Report from the Commission to the Council, the European Parliament and the European Economic and Social Committee - 2008 annual Report on Phare, Turkey pre-accession instruments, CARDS and Transition Facility {SEC(2009) 1726}
Date: 2009-12-21
Institutions: European Commission
Subjects: EU aid, EU programme, Türkiye, accession to the European Union, enlargement of the Union, pre-accession strategy, report, transitional period (EU)

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EUROPEAN COMMISSION  

Brussels, 21.12.2009 
COM(2009)700 final 

REPORT FROM THE COMMISSION TO THE COUNCIL, THE EUROPEAN 
PARLIAMENT AND THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE 

2008 ANNUAL REPORT ON PHARE, TURKEY PRE-ACCESSION INSTRUMENTS, 
CARDS AND TRANSITION FACILITY 

{SEC(2009) 1726} 

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1. 

INTRODUCTION 

This  report  and  the  associated  background  document  cover  the  implementation  of  Phare1, 
Turkey  pre-accession  instrument2,  CARDS3  and  Transition  Facility4  programmes  during  the 
year 2008, with a cut-off date of 31 December 2008. It should be noted that as 2006 was the 
final  programming  year  under  Phare,  the  Turkey  pre-accession  instrument  and  CARDS,  no 
new programmes under these instruments were launched in 20085.  

The objectives of Phare pre-accession assistance have been to assist candidate and acceding 
countries in their efforts to strengthen their public administrations and institutions to function 
effectively  inside  the  European  Union;  to  promote  convergence  with  the  European 
Community’s legislation; to reduce the need for transition periods; and to promote Economic 
and Social Cohesion (ESC). 

The  objective  of  the  CARDS  programme  has  been  to  support  the  participation  of  Albania, 
Bosnia and Herzegovina, Croatia, the former Yugoslav Republic of Macedonia, Montenegro, 
Serbia and Kosovo6, in the Stabilisation and Association process (SAP). This process seeks to 
promote  stability  within  the  region  whilst  also  facilitating  closer  association  with  the 
European Union. 

This report also contains information on the Transition Facility for new Member States which 
was  introduced  to  allow  for  the  continuation  of  institution  building  support  with  a  view  to 
strengthening  and  consolidating  institutional  and  administrative  capacity  to  implement  the 
acquis.  

Since 2007,  EU pre-accession funding has been channelled through a  single instrument, the 
Instrument  for  Pre-accession  Assistance  (IPA),  designed  to  deliver  focused  support  to  both 
candidate  and  potential  candidate  countries.  IPA  replaces  five  previous  EU  financial 
instruments  -  Phare,  ISPA7,  SAPARD8,  the  Turkey  pre-accession  instrument  and  CARDS. 
Since  2008,  the  Commission  prepares  an  Annual  Report  on  the  implementation  of  the 
Instrument for Pre-accession Assistance. 

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Phare, Council Regulation (EEC) No 3906/89 of 18 December 1989 
Council Regulation (EC) No 2500/2001 of 17 December 2001 
Community  Assistance  for  Reconstruction,  Development  and  Stabilisation  (Council  Regulation  (EC) 
No 2666/2000 of 5 December 2000) 
Article 31 of the Bulgaria and Romania Accession Treaty 
The  2008  programming  for  candidate  and  potential  candidates  took  place  under  the  new  instrument 
IPA, and it will be reported on through the 2008 annual IPA report, as foreseen in the IPA regulation 
1085/2006 (Art. 13(6)). 
under United Nations Security Council Resolution 1244/99 
Instrument  for  Structural  Policies  for  Pre-Accession  (Council  Regulation (EC)  No 1267/1999  of 
21 June 1999) 
Special  Accession  Programme  for  Agriculture  and  Rural  Development  (Council  Regulation  (EC) 
No 1268/1999 of 21 June 1999) 

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2. 

THE YEAR IN REVIEW 

2.1.  Main evolutions of the Enlargement Process in 2008 

The  results  achieved  in  2008  with  respect  to  the  candidate  countries9  and  the  potential 
candidates10 and in relation to the Stabilisation and Association process were presented in the 
November 2008 enlargement package. The Communication on the enlargement strategy and 
main challenges 2008-09 developed the existing  approach of the European Union, based on 
the renewed consensus on enlargement agreed by the December 2006 European Council. The 
Communication  outlined  the  Commission's  approach  to  future  enlargement  challenges  and 
identified the measures to help countries on their way to membership. It was accompanied by 
progress reports on candidate countries and potential candidates, which assessed the progress 
each  country  had  made  towards  fulfilling  the  Copenhagen  membership  criteria.  This 
enlargement package was broadly welcomed by the Council11 and it was well received in the 
enlargement countries.  

3. 

PROGRAMMING  AND  IMPLEMENTATION  OF  THE  PROGRAMMES:  GENERAL 
OVERVIEW 

3.1. 

Phare, Turkey pre-accession and CARDS 

With  the  introduction  of  IPA  in  2007,  there  were  no  new  commitments  after  2006  under 
Phare, the Turkey Pre-Accession Instrument or CARDS. The focus is on implementation of 
previous years' programmes, including the reduction of backlogs where necessary.  

During  2008  most  of  the  countries  receiving  CARDS  assistance  continued  with  the 
contracting  of  the  remaining  2005  and  2006  budget  allocations,  although  contracting  rates 
differed amongst countries. In Albania and the former Yugoslav Republic of Macedonia the 
effort on contracting the remaining funds under 2005 CARDS before the contracting deadline 
led  to  rather  limited  contracting  for  the  2006  CARDS  programmes.  On  the  other  hand,  in 
Bosnia-Herzegovina  and  Kosovo,  CARDS  programmes  until  2005  were  fully  contracted  by 
year end while the contacting of CARDS 2006 was well on track.  

As  of  21  December  2007  the  European  Commission  Delegation  in  Croatia  temporarily 
suspended the endorsement of contracts under Phare 2006 until the Commission was satisfied 
with  performance  improvements  by  Croatia  under  decentralised  implementation.  After  the 
restoration of the endorsement of contracts in July 2008, Croatia managed to contract 84.7 % 
of the 2006 Phare allocation before the contracting deadline on 30 November 2008. 

Three programmes under the Turkey pre-accession instrument were under implementation in 
2008  including  the  national  programme  2006  for  which  contracting  was  still  on-going.  The 
deadlines  established  by  the  Joint  Monitoring  Committee  for  the  submission  of  tender 
documents for the European Commission (EC) ex ante control under the national programme 
2006  led  to  some  acceleration  of  the  procurement  process  compared  with  the  previous 

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Croatia, Turkey and the former Yugoslav Republic of Macedonia 
Albania, Bosnia and Herzegovina, Montenegro, Serbia and Kosovo  

http://www.eu2008.fr/webdav/site/PFUE/shared/import/1208_CAGRE/Council_conclusions_o

n%20Enlargement_EN.pdf 

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programmes.  The  contracting  rate  for  the  national  programme  2006  at  the  end  of  2008  was 
78.38%. 

During 2008 Bulgaria and Romania carried on with the contracting and implementation of the 
2006 Phare national programmes. At the end of the contracting period on 30 November 2008, 
only  17.38%  of  the  programmes  in  Bulgaria  had  been  contracted.  The  low  percentage  of 
contracting  was  due  partly  to  the  suspension  of  funding  as  well  as  to  the  cancellation  of  a 
significant number of contracts by the Bulgarian authorities for which no time and resources 
were available. For Romania, at the end of the contracting period for the 2006 Phare national 
programme, 78.01% of the programmes had been contracted. 

More  detailed  information  on  the  implementation  of  Phare,  Turkey  Pre-accession  financial 
assistance and CARDS can be found in Part I of the background document to this report. 

3.2. 

Transition Facility 

The Transition Facility for Bulgaria and Romania has been established by article 31 of the Act 
of  Accession  to  fund  certain  Institution  Building  (IB)  actions  to  address  the  continued  need 
for  strengthening  institutional  capacity  in  certain  areas  through  actions  which  cannot  be 
financed  by  the  Structural  funds  or  by  the  Rural  Development  Fund.  As  such,  this  is  an 
extension  of  the  assistance  provided  until  accession  under  the  Phare  programme.  The 
implementation  of  EU  assistance  available  under  the  Transition  Facility  is  governed  by  the 
Memorandum  of  Understanding  on  the  Implementation  of  the  Transition  Facility  signed 
between  the  Bulgarian  authorities  and  the  European  Commission  on  21  June  2007  and 
between the Romanian authorities and the European Commission on 5 September 2007. 

During  2008,  Bulgaria  and  Romania  carried  on  with  the  contracting  and  implementation  of 
the 2007 Transition Facility programme allocated to both countries. The contracting deadline 
expires on 15 December 2009. 

During  2008,  the  ten  countries  which  are  benefiting  since  2004  from  the  special  Transition 
Facility  for  institution  building  created  by  article  34  of  the  Act  of  Accession  continued  the 
contracting of projects under the 2006 TF programme and the implementation under the 2005 
TF programme respectively. 

3.3.  Moving towards an Extended Decentralised Implementation System (EDIS) 

The  Commission's  objective  was  to  enable  the  recipient  countries  of  Phare  assistance  to 
manage Community funds under the Extended Decentralised Implementation System (EDIS) 
in  order  to  acquire  before  accession,  sufficient practical  experience  in  the  management  of  a 
fully decentralised system, and thus prepare them to effectively manage structural funds upon 
accession (in a shared management environment). 

The  acceptance  by  the  Commission  of  Phare  implementing  agencies  operating  under  EDIS 
was  given  upon  demonstration  of  having  appropriate  resources,  structures  and  systems  in 
place for the effective and timely management of Community assistance. 

The ten new Member States of the 5th Enlargement 12operate under EDIS since 2005. 

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Cyprus,  the  Czech  Republic,  Estonia,  Hungary,  Latvia,  Lithuania,  Malta,  Poland,  Slovakia  and 
Slovenia. 

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With regard to Phare and Transition Facility assistance, Bulgaria operates under EDIS since 
July 2007. This implies that contracting and implementation of assistance has been under the 
full  responsibility  of  the  Bulgarian  authorities.  The  assistance  under  implementation  is 
managed by four accredited Implementing Agencies13.  

Though the system as such has been set up and accredited on the basis of commitments taken 
by the Bulgarian authorities, shortcomings in terms of practical implementation and handling 
of  the  assistance  remained  to  be  addressed  in  2008.  Substantial  amount  of  Phare  payments 
remain suspended since February 2008 pending the implementation of corrective measures by 
Bulgaria. The main critical issue during 2008 was the withdrawal of the accreditation for two 
Implementing Agencies (Central Finance and Contracts Unit and the Implementing Agency at 
the Ministry of Regional Development and Public Works) in Bulgaria on 23 July 2008 which 
led to ineligibility for EU support of most of the Phare 2006 programme in Bulgaria. 

Romania operates also under EDIS since the end of 2006 for two agencies and April 2007 for 
the third agency, which means that is fully responsible for both tendering and implementation 
of  the  financial  assistance  programmes.  The  three  accredited  Implementing  Agencies14  are 
managing  the  Phare  2006  and  the  Transition  Facility.  The  Commission  has  expressed  some 
concerns in 2007 over the capacity of Romanian agencies to ensure a sound management of 
EU funds, but during 2008 significant improvements have been witnessed. Nevertheless, there 
were  delays  in  contracting  Phare  2006  and  implementation  of  on-going  programmes  is 
sometime  delayed  because  of  objective  reasons  which  are  not  entirely  attributable  to 
Romanian authorities. In general, cooperation with the Romanian authorities is adequate and 
problems  are  tackled  jointly,  leading  to  measurable  improvements  in  the  management  of 
funds. 

The  Commission  is  closely  monitoring  the  operation  under  EDIS  as  to  ensure  that 
implementation  of  the  projects  is  done  in  a  timely  and  efficient  manner  and  results  are 
effectively achieved.  

3.4. 

Co-ordination of the Community Pre-accession Assistance 

•  The  Special  Accession  Programme  for  Agriculture  and  Rural  Development  (SAPARD)15 
aims to help candidate countries deal with the problems of the structural adjustment in their 
agricultural sectors and rural areas, as well as in implementing the acquis concerning the 
Common Agricultural Policy (CAP) and related legislation.  

•  The  Instrument  for  Structural  Policies  for  Pre-accession  (ISPA)16  is  directed  mainly 
towards  aligning  the  applicant  countries  on  Community  infrastructure  standards.  It 
finances major environmental and transport infrastructure. 

Coordination  between  the  different  pre-accession  instruments  was  carried  out  at  the 
programming phase. The last programming exercise for SAPARD and ISPA instruments took 
place in 2006. As of 2007, all former pre-accession instruments have been replaced by IPA. 

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CFCU,  Ministry  for  Regional  Development  and  Public  Works,  the  Ministry  for  Labour  and  Social 
Policy, the Ministry of Economy and Energy 
CFCU, Ministry of European Integration, Ministry of Labour 
For general information on SAPARD, we refer to the website of DG Agriculture 
For general information on ISPA, we refer to the website of DG Regional policy 

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4. 

CO-OPERATION WITH THE EIB AND INTERNATIONAL FINANCIAL INSTITUTIONS  

The co-operation with the European Investment Bank (EIB) and other International Financial 
Institutions  (IFI),  in  particular  the  European  Bank  for  Reconstruction  and  Development 
(EBRD),  and  the  Council  of  Europe  Development  Bank  (CEB)  in  association  with 
Kreditanstalt  für  Wiederaufbau  (KfW),  is  organised  under  the  amended  Memorandum  of 
Understanding of 26 April 2006 between the European Commission and participating IFIs for 
the enlargement countries.  

Implementation  of  horizontal  programmes  has  offered  wide  possibilities  of  IFI  co-operation 
by  allowing  the  extension  of  IFI  loans  combined  with  EU  grants.  These  horizontal 
programmes have complemented the investment projects financed by national programmes.  

Four types of programmes have been developed as follows. 

The  SME  Finance  Facility  (SMEFF)  aimed  at  strengthening  the  capacities  of  financial 
intermediaries (i.e. banks, leasing companies) in beneficiary countries to expand and sustain 
their  financing  operations  to  Small  and  Medium  sized  Enterprises  (SMEs).  The  SMEFF 
projects  include  the  provision  of  loans,  loan  guarantees,  and  leases  for  local  financial 
intermediaries  in  combination  with  non-reimbursable  financial  incentives.  In  turn,  financial 
intermediaries on-lend or lease to individual micro-enterprises or SMEs. Since 2005, the only 
eligible countries have been Bulgaria, Croatia, Romania and Turkey. At the end of December 
2008, the total amount of EU incentives earmarked for projects was about €265 million. 

The Municipal Finance Facility (MFF) intended to encourage local financial intermediaries to 
extend loans to municipalities. The mechanism of the programme is similar to this one of the 
SMEFF. In 2008, the overall pace of development and signature of new projects continued to 
be relatively slow owing to the high administrative costs, the delays in regulatory reforms in 
some countries, and the inexperience of the municipalities to prepare credit files. At the end of 
December  2008,  the  total  amount  of  EU  incentives  committed  into  projects  was  about  €75 
million.  

As requested by the Nice European Council 2002, the European Investment Bank (EIB) and 
the Commission established a Municipal Infrastructure Facility (MIF). The objective of the 
MIF was to contribute towards the social and economic development of border regions of the 
EU-15  Member  States.  To  this  end,  the  MIF  combines  loans  from  EIB  resources  with  non-
reimbursable  Phare  support  to  accelerate  the  completion  of  small  local  infrastructure 
investments. By the end of 2008 about €40 m illion had been disbursed for 24 projects.  

The Energy Efficiency Finance Facility (EEFF) was launched in 2006 to tackle the Climate 
Change  issue.  It  aimed  at  stimulating  the  energy  efficiency  investments  in  all  types  of 
building  and  in  the  industry  sector  by  making  appropriate  financing  available  to  the  end-
borrowers.  The  overall  results  of  the  programme  are  savings  in  energy  and  a  significant 
reduction of CO2 emissions.  

The  EEFF  combines  IFI  credit  lines  extended  to  financial  intermediaries  with  incentives  to 
improve the cost effectiveness of equipment and make the energy investment more attractive, 
and  fees  to  the  benefit  of  local  financial  intermediaries  to  encourage  them  to  lend  for  the 
purpose of energy efficiency financing. By the end of 2008, €53 million were contracted in 
three  Contribution  Agreements  and  projects  for  a  total  amount  of  incentives  of  around  €23 
million were approved. 

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The programmes were amended in 2008 in order to introduce an energy efficiency component 
and to extend the contracting date between the participating financial intermediaries and the 
IFIs, as well as the termination date of the contracts until end 2015, in order to fully utilise the 
available funds.  

5. 

MONITORING AND EVALUATION 

The monitoring and evaluation functions at project level aim at monitoring and evaluating the 
financial  support  to  the  beneficiary  countries  in  achieving  pre-accession  objectives  by 
assessing  the  programme  performance  and  deriving  lessons  learned.  It  also  provides 
accountability with respect to the value of money and the use of pre-accession funds. Another 
objective  is  to  support  the  development  of  local  monitoring  and  evaluation  capacity  in 
beneficiary  countries  as  a  means  to  strengthen  their  capacity  to  manage  and  control  pre-
accession  aid.  Headquarters  evaluation  functions  at  strategic  programme  level  providing 
evaluation support to decision-making and assessing the impact of the assistance. 

5.1.  Monitoring and Interim Evaluation 

In  2008  the  Results-Oriented  Monitoring  (ROM)  was  used  as  a  tool  to  provide  to  the 
European  Commission  and  the  Beneficiaries  clear,  objective  and  consistent  overview 
(monitoring) 
information  on  best 
practices/common  mistakes,  recommendations  for  improvement,  and  performance  of  the 
portfolio of CARDS projects directly managed by the European Commission.  

information  on  projects  being 

implemented  and 

In addition, in 2008, sector, thematic and ad-hoc reports were carried out as part of the interim 
evaluation scheme for Phare and CARDS programmes in Croatia as well as of pre-accession 
financial  instrument  for  Turkey.  These  evaluations  are  management  tools  which  provide 
programme  managers  with  a  regular  performance  assessment  of  the  activities  in  all  sectors. 
Recommendations  are  systematically  put  forward  in  the  reports  for  improving  management 
and  delivery  of  evaluated  programmes/projects  and  discussed  at  debriefing  and  Joint 
Monitoring  Committee  (JMC)  meetings  for  follow-up  actions.  Moreover,  thematic,  country 
and  consolidated  interim  evaluations  provide  recommendations  on  the  design  of  future 
programmes. 

5.2. 

Ex post evaluation 

In 2008 ad-hoc evaluations were completed on CARDS programmes (2001-2006) in Albania, 
Bosnia and Herzegovina, and the Regional Programmes in the Western Balkans. A summary 
of the findings and recommendations of these three reports can be found in section 23.2 of the 
background  document.  Similar  evaluations  were  also  launched  in  the  former  Yugoslav 
Republic of Macedonia, Kosovo, Montenegro and Serbia to be completed in 2009. 

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