target of 
1.5%.  This  outcome  mainly  reflects  a  positive  revenue  growth  effect  only  partly 
offset  by  higher-than-planned  expenditure  growth.  Slovenia's  debt-to-GDP  ratio 
declined from 27% in 2006 to 24% in 2007. 

Slovenia submitted the first update of its stability programme on 30 November 2007, 
which  covered  the  period  2007-2010.  The  programme's  macroeconomic  scenario 
foresees real GDP growth slowing in 2008 (to 4.6%) and 2009, before picking up in 
2010. While domestic demand should continue to be the main driver of growth, an 
increase in the contribution from net exports is expected over the programme period. 
The  update's  budgetary  strategy  aims  at  continuing  to  respect  Slovenia's  medium-
term objective (MTO), a structural deficit of 1 % of GDP, by a growing margin over 
the  programme  period,  despite  some  weakening  planned  for  2008.  The  headline 
deficit  should  widen  to  0.9%  of  GDP  in  2008  and  then  gradually  close,  due  to 
expenditure restraint more than offsetting a gradual decline in the revenue ratio. 

In its Opinion of 4 March 2008 on the update, the Council considered the budgetary 
stance  as  sufficient  to  maintain  the  MTO  throughout  the  programme  period,  while 
indicating that a tighter fiscal stance than presently envisaged for 2008 appeared to 
be  warranted  also  given  the  strong  inflationary  pressures.  The  Council  invited 
Slovenia to use the better-than-expected 2007 outturn to aim for stronger budgetary 
positions in 2008 and beyond than planned in the programme, thereby avoiding pro-
cyclical policies. Moreover, Slovenia should be prepared to adopt further measures to 
tame inflationary pressures. Finally, in view of the projected increase in age-related 
expenditure, the Council invited Slovenia to improve the long-term sustainability of 
public finances, in particular by further reforming the pension system. 

1.2. 

Conditionality 

The Council Regulation on the Cohesion Fund2
 attaches macro-economic conditions 
to  the  use  of  the  Fund.  It  states  that  "no new  projects  or,  in  the  event  of  important 
projects, no new project stages shall be financed by the Fund in a Member State in 
the event of the Council, acting by a qualified majority on a recommendation from 
the Commission, finding that the Member State has not implemented [its stability or 
convergence  programme]  in  such  a  way  as  to  avoid  an  excessive  deficit".  This 
reflects  the  role  of  the  Cohesion  Fund  as  an  instrument  of  budgetary  support  at 
national level helping Member States to maintain macro-economic rigour. 

In the course of 2007  three  Member  States eligible for support under the  Cohesion 
Fund (the Czech Republic, Hungary and Poland) were involved in additional steps of 

2 

Based on Article 6 of Council Regulation (EC) No 1164/94 

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the  excessive  deficit  procedure  (EDP)  which,  according  to  the  aforementioned 
Regulation,  may  under  certain  conditions  be  associated  with  the  suspension  of 
transfers from the Fund. There was, however, no need to adopt such a measure for 
any of these countries. In 2008 the Council decided to abrogate the EDP for Poland 
and the Czech Republic. 

The Czech Republic has been subject to the EDP since the Council decision in July 
2004. The deadline for the excessive deficit correction was set to 2008. In July 2007 
the Council decided that the Czech Republic had not adopted adequate measures in 
response  to  its  July  2004  recommendations.  Since  the  Czech  Republic  is  not  a 
member of the euro area, it has a specific derogation from the application of further 
steps  of  the  EDP.  In  effect,  in  October  2007  the  Council  issued  only  a  new  set  of 
recommendations under Article 104(7) of the Treaty3. There has been no subsequent 
suspension of support from the Cohesion Fund. The Council delivered its opinion on 
the latest update of the Czech convergence programme on 4 March 2008. The overall 
conclusion was that the programme is consistent with a correction  of the excessive 
deficit in 2008. In June 2008 the Council issued the decision to abrogate the EDP for 
the  Czech  Republic.  The  excessive  deficit  procedure  for  Hungary  started  in  2004. 
Since  then,  Hungary's  failure  to  take  effective  action  in  response  to  Council 
recommendations  has  been  noted  on  two  occasions,  in  January  2005  and  in 
November  2005.  However,  on  neither  of  these  occasions  did  the  Commission 
recommend a suspension of Cohesion Fund commitments to the Council. The latest 
set of recommendations concerning the Hungarian excessive deficit was adopted by 
the Council on the basis of a new Article 104(7)  decision in October 2006. In July 
2007 
the 
recommendations.  

that  Hungary  had  been  complying  with 

the  Council  decided 

In  November  2006,  Poland  was  the  subject  of  an  Article  104(8)  decision  by  the 
Council, establishing that the action taken to correct its excessive deficit in line with 
the  2004  Council  recommendations  was  proving  to  be  inadequate.  In  effect  new 
recommendations were issued for this country in February 2007. In December 2007 
the  Council  decided  that  the  measures  taken  by  Poland  were  consistent  with  these 
latest recommendations. In July 2008 the excessive deficit procedure for Poland was 
abrogated by the Council. 

At the end of 2007 two other Member States eligible for support under the Cohesion 
Fund (Portugal and Slovakia) remained subject to an excessive deficit procedure. No 
action associated with the EDP was, however, taken in regard to these countries in 
the course of 2007. Neither of the countries was subject to a suspension of transfers 
from the Cohesion Fund. In June 2008 the Council issued a decision to abrogate the 
EDP for both Member States. 

The  Regulation  on  the  Cohesion  Funds  for  the  period  2007-20134
  has  cleared  up 
several uncertainties that surrounded the application of Cohesion Fund conditionality 
in the past. It foresees that, following an Article 104(8) the Commission may propose 
the suspension of Cohesion Fund support. In turn, the Council may decide to suspend 

3 
4 

Treaty establishing the European Community, Article 104 on the excessive government deficits 
Council Regulation (EC) No 1084/2006 of 11 July 2006, establishing a Cohesion Fund and repealing 
Regulation (EC) No 1164/1994 

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all  or  part  of  commitments,  with  effect  from  1  January  of  the  year  following  the 
decision. If the Council later finds, in the context of the EDP that the Member State 
has taken the necessary corrective action, this automatically implies a decision to lift 
the  suspension  of  Cohesion  Fund  commitments.  Rules  for  re-budgeting  the 
suspended commitments have been laid down. 

2. 

FINANCIAL  EXECUTION  OF  THE  2000-2006  PERIOD  IN  2007  AND  CLOSURE  OF 
PROJECTS 

2.1. 

Payments made in 2007 for projects adopted under the 2000-2006 period 

In 2007 there were 15 Member States (12 new Member States plus Greece, Portugal 
and Spain) eligible to receive financial assistance from the Cohesion Fund, in which 
projects  were  co-financed  by  the  Fund  under  the  2000/04-2006  period.  Since  1 
January 2004, as a result of economic growth, Ireland is no longer eligible. Bulgaria 
and  Romania  became  eligible  for  the  Cohesion  Fund  with  their  accession  on 
1 January 2007.  

Given  that  all  commitments  for  the  Cohesion  Fund  projects  financed  under  2000-
2006  programming  period  had  been  executed  by  31 December 2006,  the  financial 
resources  available  for  the  Cohesion  Fund  in  2007  consisted  only  of  payment 
appropriations.  

The  2007  initial  budget  amounted  to  € 3,250 million.  However  in  September,  DG 
Regional  Policy  requested  a  € 500 million  reduction  of  payment  appropriations. 
Another € 172 million has been transferred to the Solidarity Fund. This reduction in 
credits was the result of a weak initial performance on the part of Member States and 
in  particular  of  four  significant  beneficiaries  for  whom  the  total  value  of  payment 
claims was less than 30% of their forecast by mid-September 2007.  

Towards the end of 2007, the submission pace of payment requests accelerated and 
finally resulted in 100 % execution rate in respect of the available appropriations. At 
the  end  of  December 2007,  following  late  adoption  of  2007-2013  operational 
programmes  with  the  Cohesion  Fund  contribution,  unused  payment  appropriations 
amounting  to  € 167 million  had  been  executed  for  reimbursement  of  payment 
requests for 2000-2006 projects. 

At the end of 2007, the average absorption rate (payments vs.  commitments)  of  all 
current  beneficiary  countries  (excluding  Ireland)  for  both  the  Cohesion  Fund  and 
former  ISPA  projects  was  55 %.  Three  countries  (Bulgaria,  Romania  and  Poland) 
show  the  lowest  absorption  rates  (below  40%),  whereas  another  two  countries 
(Portugal  and  Spain)  show  the  highest  absorption  rates  between  63 %  and  68 %  of 
the decided amount.  

Table 1: Implementation of the Cohesion Fund and ex-ISPA payments in 2007 (Euro) 

Payment 
Appropriations 

Initial 

Movements 

Final 
Resources 

Outturn 

Cancelled 

Carryovers 
2008 

2007 Budget 

3.880.000.000 

- 672.195.985 

3.374.559.114 

3.326.965.802 

- 

-

+166.755.099 

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Payment 
Appropriations 

Appropriations 
carried over 
from 2006 

Appropriations 
made available 
again 

Repayments 

Initial 

Movements 

Final 
Resources 

Outturn 

Cancelled 

Carryovers 
2008 

60.776 

- 

- 

- 

- 

- 

- 

- 

- 

60.776 

- 

- 

- 

- 

- 

- 

-

-

-

-

TOTAL 

3.880.060.776 

-505.440.886 

3.374.559.114 

3.327.026.578 

Table 2 shows the level of payments in 2007 for each Member State. Please note that 
the  figures  for  the  new  Member  States  refer  only  to  payments  for  projects  adopted 
under  the  Cohesion  Fund  as  of  1  May  2004  (i.e.  not  taking  into  account  the  pre-
accession  aid  for  ISPA  projects).  The  implementation  of  payments  to  the  former 
ISPA projects adopted before accession is presented in Table 3.  

Table  2:  Payments  made  in  2007  to  the  Cohesion  Fund  projects  per  Member  State 
(including technical assistance) 

Environment 

Transport 

Technical 
Assistance 

TOTAL 

Member State 

Amount 

% 

Amount 

% 

Amount 

Amount 

% of 
total CF 
payments 

Cyprus 

5.744.483,00 

48,7% 

6.039.770,69 

51,3% 

11.784.253,69 

0,5% 

Czech Republic 

50.944.092,45 

47,7% 

55.805.709,38 

52,2% 

154.834,69 

106.904.636,52 

4,4% 

Estonia 

Greece 

20.588.710,28 

44,5% 

25.648.095,12 

55,5% 

9.458,15 

46.246.263,55 

1,9% 

142.007.398,85 

41,5% 

200.498.998,20 

58,5% 

342.506.397,05 

14,0% 

Hungary 

52.417.244,67 

42,8% 

70.048.195,27 

57,2% 

122.465.439,94 

5,0% 

Latvia 

46.795.684,41 

49,4% 

44.224.991,28 

46,7%  3.764.782,97 

94.785.458,66 

3,9% 

Lithuania 

43.673.969,15 

49,5% 

44.208.895,26 

50,1% 

290.280,00 

88.173.144,41 

3,6% 

Malta 

Poland 

4.166.034,67 

43,0% 

4.946.842,98 

51,0% 

582.856,73 

9.695.734,38 

0,4% 

200.750.047,49 

52,1% 

184.249.405,16 

47,8% 

512.396,12 

385.511.848,77 

15,7% 

Portugal 

205.426.616,57 

47,8% 

223.909.764,01 

52,2% 

429.336.380,58 

17,5% 

Slovakia 

Slovenia 

24.185.556,67 

48,7% 

25.445.895,17 

51,3% 

49.631.451,84 

2,0% 

14.064.896,65 

59,9% 

9.408.923,42 

40,1% 

23.473.820,07 

1,0% 

Spain 

535.761.824,69 

72,1% 

206.543.470,15 

27,8% 

339.638,00 

742.644.932,84 

30,3% 

TOTAL  1.346.526.559,55  54,9%  1.100.978.956,09 

44,9%  5.654.246,66  2.453.159.762,30 

100,0% 

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Table  3:  Payments  made  in  2007  to  ex-ISPA  projects  per  Member  State  (including 
technical assistance) 

Environment 

Transport 

Technical 
Assistance 

TOTAL 

Member State 

Amount 

% 

Amount 

% 

Amount 

Amount 

% of 
total CF 
payments 

Bulgaria 

56.284.491,71  65,9% 

22.055.005,42 

25,8% 

7.109.024,52 

85.448.521,65 

9,0% 

Czech Republic 

21.174.558,40  83,3% 

4.243.770,33 

16,7% 

25.418.328,73 

2,7% 

Estonia 

8.834.835,16  78,4% 

0,0% 

2.427.010,09 

11.261.845,25 

1,2% 

Hungary 

41.309.873,87  48,6% 

43.203.427,21 

50,8% 

475.121,25 

84.988.422,33 

9,0% 

Latvia 

21.172.848,89  51,4% 

19.993.648,99 

48,6% 

41.166.497,88 

4,4% 

Lithuania 

19.430.221,47  66,7% 

9.164.901,62 

31,4% 

551.651,01 

29.146.774,10 

3,1% 

Poland 

208.493.213,57  59,1% 

137.384.678,36 

39,0% 

6.775.893,50 

352.653.785,43 

37,3% 

Romania 

120.081.126,61  44,2% 

124.352.547,81 

45,8%  27.171.189,06 

271.604.863,48 

28,7% 

Slovakia 

24.878.004,65  63,5% 

13.562.033,45 

34,6% 

749.475,43 

39.189.513,53 

4,1% 

Slovenia 

3.554.814,46  80,9% 

841.530,00 

19,1% 

4.396.344,46 

0,5% 

TOTAL  525.213.988,79  55,6% 

374.801.543,19 

39,7%  45.259.364,86 

945.274.896,84 

100,0% 

2.2. 

Outstanding commitments from the 2000-2006 period 

(€ 11,259,182,886.39 

At the end of 2007, the outstanding commitments (RAL) corresponding to the 2000-
2006 period (including two new Member States: Bulgaria and Romania) amounted to 
€ 14,800,243,181.27 
and 
€ 3,541,060,294.88  for  ex-ISPA  projects).  The  current  regulatory  framework  for 
commitments  and  payments  implies  a  relatively  large  stock  of  outstanding 
commitments.  They  are  equal  to  the  amount  corresponding  to  approximately  three 
years  of  commitments,  which  may  be  caused  in  part  by  the  fact  that  the  rule  of 
automatic decommitment ("N+2" rule) does not apply to the Cohesion Fund for the 
2000-2006 period. 

the  Cohesion  Fund 

for 

Table 4.1: Cohesion Fund accepted amounts in 2000-2006 (including RAL) 

Member State 

Net Committed 
(until 12/2007) 

Paid  
(until 12/2007) 

RAL 

Greece 

Spain 

3.623.591.038,72 

2.255.055.185,63 

1.368.535.853,09 

12.935.250.808,79 

9.198.976.311,34 

3.736.274.497,45 

EN 

18 

   EN 

 
  
  
  
  
Member State 

Net Committed 
(until 12/2007) 

Paid  
(until 12/2007) 

RAL 

Ireland 

Portugal 

625.755.408,00 

570.010.222,71 

55.745.185,29 

3.505.110.859,45 

2.239.884.294,52 

1.265.226.564,93 

TOTAL EU-4 

20.689.708.114,96  14.263.926.014,20  6.425.782.100,76 

Cyprus 

54.014.695,00 

22.844.221,33 

31.170.473,67 

Czech Republic 

748.976.735,00 

248.036.041,09 

500.940.693,91 

Estonia 

Hungary 

Latvia 

242.449.651,00 

86.011.929,46 

156.437.721,54 

976.865.860,00 

373.703.305,54 

603.162.554,46 

388.206.109,00 

181.497.966,25 

206.708.142,75 

Lithuania 

521.392.688,00 

188.680.965,59 

332.711.722,41 

Malta 

Poland 

Slovakia 

Slovenia 

21.966.289,00 

12.287.371,40 

9.678.917,60 

3.369.015.816,00 

768.422.849,76 

2.600.592.966,24 

410.520.447,00 

128.052.263,94 

282.468.183,06 

172.654.702,00 

63.125.292,01 

109.529.409,99 

TOTAL EU-10 

6.906.062.992,00 

2.072.662.206,37 

4.833.400.785,63 

TOTAL 

27.595.771.106,96  16.336.588.220,57  11.259.182.886,39 

Table 4.2: Accepted amounts for ex-ISPA projects (including RAL) 

Member State 

Net Committed
(until 12/2007) 

Paid  
(until 12/2007) 

RAL 

Bulgaria 

879.908.118,00 

296.570.622,32 

583.337.495,68 

Czech Republic 

479.117.989,65 

376.462.763,84 

102.655.225,81 

Estonia 

Hungary 

Latvia  

184.709.389,40 

132.834.958,14 

51.874.431,26 

505.736.480,16 

326.977.250,88 

178.759.229,28 

325.781.346,52 

217.958.178,74 

107.823.167,78 

Lithuania 

304.015.168,61 

187.355.758,57 

116.659.410,04 

Poland 

Romania 

Slovakia 

2.265.523.798,03 

1.318.714.851,29 

946.808.946,74 

2.042.727.117,78 

720.467.042,46  1.322.260.075,32 

355.729.850,36 

256.174.389,45 

99.555.460,91 

EN 

19 

   EN 

 
 
Member State 

Net Committed
(until 12/2007) 

Paid  
(until 12/2007) 

RAL 

Slovenia  

TOTAL 

81.543.400,50 

50.216.548,44 

31.326.852,06 

7.424.792.659,01 

3.883.732.364,13  3.541.060.294,88 

2.3. 

Closure of projects from the 2000-2006 period 

During 2007, 40 Cohesion Fund projects with payments totalling € 911 million were 
closed. This comprised 26 Spanish, 7 Portuguese and 7 Greek projects. As a result, 
the total number of closed CF projects for the 2000-2006 period reached 117 and the 
number  of  projects  still  to  be  closed  is  721.  Table  5.1  provides  information  on  the 
projects closed up to the end of 2007. 

. 

Table 5.1: Number of CF projects closed in 2007 and in previous years 

Member State 

Czech Republic 

Estonia 

Greece 

Spain 

Ireland 

Cyprus 

Latvia 

Lithuania 

Hungary 

Malta 

Poland 

Portugal 

Slovenia 

Slovakia 

Total 
number 
of 2000-
2006 CF 
projects 

Projects closed in 2007 

Projects closed in 2002-2006 

Number 
of 
Projects 

Total Paid in 
Euro 

Number 
of 
Projects 

Total Paid in 
Euro 

Number of 
open 
projects as 
of end 2007 

31 

12 

124 

407 

10 

2 

22 

22 

10 

3 

65 

109 

11 

10 

7 

26 

279.014.171,23 

370.739.722,09 

17 

46 

3 

305.593.888,69 

1.717.885.020,70 

250.368.797,00 

7 

261.667.677,57 

11 

272.118.226,90 

31 

12 

100 

335 

7 

2 

22 

22 

10 

3 

65 

91 

11 

10 

838 

40 

911.421.570,89 

77 

2.545.965.933,29 

721 

EN 

20 

   EN 

 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
There were 14 ex-ISPA projects with payments totalling € 89 million closed during 
2007.  The  total  number  of  closed  ex-ISPA  projects  for  the  2000-2006  period  thus 
reached 50 and the number of projects still to be closed is 304. Table 5.2 provides 
information per country on closed ex-ISPA projects. 

Table 5.2: Number of ex-ISPA projects closed in 2007 and in previous years 

Total 
number of 
2000-2006 
Ex-ISPA 
projects 

Projects closed in 2007 

Projects closed in 2002-
2006 

Number 
of 
Projects 

Total Paid in 
Euro 

Number 
of 
Projects 

Total Paid in 
Euro 

38 

27 

25 

24 

29 

37 

65 

63 

17 

29 

354 

2 

2 

2 

1 

3 

2 

2 

14 

36.838.453,19 

3.487.155,90 

17.530.155,17 

19.816.800,00 

4.673.775,30 

1.794.821,78 

4.726.875,55 

7 

8 

2 

5 

7 

1 

0 

4 

2 

124.496.115,65 

45.070.156,40 

18.416.589,32 

66.724.564,61 

2.526.165,16 

5.377.712,03 

1.794.821,78 

11.159.700,50 

6.880.841,36 

88.868.036,89 

36 

282.446.666,81 

304 

. 

Number 
of open 
projects 
as of 
end 
2007 

38 

18 

15 

20 

23 

30 

61 

61 

13 

25 

Member State 

Bulgaria 

Czech Republic 

Estonia 

Latvia 

Lithuania 

Hungary 

Poland 

Romania 

Slovenia 

Slovakia 

3. 

THE IMPLEMENTATION OF THE 2000-2006 PROJECTS BY MEMBER STATES 

3.1. 

Greece 

3.1.1.  Environment 

The  solid  waste  management  interventions  are  based  on  the  2003  National  Solid 
Waste Management Plan which in turn is linked to Regional Management Schemes. 
The strategic objective is the appropriate integrated management of urban solid waste 
and, where necessary, the rehabilitation of polluted or degraded areas. A similar plan 
has  been  drawn  up  for  the  treatment  of  urban  waste  water,  in  accordance  with  the 
requirements of Directive 91/172/EEC. 

Modification  decisions  were  adopted  for  nine  environment  projects.  These 
modification  decisions  concern  mainly  the  extension  of  the  final  date  of  eligibility, 
the adaptation of the physical object and the financing plan. 

EN 

21 

   EN 

 
  
  
  
  
  
  
  
  
 
The  rate  of  performance  of  the  environment  projects  differs  per  sector.  The  waste 
water  treatment  projects  are  relatively  well  advanced,  while  solid  waste,  drinking 
water  and  nature  protection  projects,  and  in  particular  major  projects  such  as  the 
construction of dams, are seriously delayed. 

Close monitoring and accelerated efforts are required in order to ensure that they are 
completed and put into operation within the time frames set. 

3.1.1.  Transport 

The  strategy  for  transport  projects  seeks  to  develop  the  following  corridors  and 
projects: 

–  the  priority  trans-European  (TEN)  road  axes  in  Greece,  i.e.  the  PATHE, 
EGNATIA  and  IONIAN  axes,  as  well  as  the  Korinthos  –  Tripoli  –  Kalamata  / 
Sparti motorway; 

–  the modernisation of the PATHE railway axis, also part of the TEN, including its 
electrification  and  signalling  systems,  and  construction  of  a  freight  railway  line 
from the Ikonio port to the railway freight centre of Thriassio; 

–  the  infrastructure  facilities  of  Igoumenitsa  and  Iraklion  ports  including  the 

construction of new port infrastructure at Lavrio; 

–  the  airports  of  Thessaloniki  and  Iraklion  and  the  air  traffic  control  system  in 

Greece; and 

–  public  transport  infrastructures  in  Attica  and  Thessaloniki,  such  as  metro, 

tramway, and bus transport. 

In  2007,  modification  decisions  for  two  transport  projects  were  adopted.  These 
modification  decisions  mainly  concern  the  extension  of  the  final  date  of  eligibility, 
the adaptation of the physical object and the financing plan. 

It  is  clear  that  the  transport  projects  are  progressing  better  than  the  environment 
projects with motorway projects being particularly well advanced. 

Closure 

During 2007 the substantial efforts concerning the closure of Cohesion Fund projects 
adopted  during  the  1993-1999  period  continued  with  the  closure  of  five  projects. 
Additionally, four bridge projects (financed in part bothunder the 1993-1999 period 
and under the 2000-2006 period) were also closed during 20075.  

The  closure  process  revealed  certain  aspects  that  require  further  attention,  such  as 
whether  projects are  operational upon completion.  In the course  of closures carried 
out  so  far,  this  has  proved  to  be  a  persistent  problem,  in  particular  as  regards 
environment projects. 

5 

Some projects are partially closed or closed with suspensive clauses. 

EN 

22 

   EN 

 
                                                 
Specific clauses 

Since  2002,  Cohesion  Fund  decisions  include  certain  specific  clauses  whose 
fulfilment,  in  a  number  of  cases,  is  a  precondition  for  the  execution  of  either  the 
advance  or  interim  and  final  payments.  These  specific  clauses  can  be  divided  into 
those of an administrative nature (e.g. setting up of a solid waste management body 
or of an agency to manage the operation of a dam), and those of a legal or technical 
character  (e.g.  the  completion  of  the  legal  framework  relating  to  the  solid  waste 
management or certain actions considered necessary for the integrated management 
of solid waste). 

As regards the former, their implementation is directly related to the progress of the 
projects.  Accelerated  efforts  for  the  implementation  /  fulfilment  of  these  specific 
clauses are needed as they contribute to the operability of the projects. 

Concerning  specific  clauses  of  a  legal  character,  the  Greek  administration  has 
completed and put in place the bulk of the legal requirements relating to solid waste. 

3.2. 

Spain 

3.2.1 

Environment and transport 

Some  65  modifying  decisions  were  adopted  in  2007  -  49  for  environment  projects 
and 16 for transport projects. In general, modifications concern an extension of the 
final  date  of  eligibility  and  modifications  of  the  physical  object  (generally  minor 
changes).  

The  transposition  into  Spanish  law  of  the  European  Directives  on  public 
procurement,  in  particular  concerning  amendments  to  contracts  carried  out  through 
negotiated procedure, raised specific difficulties in the management of the projects, 
in particular at the time of closure.  

In order to cope with these difficulties, two meetings were held in Madrid in January 
and  September.  The  first  meeting  ended  with  a  commitment  on  the  part  of  the 
Spanish authorities to include in the closure documentation all necessary information 
for  checking  the  eligibility  of  expenditure  relating  to  the  additional  contracts.  The 
second meeting contributed to solving formal problems raised in audit statements, in 
particular concerning projects managed by municipalities.  

During  these  meetings,  information  and  publicity  measures  were  also  carefully 
assessed.  In  particular,  the  national  authorities  emphasised  the  prominent  role  of 
Community financing concerning high-speed rail projects.  

In  this  context,  three  weeks  before  the  inauguration  of  the  Madrid-Valladolid  and 
Cordoba-Malaga  railway  lines,  a  meeting  with  the  press  took  place  in  Madrid  in 
December. During this meeting, the level of the Community financing in favour of 
Spanish high-speed railway lines was stressed (representing some € 7,300 million, of 
which € 5,575 million came from the Cohesion Fund). 

EN 

23 

   EN 

 
Closure 

The process of closure of projects is slow and complex, due partly to the deadlines 
necessary for the Member State to submit the audit reports which must accompany 
the final payment claims and the final reports, and also because of specific problems 
concerning the transposition into Spanish law of the European Directives on public 
procurement. 

Some  35  projects  were  closed  in  2007,  of  which  10  were  adopted  under  the  1993-
1999  period.  Almost  all  of  the  projects  closed  (34)  concerned  projects  in  the 
environment  sector.  At  the  end  of  2007,  a  total  of  340  projects  remained  open, 
including  8  projects  from  the  1993-1999  period.  The  outstanding  commitments 
(RAL)  amounted  to  €  3.749  million,  of  which  €  70.8  million  corresponds  to  the 
1993-1999 period. 

3.3. 

Portugal 

3.3.1.  Environment and transport 

At the end of 2007, total payments for the 104 Cohesion Fund projects adopted under 
the 2000-2006 period amounted to € 2.384 million. In total, 14 projects were already 
closed (8 transport projects and 6 environment projects), while 15 other projects were 
in  the  process  of  closure.  As  a  result,  a  total  of  75  projects  were  still  being 
implemented at the end of 2007. 

from 

As  regards  the  15  projects  in  the  process  of  closure,  additional  information  was 
requested 
the  Portuguese  authorities  concerning  public  procurement 
procedures,  the  results  achieved,  physical  indicators,  and  information  and  publicity 
measures. In some cases, the audit report was not yet complete, reservations having 
been  made  by  the  IGF  (Portuguese  independent  audit  authority),  or  additional 
information was requested by the Commission. 

Some  25  projects  were  modified  during  the  year  or  are  in  the  process  of  being 
modified: 

- in the transport sector, the six modifying decisions concern an extension of the final 
date of eligibility until 31 December 2010. Delays with these projects were due to the 
minimisation  of  the  environmental  impact  (railway  line  between  Lisbon  and  Porto; 
metro in Lisbon and Porto; speed road in the Lisbon region). 

-  in  the  environment  sector,  the  19  modifying  decisions  concern  implementation 
delays, mainly due to environmental problems or to the additional works necessary 
for completion of the projects. Projects in the waste treatment sector are particularly 
affected, following recent changes in the national strategy in this sector. 

Implementation of the remaining 50 projects has not caused any specific problems. 
The  main  transport  projects  (apart  from  the  modified  projects  cited  above)  are  the 
metro link of Baixa – Chiado / Santa Apolónia and modernisation of the railway line 
between  Vilafranca  de  Xira  and  Santarem  in  the  Centro  region,  and  Ermidas  and 
Faro in the Algarve region. These projects are now physically finalised and are in the 
process  of  closure.  The  most  expensive  environmental  projects  that  are  being 

EN 

24 

   EN 

 
 
implemented concern water supply and water treatment systems in Minho Lima and 
Vale do Ave, and waste treatment systems in Madeira. 

Apart  from  these  projects  adopted  under  the  programming  period  2000-2006,  three 
projects  from  the  1994-1999  period  are  still  open:  the  waste  water  network  in  Vila 
Real and the water treatment projects in Greater Porto – Gai and in Caldas de Rainha 
– Obidos. 

3.4. 

Cyprus 

The  budget  available  for  Cyprus  within  the  programming  period  after  accession  is  
€ 54 million. In this framework, two projects were adopted, one in the environment 
sector  (New  landfill  site  for  Larnaka  and  Ammochostos  regions  adopted  in  2005), 
and  the  other  in  the  transport  sector  (Upgrading  of  the  Limassol  bypass  adopted  in 
2004) which allowed Cyprus to take up all available funds. 

The transport project is advancing well, with the payments made from 2005 up to the 
end  of  2007  reaching  approximately  67.6%  of  the  total  Cohesion  Fund  amount 
allocated.  As  for  the  environment  project,  despite  some  initial  delays,  the  project 
seems to be advancing well. 

3.5. 

Czech Republic 

3.5.1.  Environment 

Implementation  of  the  Cohesion  Fund  projects  in  the  environment  sector  is 
progressing well. Out of 38 projects approved in the 2000-2006 programming period, 
two projects were closed (one of them in 2007 - Ostrava) and most of the 2000-2002 
projects  are  in  the  final  stage  of  implementation.  The  closure  procedure  for  three 
projects  (Olomouc  sewerage  system  I,  Podkrušnohoří  water  supply/sewerage 
system/water treatment, clean river Bečva) was launched in 2007. 

In 2007, the Commission adopted four amending decisions granting assistance from 
the  Cohesion  Fund  (Czech  Hydro-Meteorological  Institute,  South  Bohemia  water 
supply, Příbram waste water treatment plant upgrading, quality improvement of the 
Upper  Moravia  river  basin);  the  modifications  concerned  change  of  the  physical 
scope and/or the extension of the end date of the project. 

For  several  waste  water  projects  the  relevant  CF  decisions  include  a  special  clause 
stating  that  operational  contracts  with  private  operators  related  to  the  co-financed 
infrastructures  should  be  amended  to  comply  with  the  best  international  practice. 
This condition had not been  fulfilled by the  end  of  2007,  but  the  Czech  authorities 
are working towards submission of amendments to these operational contracts in the 
near future. 

3.5.2.  Transport 

In the transport sector, very good progress is being made with most of the projects. In 
2007, one project was closed (Frýdek-Místek – Dobrá), which makes it 3 out of 12 
approved projects closed in total. No modification request was received in 2007. 

EN 

25 

   EN 

 
3.6. 

Estonia 

3.6.1.  Environment 

By the end of 2007, five projects were closed and three were in the process of being 
closed. Thirteen projects were being implemented with a total allocation of 238 957 
745 EUR including one technical assistance project. 

Due to the overheating of the construction market, there have been cost increases in 
the  environmental  sector  (on  average  217%  since  2006).  However,  by  the  end  of 
2007,  the  construction  market  had  cooled  down  and  prices  were  stabilised.  Estonia 
planned an extra EEK 720 million to be financed out of the State budget for the years 
2007 and 2008 in order to cover these cost overruns. 

The  Commission  approved  two  modification  decisions.  For  the  project  "Technical 
assistance  for  environment  sector:  project  preparation  and  management  of  the 
Cohesion Fund", it was decided to extend the eligibility end date and modify the list 
of sub-projects and their cost without changing the total cost of the project. For the 
project "Narva Water and Wastewater network", the total eligible cost was increased 
without increasing the Community participation. 

The main problems hindering project implementation stem from delays in the design 
and/or construction process, and/or are due to cost overruns. 

Preparation  of  financial  analyses,  according  to  the  Commission's  cost-benefit 
analysis  (CBA)  guidelines,  has  been  the  most  difficult  part  for  Estonia  to  comply 
with  at  project  closure.  Estonia  has  analysed  the  situation  and  concluded  that  the 
quality of the final documents is not sufficient. To resolve this issue, action will be 
taken in order to improve quality. As a consequence, it has taken on average between 
six months and one year to close environment projects. 

3.6.2.  Transport 

By  the  end  of  2007,  four  projects  (including  two  technical  assistance  projects)  had 
been closed and two projects were under the process of being closed. 

Regarding  ongoing  projects,  the  financial  and  physical  progress  is  satisfactory  in 
relation  to  six  projects  where  the  majority  of  the  works  have  been  physically 
completed.  However,  for  two  projects,  works  had  not  started  on  the  ground  by  the 
end  of  2007  and  no  payments  were  made.  One  of  the  projects  faces  the  risk  of 
cancellation due to the "M+24" rule6. In this case, the delay was due to the rapidly 
changing  environment 
implemented.  The 
circumstances were not under the control of the project promoters. 

the  project  has 

in  which 

to  be 

No modification proposals were submitted in 2007 in the transport sector. 

Due  to  the  overheating  of  the  construction  market,  transport  projects  have  suffered 
from cost increases concerning the tenders launched from 2006 onwards. However, 
the increase has been lower than in the environmental sector – amounting to 36% on 

6 

Article C(5), Annex II to Regulation (EC) No 1164/94 

EN 

26 

   EN 

 
                                                 
average. Cost increases have mainly been covered by additional allocations from the 
national budget. 

Technical  assistance  has  helped  to  prepare  transport  infrastructure  projects  for 
implementation in the new programming period.  

3.7. 

Hungary 

3.7.1.  Environment 

In 2007, further progress towards the completion of ongoing projects was observed 
and  the  first  projects  adopted  in  2000  and  2001  are  in  their  final  stage  of 
implementation.  In  spite  of  the  initially  slow  development,  projects  adopted  in  the 
last  years  of  the  2000-2006  programming  period  show  in  general  an  improved 
performance  and  in  the  case  of  two  waste  water  projects  adopted  in  2004  all 
contracts have been signed and the works are well under way. 

A number of projects in the solid waste sector show significant cost overruns due to 
underestimation of the initial budget concerning the closure and rehabilitation of old 
landfills  and  concerning  compliance  of  these  landfills  with  European  and  national 
legislation.  Some  of  these  projects  were  modified  and  their  scope  reduced.  The 
rehabilitation works, taken out of these projects, will be carried out in the 2007-2013 
period. 

In  the  case  of  two  solid  waste  projects  (North-East  Pest  and  North  Balaton),  the 
contracting rate is only 3%. These projects show a very slow progress and are at risk 
of non-completion by the end of 2010. 

Waste  water  projects  are  mostly  subject  to  cost  savings,  which  will  be  used  within 
the  projects  for  financing  additional  elements  in  line  with  the  initial  project 
objectives by the end of 2010. The savings within the biggest ongoing environmental 
project  –  the  Budapest  Central  Municipal  Wastewater  Treatment  Works  and 
Collector Systems – amount to € 47.7 million.  

The closure procedure for two projects (Waste water project in Györ and Technical 
Assistance  for  the  elaboration  of  the  Zagyva-Tarna  river  basin  management  plan) 
was started in the second half of 2007. The procedure under Article H of Annex II to 
Regulation  (EC)  No  1164/1994  (as  amended)  was  initiated  for  the  Technical 
assistance for the preparation of ISPA projects in the second half of 2007. 

3.7.2.  Transport 

During 2007, project progress continued at a slightly reduced level, due to the effects 
of internal re-organisation and changes made to certain intermediate bodies and final 
beneficiaries.  These  processes  were  complete  by  the  second  half  of  2007,  and 
contracting and payment performance improved. 

Cost  overruns  have  been  encountered  in  a  number  of  railways  projects,  but  the 
necessary funds to cover such overruns were made available from national resources 
at the end of 2007. 

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In several projects public procurement problems have led to the re-launch and review 
of a number of contracts. This causes serious delays and puts certain projects at risk 
of  not  completing  all  elements  by  the  currently  foreseen  eligibility  end  date.  In 
certain projects important works contracts have still not been contracted. 

Problems  related  to  land  acquisition  are  present  in  a  number  of  projects.  While  in 
some  cases  the  outstanding  issues  are  purely  procedural,  there  are  instances  where 
work is being delayed because of this. 

No  transport  projects  have  been  closed,  or  are  in  the  process  of  being  closed.  One 
modification  request  (railways  project)  was  received  in  the  course  of  2007.  This 
modification is still ongoing. 

3.8. 

Latvia 

3.8.1.  Environment 

By  the  end  of  2007,  five  projects  had  been  completed  and  their  closure  documents 
have been submitted to the Commission (for three projects closure documents were 
submitted in 2007). 

In 2007, Latvia submitted one request for modification which concerned a technical 
assistance  project  in  the  environment  sector.  The  request  for  modification  included 
the following adjustments:  

–  Inclusion  of  additional  components  to  allow  the  project  to  absorb  the  full  grant 
and  corresponding  adjustment  of  the  physical  indicators.  For  instance,  the 
proposed new components would give an opportunity for more efficient planning 
of  network  maintenance  and  repair  works;  prepare  a  digital  model  of  the 
wastewater network that would simulate the operation of the existing wastewater 
network. 

–  Extension of the final date of eligibility until 31 December 2009. 

3.8.2.  Transport 

By the end of 2007, two projects were closed and three projects were in the process 
of closure. 

In 2007, Latvia submitted three modification requests for transport sector projects - 
two  of  which  were  technical  assistance  projects  and  one  was  a  railway  project. 
Commission  decisions  were  adopted  in  2008.  The  modifications  concerned  the 
following projects:  

–  Modernisation  of  the  signalling  system  in  Latvia:  extension  of  the  final  date  of 
eligibility  until  31  December  2010;  adjustments  of  certain  physical  indicators 
(adjustments due to improvement works that have been implemented); 

–  Technical  Assistance  for  the  transport  sector:  extension  of  the  final  date  of 
eligibility  until  31  December  2009;  inclusion  of  a  new  component  –  feasibility 
study of the railway routes to the port and to Riga international airport;  

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–  Technical  Assistance  to  Ministry  of  Transport:  adjustment  of  the  project 
indicators  by  including  Daugavpils  regional  airport  to  absorb  cost  savings; 
inclusion  of  a  new  component  (gathering  information  and  identifying  territories 
for the long-term development of the national transport infrastructure). 

3.9. 

Lithuania 

3.9.1.  Environment 

for 

reinforcement  of  environmental 

In  the  course  of  the  2000-2006  programming  period  the  Commission  adopted  27 
decisions 
in  Lithuania. 
Furthermore,  two  technical  assistance  projects  have  been  devoted  to  preparation  of 
technical documentation of Cohesion Fund projects and the capacity-building of the 
Ministry of Environment and project implementing agency (EPMA). 

infrastructure 

identified  by 

In the course of implementation of the environmental projects the following common 
the  Managing  Authority:  complicated  public 
problems were 
procurement  procedures;  low  interest  in  tenders;  interinstitutional  disagreements; 
inaccuracies  revealed  in  technical  designs  and  cost  overruns. Nevertheless,  despite 
these problems, an improvement in the implementation of projects on the ground was 
observed.  

Three waste water projects were amended in 2007 to extend eligibility deadlines and 
adapt monitoring indicators.  

The  closure  procedures  have  been  initiated  for  two  environment  projects.  For  one 
project in the waste water sector the construction works were completed during the 
year and the closure documents are expected to be presented to the Commission in 
2008. 

3.9.2.  Transport 

In total the Commission adopted decisions for 21 Cohesion Fund transport projects 
(two  of  them  are  technical  assistance  projects).  Out  of  those,  three  projects  were 
closed before 2007, and one more project was closed in 2007. 

In 2007, Lithuania submitted eight modification requests for transport sector projects 
- two of which were technical assistance projects and six were infrastructure projects. 
The  modifications  included  extension  of  eligibility  deadlines,  adjustments  of  the 
physical  monitoring 
to  additional 
components. 

the  allocation  of  savings 

indicators  and 

3.10.  Malta 

3.10.1  Environment 

The aim of the environment project is to implement an advanced mechanical thermal 
and biological treatment plant at St. Antnin, by upgrading an existing one. This will 
result  mainly  in  reduction  of  the  environmental  impact  of  the  waste  cycle,  and 
notably  the  reduction  of  the  waste  land  filled.  This  is  of  uttermost  importance  for 
Malta main island and its very high population density (1 500 inhabitants / km²). 

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Delays  in  implementation  occurred  during  the  procurement  process  and  the 
substitution  of  a  component  was  needed  –  total  expenditure  certified  is  still  low 
(16%). 

Consequently, a modification of the project was submitted on 29 January 2008. 

3.10.2.  Transport 

The project consists in an upgrade of three lots of the TEN-T road and is progressing 
satisfactorily; payment on account is being recovered on interim payments. Financial 
execution exceeds 75% and physical execution is above 90%. 

Technical assistance 

The  technical  assistance  project  aims  at  preparing  the  environmental  projects 
pipeline for 2007-2013 Cohesion Fund projects (Storm Water masterplan; advanced 
waste treatment plants). 

Delays  have  been  experienced  due  to  a  lengthy  procurement  process  and  to 
difficulties in identifying the site for the waste treatment plant. Physical and financial 
executions are around 50%. 

Consequently a modification of the project was submitted on 21 January 2008. 

3.11. 

Poland 

In  2007,  the  Commission  adopted  18  amending  decisions  granting  assistance  from 
the Cohesion Fund – 13 in the environment sector and 5 in transport. In addition the 
Commission  adopted  two  corrigenda.  The  modifications  mostly  concerned  the 
physical  scope  and/or  the  extension  of  the  end  date  of  the  project.  As  a  result,  84 
projects out of the 130 projects are planned to be completed in 2010. 

The  implementation  of  most  projects  was  strongly  affected  by  cost  overruns  which 
amount to € 2.2 billion in both sectors. This amount is not final as the contracting in 
many projects  was still  ongoing.  Though  the national  authorities  initiated  measures 
to  give  beneficiaries  easier  access  to  additional  funding  in  order  to  cover  the  cost 
overruns in the course of 2007, it has not yet been possible to solve the problem for 
all the projects concerned. 

During  2007,  the  Commission  authorised  payments  amounting  to  €  737.9  million. 
The  payment  rate  at  the  end  of  2007  reached  38%  of  committed  funds.  The 
remaining funds to be disbursed (including final payments) amounted to € 3.5 billion 
at the end of 2007. 

3.11.1.  Environment 

No environment projects were closed during the year. In total some 88 projects are 
still  ongoing.  The  total  eligible  cost  of  these  projects  is  €  4.28  billion  and  the 
Cohesion Fund contribution amounts to € 2.85 billion.  

Despite  the  progress  in  the  contracting  registered  for  all  projects  implementation  is 
often  delayed.  The  completion  of  works  for  the  majority  of  projects  is  being 

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30 

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rescheduled for 2010. The main problems encountered during implementation relate 
to delays in tendering that result in delays in the execution of the works and to cost 
overruns. 

There  were  19  projects  for  which  the  environmental  conditions  blocking  the 
payments  were  lifted  in  2007.  For  five  of  the  total  of  35  projects  affected  by  this 
conditionality, fulfilment of the conditions was still pending at the end of 2007.  

Technical assistance 

The Commission finalised closure of one technical assistance project. One technical 
assistance project is still ongoing. 

3.11.2.  Transport 

The total eligible costs of the 38 transport projects amounts to € 3.57 billion, with the 
Cohesion Fund contribution reaching € 2.78 billion. 

In  the  course  of  2007  the  level  of  80%  spending  was  achieved  for  three  railway 
projects and for twelve road projects. 

In  2007  cost  overruns  continued  to  hamper  a  number  of  rail  and  road  projects. 
However, in all cases the problem has been addressed either by way of an EIB loan 
to  the  beneficiary  (some  railway  projects)  or  by  the  budgetary  reserve.  The  only 
proposal of project phasing between the programming periods 2004-2006 and 2007-
2013 (Modernisation of E-65 railway line) was abandoned. 

There are three road projects where the environmental conditions have not been fully 
fulfilled:  projects  "National  road  2",  "Expressway  S-8"  (partly  blocked)  and 
"Motorway A4". 

One transport project was closed in 2007. 

Technical assistance 

Closure was initiated for one technical assistance project for transport. 

3.12. 

Slovakia 

3.12.1.  Environment 

Physical realisation of ISPA / Cohesion Fund took an important step forward during 
2007, especially in the case of some projects approved in 2004 which had significant 
delays  because  of  a  long  tendering  process:  Bratislava  Flood  prevention;  water 
supply  and  sewerage  systems  of  Orava;  Preseov;  Vranov  and  Horné  Kysuce.  Four 
projects, however, did not get off the ground: Velky Krtis and Žilina heating plant; 
Samorin  and  Galanta  water  supply  and  waste  water.  An  action  plan  is  being 
established by the Slovak authorities in order to address these problems. 

In  2007  three  project  modifications  were  adopted:  for  water  projects  in  Šaľa  and 
South  Eastern  Zemplín  and  for  the  air  pollution  project  Žilina  heating  plant,  all  of 
which concerned extension of the final date of eligibility and two of them concerned 

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31 

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a modification of the physical indicators. Two closures of projects were carried out - 
one  for  a  waste  water  treatment  plant  project  in  Trenčín  and  one  for  a  technical 
assistance project aimed at preparation of flood protection measures. 

3.12.2.  Transport 

All  contracting  within  the  projects  was  completed  in  2007  (with  some  minor 
exceptions)  and  physical  implementation  advanced  satisfactorily  during  the  year, 
especially in the case of railway modernisation projects. 

In  2007  one  modifying  decision  was  adopted  in  order  to  extend  the  final  date  of 
eligibility  due  to  unsuccessful  public  procurement  at  the  beginning  of  the  project 
implementation.  The  first  transport  project  "Modernisation  of  rail  track  Bratislava 
Raca-Tmava (section Bratislava- Rača-Šenkvice)" was submitted for closure. 

3.13. 

Slovenia 

3.13.1.  Environment 

The  main  aim  of  assistance  from  the  Cohesion  Fund  and  former  ISPA  during  the 
period  2000-2006  was  to  assist  municipalities  and  regions  in  improving  drinking 
water supplies, sewerage networks and wastewater treatment (12 projects) and waste 
management (4 projects). 

Before  2007,  public  procurement  was  one  of  the  main  reasons  for  delays  in 
implementation  of  projects.  A  substantial  increase  in  the  number  of  successfully 
concluded  public  procurement  procedures  helped  to  raise  considerably  the  level  of 
contracting and eliminated the decommitment risk linked to the "M+24" rule7 in all 
but one  project. It is expected that  the improved  contracting figures  will lead to an 
accelerated financial execution in 2008. 

Construction  and/or  trial  operation  was  completed  in  four  projects  in  the  water 
sector.  In  compliance  with  the  relevant  procedures,  closure  of  these  projects  and 
processing of final payments is expected in 2008. 

One  modifying  decision  was  approved  in  2007  concerning  the  "waste  water 
treatment in the Mislinja river basin" project.  

3.13.2.  Transport 

The  national  authorities  defined  in  2003  a  National  Cohesion  Strategy  for  the 
Transport  sector  which  identifies  the  objectives  of  its  transport  strategies  and  the 
projects  to  be  financed  through  the  Cohesion  Fund.  It  involves  the  country 
establishing  itself  as  a  maritime  transit  country  within  the  European  Union  and 
marketing  its  geopolitical  position  at  the  crossroads  of  two  important  European 
corridors (Corridors V and X) along the existing southern border of the EU. To this 
end,  bottlenecks  on  corridors  must  first  be  removed,  entailing  completion  of  the 
motorway network, upgrading, modernisation and completion of the railway network 
and an increase in the range of logistical services. 

7 

Article C(5), Annex II to Regulation (EC) No 1164/94. 

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The Cohesion Fund co-finances 6 railway and 2 motorway projects in the transport 
sector.  The  progress  of  implementation  is  in  general  considered  as  similar  to  the 
environmental  sector.  With  the  exception  of  one  project,  all  are  fully  contracted, 
which should improve the financial execution in 2008. 

In  2007  construction  was  completed  in  two  projects,  one  in  the  railway  and  one  in 
the  motorway  sector.  In  compliance  with  the  relevant  procedures,  closure  of  these 
projects and processing of final payments is expected in 2008. 

Three  modifying  decisions  were  approved  concerning  the  following  projects: 
modernisation of railway line Divaca-Koper; upgrading of signalling of railway line 
Pragesrko-Ormoz (two modifying decisions for this project).  

4. 

MONITORING, CONTROLS AND IRREGULARITIES 

4.1.  Monitoring: committees and missions 

4.1.1.  Greece 

The  progress  made  with  the  Cohesion  Fund  projects  for  the  2000-2006  period  was 
discussed  during  the  monitoring  committee  meeting  held  in  Athens.  Among  other 
things,  the  financial  situation  and  progress  achieved  was  discussed,  as  well  as  the 
2005  action  plan  which  was  put  in  place  by  the  Greek  authorities  to  accelerate 
project  implementation.  Individual  projects  requiring  particular  attention  were 
examined in more detail. 

A  technical  meeting  was  organised  in  November  in  Athens  to  review  progress 
achieved  during  the  year  and  examine  issues  related  to  the  Cohesion  Fund  with 
emphasis placed on the waste sector. The 2005 action plan was assessed; individual 
projects were discussed in more detail, while the specific clauses included in funding 
decisions  were  also  discussed  in  order  to  demonstrate  their  progress.  During  the 
meeting the Greek authorities presented three examples of best practices at regional 
level relating to solid waste. 

Various other meetings took place during the year, either in Greece or in Brussels, in 
order to monitor progress achieved and to accelerate implementation. 

4.1.2.  Spain 

A  monitoring  committee  meeting  was  held  in  Madrid  on  25  and  26  April.  The 
managing authority, in partnership with the Commission, selected some 145 projects 
which were the subject of specific follow-up.  

In  addition,  pursuant  to  Article  10  of  Commission  Regulation  (EC)  No  621/2004 
concerning publicity measures, the state of play in respect of publicity measures was 
presented.  

Three other main topics were raised during the meeting: 

–  The  problems  linked  to  incorrect  transposition  of  the  European  directives 
concerning public procurement in national law. The consequence is that there is a 

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high  risk  of  expenditure  being  considered  irregular.  Therefore,  the  Commission 
insisted that the expenditure at risk must not be certified in the statements sent to 
the Commission. 

–  VAT: following the judgment of the Court of Justice of 6 October 2005, certain 
VAT should be regarded as irregular expenditure as from 1 January 1999 (date of 
enforcement of the national legislation linked to the judgment). In order to recover 
the irregular amounts concerned in projects already closed, the Member State was 
requested to quantify these amounts. 

–  Lastly,  in  view  of  the  large  number  of  requests  for  payments  of  the  balances 
expected  during  2007,  the  Spanish  authorities  were  asked  to  ensure  timely 
presentation of all closure documents as well as the submission of final reports of 
high quality in order to allow for a swift closure process.  

A  monitoring  mission  was  carried  out  in  December,  in  order  to  test  the  Madrid-
Valladolid  high-speed  railway  line,  one  week  before  its  inauguration.  Co-financing 
from the Cohesion Fund amounted to almost € 1,600 million, enabling a connection 
between  the  two  cities  in  55  minutes,  against  2h  24mn  previously.  The  mission 
provided an opportunity to check the correct operation of the line, the nature of the 
technical  works  completed,  including  a  tunnel  of  more  than  28  km,  and  the 
placement of commemorative plaques in the stations. 

In  addition,  a  mission  was  carried  out  to  inspect  the  project  "Tramos  I,  II,  IV: 
Segundo  anillo  de  distribución  de  agua  in  Madrid"  (water  distribution  in  Madrid). 
The visit was justified by the fact that the project was delayed at its start, and made it 
possible to clarify the difficulties encountered in the course of implementation. 

4.1.3.  Portugal 

Two monitoring committee meetings took place in 2007. 

The  April  monitoring  committee  reviewed  all  the  ongoing  projects  and  those 
approaching  closure.  This  meeting  was  preceded  by  technical  discussions  between 
the  national  authorities  and  the  Commission,  in  order  to  look  at  the  main  issues 
outstanding,  such  as closure or projects subject to modifications. The results of the 
action  plan  concerning  a  proper  application  of  public  procurement  rules  were  also 
discussed:  the  Portuguese  authorities  have  adopted  new  procedures,  notably  new 
check-lists,  in  order  to  address  infringements  of  public  procurement  procedures. 
Financial  corrections  were  made  by  the  national  authority  and  will  be  taken  into 
account  in  future  payment  claims.  The  Portuguese  authorities  also  presented  the 
latest results of the communication campaign. Finally, a study concerning indicators 
in order to harmonise information for the 2007-2013 period was also presented. 

The  October  monitoring  committee  meeting  focused  mainly  on  projects  with 
particular problems or outstanding issues, as identified by the Commission and/or the 
Member  State.  General  questions  were  also  discussed,  such  as  the  evaluation 
exercise, the action plan on public procurement and the level of budgetary execution. 
This  meeting  was  also  preceded  by  technical  discussions  between  the  national 
authorities  and  the  Commission,  in  order  to  deal  with  specific  issues,  such  as 

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difficulties  in  implementing  the  national  strategy  for  the  recovery  of  biodegradable 
organic waste, and the closure of projects. 

4.1.4.  Cyprus 

A  monitoring  committee  meeting  was  held  in  December.  Progress  in  the 
implementation  of  the  two  Cypriot  projects  was  presented,  while  other  technical 
issues related to monitoring and reporting were also addressed. 

4.1.5.  Czech Republic 

In  2007,  one  monitoring  committee  meeting  took  place  on  11-12  June.  A  second 
meeting, originally scheduled for December was postponed to the beginning of 2008 
due to excessive workload. Discussions in the monitoring committees are organised 
on  a  project-by-project  basis,  giving  sufficient  time  to  national  authorities, 
beneficiaries and the Commission to clarify any outstanding issues.  

In  the  course  of  2007,  the  Czech  Cohesion  Fund  monitoring  system  was  further 
improved, allowing the managing authority to have a better overview of the progress 
on the ground. 

4.1.6.  Estonia 

Two  monitoring  committee  meetings  were  held  in  2007  covering  implementation, 
quality of spending, financial progress and publicity actions. 

The  problem  of  cost  overruns  received  great  attention  during  the  meetings.  The 
Estonian authorities provided explanations and proposals for improving the situation. 
Discussion  in  the  monitoring  committees  revealed  the  need  to  possibly  lower  the 
level of the outcome indicators for some environment projects, as certain parts of the 
works are not feasible due to cost increases. 

The  situation  regarding  delays  in  implementation  was  followed  up.  In  this 
framework,  the  Commission  highlighted  the  need  to  learn  from  the  past  and  try  to 
improve and build on existing experience for the 2007-2013 programming period. 

4.1.7.  Hungary 

Four  Cohesion  Fund  monitoring  committee  meetings  (two  for  each  sector  – 
environment  and  transport)  were  held  in  Budapest  in  the  course  of  2007:  on  22 
March  2007  and  15  October  2007  for  the  transport  sector  and  on  14-15  May  2007 
and  16-17  October  2007  for  the  environment  sector.  All  the  projects  receiving 
assistance  from  the  Cohesion  Fund  were  reviewed  and  overall  presentations  were 
provided for each sector. The monitoring committee meetings were conducted in the 
form  of  technical  discussions  on  a  project-by-project  basis,  giving  the  final 
beneficiaries sufficient time to present the state of play for each project. 

4.1.8.  Latvia 

Two  Cohesion  Fund  monitoring  committee  meetings  for  Latvia  took  place:  on  25 
April and on 5 November. 

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The  meetings  dealt  with  horizontal  issues  like  financial  execution  of  on-going 
projects;  technical  assistance  for  the  managing  authority  in  Latvia;  problems  with 
project execution and other issues. At the meeting of 25 April 2007 the Minister for 
Special Assignments for Administration of European Union Funds was present and 
the preparation for the implementation of the 2007-2013 period was discussed. The 
impact of cost increases on Cohesion Fund projects was discussed in both meetings 
and the Latvian authorities reported on the steps taken by the Government to combat 
inflation.  

During the April meeting, the Commission also performed a site visit to the project 
“Jūrmala water services development” and participated in the special meeting on the 
implementation  problems  for  the  project  “Modernisation  of  the  signalling  system 
(East-West rail corridor)”. The meeting took place with the managing authority, the 
Ministry of Transport, the Latvian Railway Company and the contractor for Stage 1. 
This  meeting  provided  an  opportunity  to  clarify  the  difficulties  encountered  and  to 
urge all parties concerned to take the necessary measures to get the project moving. 

On  1  February  in  Jelgava  the  managing  authority  organised  a  conference  "Best 
experience  in  implementation  of  Cohesion  Fund  projects  (2000-2006)".  The 
Conference  concluded  with  a  presentation  by  the  managing  authority  on  the 
preparation for the 2007-2013 programming period.  

4.1.9.  Lithuania 

Two monitoring committee meetings took place in Lithuania, on 24-25 April and 16-
17  October  2007,  including  site  visits  and  meetings  with  final  beneficiaries.  The 
committee  examined  the  progress  reports  submitted  by  the  national  authorities  and 
discussed the implementation of all ex-ISPA and Cohesion Fund projects and how to 
accelerate the rate of implementation. 

Two  technical  meetings  with  the  Ministry  of  Environment  took  place  in  Brussels, 
focussing on the substantial cost increases of Cohesion Fund projects, the underlying 
causes, the problems encountered, and relevant corrective actions. 

Three Cohesion Fund monitoring missions took place in February, June and October 
to visit projects, meet final beneficiaries, discuss the implementation and closure of 
projects, the support from JASPERS and information and publicity measures.  

4.1.10.  Malta 

Two  monitoring  committee  meetings  took  place,  on  25  May  and  3  October.  In 
addition, a meeting for information purposes was held in February. 

The main differences between the management and implementation methods of the 
Cohesion Fund and the Structural Fund were discussed. 

During  the  monitoring  committee  meeting  held  in  October  the  modification  of 
environment projects and of technical assistance projects was discussed. 

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4.1.11.  Poland 

Two Cohesion Fund monitoring committee meetings were held in 2007: on 21 June 
and  on  14  December.  The  meetings  were  preceded  by  working  groups  for  the 
environment sector (on 4-5 June and 8-9 November) and the transport sector (on 30-
31  May  and  6-7  November).  The  meetings  were  attended  by  representatives  of  the 
managing authority, the paying authority, the intermediate bodies, the implementing 
agencies, social and economic partners and the final beneficiaries responsible for all 
projects adopted since 2000. 

The main purpose of the meetings was to review progress made with the projects. In 
addition,  several  horizontal  issues  were  discussed,  namely:  payment  rate  and 
financial  forecasts,  modifications  of  projects,  unblocking  of  projects  through  the 
completion  of  the  Environment  Impact  Assessment  (EIA)  requirements,  delays  in 
implementation, cost overruns and compliance with the "M+24"8 and "M+12"9 rules.  

All  of the projects are progressing on the ground;  however,  the  national authorities 
were  urged  to  intensify  the  works  on  the  ground  in  order  to  complete  the  projects 
before  the  final  date  for  completion  of  the  works.  Many  projects  registered 
substantial cost overruns; however, for all of them the financing resources to cover 
the gap was secured, with the exception of a limited number of projects for which the 
national  authorities  were  still  identifying  appropriate  solutions.  Cost  overruns 
averaged  approximately  25%  of  the  originally  estimated  total  eligible  cost.  The 
monitoring committee of December recorded significant progress in the fulfilment of 
the  EIA  specifications.  Only  a  limited  number  of  projects  still  suffered  from  a 
complete blockage of payments at the end of 2007. No projects breached the M+24 
and M+12 rules.  

4.1.12.  Slovakia 

Two monitoring committee meetings were held in Bratislava, one in March and the 
other in October. The monitoring committees reviewed the state of play in respect of 
the  ex-ISPA  and  Cohesion  Fund  on-going  projects.  In  addition,  the  key  horizontal 
issues  discussed  were:  privatisation  and  fragmentation  of  water  companies,  cost 
overruns, closure of projects, and the use of generated interests. 

in  Slovakia  participated 

in  Liptov,  while  staff  of 

The  Commission  also  participated  in  July  in  the  completion  ceremony  of  the 
environment  project 
the  European  Commission 
the  closure  ceremonies  of  other 
representation 
environment  projects  in  Nitra,  Považská  Bystrica  and  Martin,  as  well  as  in  the 
opening ceremony for the Bratislava flood protection project. The Commission also 
undertook  a  site  visit  in  November  for  the  environment  projects  in  Piešťany  and 
Trnava,  where  proposals  for  modification  were  discussed  and  progress  in  regard  to 
implementation was monitored on site. 

in 

8 
9 

Article C(5), Annex II to Regulation (EC) No 1164/94 
Article D(2)(a), Annex II to Regulation (EC) No 1164/94 

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37 

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4.1.13.  Slovenia 

One  monitoring  committee  meeting  was  held  on  6  June.  It  focused  on  the  ongoing 
implementation  of  projects  and  possible  delays,  questions  on  the  automatic 
cancellation  of  assistance  ("M+24"  rule)10  and  issues  related  to  the  programming 
period  2007-2013.  The  meeting  included  a  detailed  review  of  all  ongoing 
environment and transport projects, discussion on financial data including payments 
and payment forecasts and possible de-commitments. The Commission in particular 
highlighted the necessity to further accelerate the implementation of projects, where 
substantial delays occur especially with regard to public procurement.  

4.2. 

Inspections 

The Cohesion Fund closure enquiry concerning the period 1994-1999 covered 10% 
of  Cohesion  Fund  projects  representing  20%  of  the  co-financed  expenditure  during 
this  period.  The  fieldwork  was  finalised  in  2003  and  the  main  deficiencies  found 
were  insufficient  management  verifications  resulting  in  ineligible  expenditure  and 
numerous  breaches  of  public  procurement  rules.  In  2007,  for  Spain  the  procedures 
for  three  projects  were  concluded  by  Commission  decisions  and  for  Portugal  the 
procedure for one project was concluded following acceptance by the Member State. 
The  remaining  financial  correction  procedures  (8  projects:  4  in  Spain,  1  in  Greece 
and 3 in Portugal) resulting from this audit enquiry will be completed in 2008. 

As  regards  the  period  2000-2006,  the  audit  work  carried  out  in  2007  focused  on 
follow-up audits to verify the effective implementation of recommendations made on 
the systems in 2005 and further compliance testing of projects expenditure. Special 
emphasis was also given to reviewing the work of the national audit bodies including 
checking the quality of system audits, sample checks and other issues in relation to 
the  work  of  preparing  the  winding-up  declaration.  Some  20  audit  missions  were 
carried  out:  7  missions  under  the  EU-14  Cohesion  Fund  enquiry;  2  missions  under 
the public procurement enquiry; 3 missions under the winding-up body enquiry and 8 
missions concerning Romania and Bulgaria. 

Financial correction procedures resulting from Cohesion Fund project audits carried 
out before 2007 were followed up. For Spain, final position letters were sent out for 
all  14  projects  outstanding.  For  Portugal,  the  procedures  for  three  projects  were 
concluded  with  acceptance  of  corrections  by  the  Member  State  and  there  are 
procedures  for  three  projects  outstanding.  For  Greece  the  procedure  for  a  flat-rate 
correction for a horizontal issue on public procurement completed the hearing stage, 
and there are two further projects outstanding. All the remaining procedures will be 
completed in 2008. 

In  2007,  other  audit  work  included  examination  of  winding-up  declarations 
submitted for the closure of 2000-2006 Cohesion Fund projects, examination of the 
annual  control  reports  under  Article  12  of  Regulation  (EC)  No  1386/2002,  and 
participation in the relevant annual bilateral meetings with national audit bodies. 

10 

Article C(5), Annex II to Regulation (EC) No 1164/94 

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In the Directorate General's Annual Activity Report for 2007, for the functioning of 
the  management  and  control  systems,  an  unqualified  opinion  was  given  for  the 
systems  in  seven  Member  States  (Cyprus,  Estonia,  Hungary  –  transport  sector, 
Latvia, Malta, Portugal and Slovenia). 

For six Member States the opinion was qualified as a result of material deficiencies 
with  a  moderate  impact  affecting  key  elements  of  the  systems  (Bulgaria  – 
environment sector, Greece, Ireland, Lithuania, Romania and Spain). 

For  the  remaining  five  Member  States  the  opinion  was  qualified  with  significant 
impact  as  a  result  of  material  deficiencies  affecting  key  elements  of  the  system 
(Bulgaria – transport sector, Czech Republic, Hungary – environment sector, Poland 
and Slovakia). In line with the criteria set out by the Directorate General in view of 
the  material  deficiencies  to  the  systems  which  give  rise  to  an  unacceptable  risk  for 
payments in 2007, the Directorate General made a reservation for these five Member 
States. 

4.2.1.  Greece 

In  2007,  three  audits  took  place  for  the  Cohesion  Fund:  one  closure  audit  in 
September,  during  which  four  closed  projects  were  audited  and  two  system  and 
project audits in October and November. 

The closure audit mission that took place in 2006 and the system audit missions that 
took place in April and October 2005 were followed up and closed in 2007. There is 
a  horizontal  issue  that  arose  from  the  system  audit  mission  in  May  2005  regarding 
the  use  of  a  "mathematical  formula"  for  the  award  of  public  contract  that  is  not  in 
compliance with the European directives. 

4.2.2.  Spain 

One  closure  audit  was  carried  out  in  September  2007  where  the  audit  work 
performed by the most important winding-up body in Spain, IGAE, was reviewed. 

Several  irregularities  concerning  public  procurement  contracts  have  been  identified 
during  the  audits  carried  out  in  Spain.  The  main  risk  is  that  the  expenditure 
declarations sent to the Commission contain irregular expenditure, mainly additional 
works  (modification  of  contracts  and  complementary  contracts)  which  were  not 
awarded in conformity with the Community directives on public procurement. 

The  risk  is  mitigated  by  the  fact  that  DG  Regional  Policy  assesses  the  winding-up 
declarations  before  the  closure  of  the  projects  on  an  individual  basis.  DG  Regional 
Policy will be able to identify and deduct the irregular expenditure at closure of each 
project. 

4.2.3.  Portugal 

At  the  request  of  DG  Regional  Policy,  the  winding-up  body  carried  out  a  specific 
enquiry in 2007 on the implementation of control procedures for the period from 1 
January 2005 onwards. The conclusions of that enquiry revealed that the risk of non-
compliance in respect of public procurement rules was mitigated. On the basis of that 
enquiry, together with the conclusions drawn from DG Regional Policy's audits and 

EN 

39 

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the analysis of national audit strategy, the DG signed a contract of confidence with 
"Inspecção-Geral  de  Finanças"  (winding-up  body  and  audit  authority)  covering  the 
Cohesion Fund (and 20 programmes funded by the ERDF). 

4.2.4.  Cyprus 

A  systems  audit  was  carried  out  in  April  2005.  In  the  field  of  ex-ante  checks,  the 
systems  audit  revealed  deficiencies  which  do  not  affect  key  elements  of  the 
management and control systems. In 2006 and 2007 DG Regional Policy followed up 
this audit and all findings were closed. 

4.2.5.  Czech Republic 

A follow-up audit combined with an audit of Cohesion Fund projects was carried out 
in  2007.  The  follow-up  audit  concluded  that,  despite  clear  improvements,  the 
performance  of  the  checks  by  the  managing  authority  on  the  work  done  by  the 
intermediate  bodies,  as  well  as  the  checks  carried  out  by  the  paying  authority  to 
satisfy  itself  of  the  quality  of  the  work  done  by  the  managing  authority  and  the 
intermediate  bodies  should  be  further  enhanced.  Specific  actions  will  have  to  be 
taken by the Czech authorities during 2008 to remedy these weaknesses. 

4.2.6.  Estonia 

On the basis of audit work carried out in 2006 and 2007, the DG signed a contract of 
confidence with Estonia covering the Cohesion Fund and ERDF. 

4.2.7.  Hungary 

The systems audit of June 2006 was followed up with two project audit missions in 
2007.  It  was  concluded  that  the  main  systemic  deficiency  relating  to  the  lack  of 
central guidance on Article 4 checks by the managing authority had been remedied. 

The  audit  of  one  major  project  revealed  serious  irregularities  in  the  tendering 
procedure  for  the  main  works  contract  as  well  as  significant  weaknesses  in  the 
management verifications of public procurement. Further audit work will be carried 
out in 2008 to obtain assurance that other contracts have not been affected by similar 
irregularities in the environment sector. 

4.2.8.  Latvia 

Two  audit  missions  were  carried  out  in  2007,  concerning  follow-up  of  previous 
missions and review of the winding-up body and national authorities. Except for the 
information  system,  the  measures  taken  by  the  Latvian  authorities  were  considered 
satisfactory. 

4.2.9.  Lithuania 

Two  audits  were  performed  in  2007.  A  follow-up  of  the  system  audits  was  carried 
out in February 2007. It was found again that the managing authority did not issue 
sufficient  guidelines  on  management  verifications  and  that  the  computerised 
monitoring system was not yet fully operational for the Cohesion Fund. In addition, a 
review  of  the  winding-up  body  and  national  audit  bodies  was  carried  out  in  June 

EN 

40 

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2007.  This  revealed  that  there  was  insufficient  quality  review  of  the  audit  work 
performed by the internal audit units in charge of the Article 9 checks. 

4.2.10.  Malta 

An audit mission carried out in Malta in November 2007 gave rise to no significant 
findings. 

4.2.11.  Poland 

In 2007 the Polish authorities undertook to implement a remedial action plan to: (i) 
ensure  that  all  bodies  in  charge  of  carrying  out  public  procurement  checks  apply 
their 
financial  corrections  when 
methodology for public procurement checks in order to ensure an adequate level of 
checking. 

irregularities  are  detected,  and  (ii)  revise 

4.2.12  Slovakia 

A  mission  was  carried  out  in  2007  to  verify  the  work  of  the  winding-up  body  and 
other audit bodies covering both the Cohesion Fund and ERDF. The conclusion was 
that there are some doubts about the overall reliability of their work which need to be 
addressed. 

Following  the  Commission's  findings  in  the  public  procurement  procedures,  the 
Member State was requested to carry out a retrospective review (on a sample basis) 
of all public procurement procedures in the Cohesion Fund and ERDF projects. The 
Slovak authorities have agreed to carry out this exercise in 2008. 

4.2.13  Slovenia 

There  was  one  mission  in  September  for  the  purpose  of  reviewing  the  winding-up 
body.  The  review  revealed  that  the  work  carried  out  by  the  Budget  Supervision 
Office  is  sufficient  and  reliable.  The  DG  signed  a  contract  of  confidence  with 
Slovenia in February 2008. 

4.3. 

Irregularities 

In  2007,  OLAF  undertook  two  missions  to  conduct  controls  on  the  spot  under 
Regulation  (EC)  No  2185/9611  in  connection  with  four  external  investigation  cases 
open  in  relation  to  Cohesion  Fund  matters.  As  these  cases  are  ongoing,  it  is  not 
possible to comment further upon them for operational and possible judicial reasons. 

In  2007,  the  Member  States  communicated  to  the  Commission,  in  accordance  with 
Regulation (EC) No 1831/9412, 92 notifications of irregularities affecting co-financed 
projects 
of  
€  110.222.823.  Out  of  this  amount,  €  63.686.298  has  been  recovered,  and  the 
remainder is to be recovered. The Member States reporting the majority of cases are 

involving 

sum 

and 

a 

11 
12 

O.J. L 292, 15.10.1996, p. 2 
O.J. L 191, 29.07.94, p. 1, as amended by Regulation (EC) No 2168/2005, O.J. L 345, 21.12.2005, p. 
15. 

EN 

41 

   EN 

 
                                                 
an 

by 

Greece 

involved 

Greece  and  Spain  (26  and  34  respectively,  more  than  50%  of  the  total).  The  cases 
of  
reported 
€ 67.259.450 out of which € 57.788.966 has been recovered. Ireland communicated 
to  the  Commission  only  one  case  but  its  financial  impact,  amounting  to  
€ 6.638.190, is significant in relation to the average amount of the notifications. The 
number  of  notifications  showed  a  decrease  compared  to  the  previous  year13.  The 
figures demonstrate better reporting in conformity with the legal obligations by “old 
beneficiaries  Member  States”.  However,  taking  into  account  the  Community 
contribution involved in the projects co-financed by the Cohesion Fund, the reporting 
discipline of the Member States has to be improved. 

amount 

The main types of irregularity reported are: ineligible expenditure and infringements 
of  public  procurement  rules.  These  two  categories  cover  almost  75%  of  all  cases 
reported. 

5. 

EVALUATION 

The Commission and the Member States carry out appraisal and evaluation of all co-
financed  projects. The  projects  to  be  financed  by  the  Fund  are  adopted  by  the 
Commission in agreement with the beneficiary Member States. 

Each request for assistance is accompanied by a cost-benefit analysis (CBA) of the 
project. The CBA has to demonstrate that the socio-economic benefits in the medium 
term  are  proportionate  to  the  financial  resources  mobilised. The  Commission 
examines this CBA on the basis of the principles set out in the guide to cost-benefit 
analysis. The guide, first published in 2003, was recently updated to incorporate the 
development  of  Community  policies,  financial  instruments  and  the  new  regulatory 
framework  under  which  major  projects  will  be  financed  during  the  2007-2013 
programming period. 

During  2007,  the  Commission  assisted  Member  States  through  capacity-building 
measures  aiming  to  improve  the  consistency  of  the  ex-ante  financial  and  economic 
analysis  of  the  projects.  To  this  end,  dedicated  software  is  fully  operational,  and  a 
guidance document, adopted in 2006, sets out the methodology to be used in carrying 
out CBA. The document presents some general principles of CBA along with a set of 
working  rules  and  encourages  the  Member  States  to  develop  their  own  CBA 
guidelines. 

In addition, the Commission carries out ex-post evaluation on samples of projects co-
financed  by  the  Cohesion  Fund. The  last  evaluation  was  published  in  2005  and 
looked at a sample of 200 projects implemented over the 1993-2002 period. The next 
ex-post  evaluation  is  scheduled  to  be  launched  for  2009  and  will  look  at  projects 
implemented during the 2000-2006 period. 

13 

2006:  Number  of  communicated  cases  228;  overall  amount  related  to  the  communications 
€ 186.604.797 

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42 

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6. 

INFORMATION AND PUBLICITY 

6.1. 

Information to/from the Member States 

As indicated in the 2006 annual report, issues concerning the Cohesion Fund are, as 
from  1  January  2007,  dealt  within  the  Coordination  Committee  of  the  Funds 
(COCOF), according to Regulation (EC) No 1083/2006. 

Apart from issues of common interest for the ERDF and Cohesion Fund, some issues 
of  specific  interest  for  the  Cohesion  Fund  were  presented  or  discussed  during  the 
following meetings of the Coordination Committee of the Funds: 

January: Treatment of cohesion projects in the 2007-2013 period - implementation of 
transitional provisions (Article 5 (2) of Council Regulation (EC) No 1084/2006).  

February:  Complementarities  between  funding  for  actions  under  Structural  and 
Cohesion Funds and other Community instruments.  

May:  Submission  for  opinion  of  the  updating  at  midyear  of  the  various  types  of 
measures of technical assistance to be financed by the ERDF and the Cohesion Fund 
under Article 45 of Regulation (EC) No 1083/ 2006.  

July:  (1)  Guidelines  for  the  determination  of  financial  corrections  applicable  to 
expenditure  co-financed  by  the  Structural  Funds  and  Cohesion  Fund  in  relation  to 
infringements  of  rules  concerning  public  procurement.  (2)  Study  on  Regional 
expenditure of ERDF and Cohesion Fund. 

6.2. 

Commission measures on publicity and information 

While  the  publications  of  the  European  Commission  regularly  cover  general  and 
project-specific  information  on  the  Cohesion  Fund,  the  focus  in  2007  was  the  on 
implementation  of  the  new  publicity  requirements  for  the  2007-2013  period.  The 
latter 
(EC)  
the 
No  1828/2006  and  replace  Commission  Regulation  (EC)  No  621/2004  for  all 
projects selected in the new programming period.  

Commission 

Regulation 

down 

laid 

are 

in 

In addition to assessment of the communication plans, which started at the end of 2007, 
the Commission organised  a  major  conference  in  Brussels  on  25  and  26  November 
on:  "Telling  the  Story.  Communicating  Cohesion  Policy  Together".  Over  500 
communication officers from all over Europe participated (proceedings of that event 
are  available  on  DG  REGIO  website14).  For  the  new  programmes,  enhanced 
networking between the Commission and the Member States and regions will be based 
on  a  network  ("INFORM")  which  will  permit  the  exchange  of  best  practice  in 
communicating the Structural and Cohesion Funds. 

14 

http://ec.europa.eu/regional_policy/country/commu/conferences/november07/sources_en.cfm  

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43 

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