REPORT FROM THE COMMISSION ANNUAL REPORT ON THE INSTRUMENT FOR STRUCTURAL POLICIES FOR PRE-ACCESSION (ISPA) 2010
Date: 2011-11-04
Institutions: European Commission
Subjects: Croatia, accession negotiations, pre-accession aid

EUROPEAN COMMISSION 

Brussels, 4.11.2011 
COM(2011) 695 final 

REPORT FROM THE COMMISSION 

ANNUAL REPORT ON THE INSTRUMENT FOR STRUCTURAL POLICIES FOR 
PRE-ACCESSION (ISPA) 2010 

{SEC(2011) 1314 final} 

 
 
 
 
  
 
TABLE OF CONTENTS 

Introduction .................................................................................................................. 2 

ISPA budget ................................................................................................................. 2 

New ISPA projects....................................................................................................... 3 

New Commitments ...................................................................................................... 3 

Projects funded between 2005-2010 ............................................................................ 3 

Payments ...................................................................................................................... 3 

Summary tables............................................................................................................ 4 

Forms and methods of providing technical assistance................................................. 4 

Technical assistance on the initiative of the beneficiary country ................................ 5 

Technical assistance on the initiative of the Commission ........................................... 5 

Implementation ............................................................................................................ 6 

Project monitoring........................................................................................................ 6 

Financial management and control, including EDIS ................................................... 7 

Risk assessment............................................................................................................ 7 

European Court of Auditors Findings .......................................................................... 8 

Co-financing partners – EIB and EBRD...................................................................... 8 

Public procurement ...................................................................................................... 8 

Competition policy....................................................................................................... 9 

Environment policy...................................................................................................... 9 

Transport policy ........................................................................................................... 9 

Co-ordination with the IPA instrument...................................................................... 10 

Publicity actions ......................................................................................................... 10 

1. 

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8. 

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1. 

INTRODUCTION 

Following  the  Brussels  European  Council  in  June  2004,  which  awarded  candidate 
country  status  to  Croatia,  the  country  benefited  from  ISPA  as  of  1st  January  2005. 
Croatia thus followed the previous ISPA beneficiary countries which received ISPA 
assistance  from  when  the  instrument  was  launched  in  2000.  On  1st  January  2007 
Bulgaria  and  Romania  became  members  of  the  European  Union  and  ceased  being 
beneficiaries of pre-accession assistance including ISPA. The accession of these two 
countries left Croatia as the only recipient of ISPA assistance.  

This report therefore only covers the ISPA activities carried out by Croatia.  

2010  witnessed  the  successful  physical  completion  of  the  first  two  ISPA  projects. 
Due to delays accumulated in four ISPA measures it was necessary to extend the end 
date of eligibility for these measures by one year until the end of 2011. As a result of 
lower  than  expected  contract  prices,  four  measures  were  modified  to  enable  an 
increase in the scope of work to be financed by ISPA funds, and/or to increase the 
co-financing rate.  

In  2010  the  national  authorities  concentrated  on  actual  physical  implementation, 
project management, monitoring and payments. 

Implementation  of  ISPA  in  2010  was  parallel  to  the  implementation  of  operational 
programmes  funded  by  the  Instrument  for  Pre-Accession  Assistance  (IPA)  and  the 
extensive  preparations  for  future  cohesion  policy  (accession  negotiations  under 
chapter 22: Regional policy and coordination of structural instruments). These three 
parallel processes required considerable input from the national administration.  

2. 

ISPA BUDGET 

In accordance with the Commission’s activity based accounting system, the budget 
for  the  ISPA  was  provided  for  by  two  budget  lines:  the  functional  budget  line 
B13.01.04.02 and the operational budget line 13.05.01.01. The first line contains the 
means  for  covering  Technical  Assistance  (TA)  administrative  expenses  mainly  for 
reinforcing  the  Delegation  of  the  European  Union  to  the  Republic  of  Croatia.  This 
ended  in  2006.  The  second  budget  line  encompasses  payment  appropriations  made 
available for the effective implementation and operation of ISPA for Croatia.  

Budget line 13.05.01.01 covers all expenses for co-financing infrastructure projects 
(measures). A total of EUR 14,659,692.82 was paid out from this line in 2010. 

Table 1: ISPA budget in 2010 – in Euro  

Budget line 

Functional budget line B13.01.04.02 (closed in 2006) 

Operational budget line 13.05.01.01 

Total 

Payments 
implemented 

0 

14,659,692.82 

14,659,692.82 

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Project funding 

3. 

NEW ISPA PROJECTS 

No new ISPA projects were adopted in 2010. 

4. 

NEW COMMITMENTS 

No new commitments were made in  2010 for projects either  in the environment or 
transport sectors since the ISPA ended in 2006. 

5. 

PROJECTS FUNDED BETWEEN 2005-2010 

Between 2005 and 2006, the Commission approved a total of 6 projects on the basis 
of  proposals  submitted  by  Croatia.  Of  these  projects,  3  concern  the  environment 
sector, 2 the transport sector, and  1  horizontal  TA measure (for the organisation of 
the  statutory  monitoring  committees  and  supporting  ISPA  implementing  agencies). 
The total eligible investment cost of these projects is EUR 107,474,736 with a total 
of EUR 59,000,000 or 54.8%, being allocated as ISPA grants. By the end of 2006, 
the  Commission  had  committed  100%  of  the  ISPA  funds  set  aside  for  Croatia 
covering  the  period  2005  to  2006  with  the  commitments  distributed  in  a  balanced 
manner between the environment and transport sectors. 

Table 2: Projects approved in Croatia in 2005-20061 – in Euro 

Sector 

Environment 
Transport 
Horizontal TA 
Total 

Project 
decisions 
N° 
3 
2 
1 
6 

Eligible cost 

ISPA 
contribution 

46,287,701 
60,924,700 
262,335 
107,474,736 

29,466,355 
29,271,310 
262,335 
59,000,000 

Average 
grant rate 
% 
64 
48 
100 
55 

Commitments 

29,466,355 
29,271,310 
262,335 
59,000,000 

6. 

PAYMENTS 

Generally,  payments  for  each  investment  project  consist  of  two  advance  payments 
totalling  20%  of  the  ISPA  contribution,  as  well  of  intermediate  payments  (i.e. 
reimbursements)  of  up  to  80%  (and  in  exceptional  cases  up  to  90%)  of  the 
contribution,  as  well  as  payment  of  the  final  balance  after  closure.  A  total  of 
EUR 14.65 million in payments were made in 2010 for the ISPA projects approved 
in Croatia, representing 24.8 % of the corresponding ISPA grants. The amount paid 
represents  a  significant  increase  (more  than  doubling)  in  amounts  paid  out  in 
comparison with the figure for 2009 (EUR 6,76 million). 

96% of the payment requests for the year 2010 were for interim payments which is 
linked to the advanced implementation of ISPA.  

1 

No projects have been approved since 2006 due to the ending in that year of the ISPA programme. 

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By the end of the period 2005-2010, a total of EUR 35,5 million had been paid out to 
Croatia, representing 60% of the budgetary commitments implemented in that period 
(EUR 59 million). 

Table 3: Payments – in Euro 

Sector 
Environment 

Transport 

TA 

Total 

2005-2009

7,877,349.62 

2010
4,001,450.43 

Total 2005-2010

11,878,800.05 

12,758,806.09 

10,658,242.39 

23,417,048.00 

209,868.00 

0 

209,868.00 

20,846,023.71 

14,659,692.82 

35,505,716.05 

7. 

SUMMARY TABLES 

Table  4  presented  below  provides  an  overview  of  the  ISPA  interventions  for  both 
the year 2010 and for the period 2005-2010.  

Table 4: Projects decided in Croatia in 2005-2010 – in Euro 

Sub-sector 

N° of 
projects 

Eligible 
cost 

ISPA 
contribution

2010

2005 – 2010

Commitme

Payments

Commitme

Payments

Water 

Water & wastewater 

Wastewater 

Solid waste 

Air quality 

Horizontal 

Sector total 

Road 

Rail 

Road and rail 

Inland waterways 

Airports 

Horizontal 

Sector total 

TA 

TOTAL 

0

1

0

1

0

1

3

0

1

0

0

0

1

2

1

6

Environment

0

0

36,000,000

22,500,000

0

0

8,823,601

6,000,049

0

0

1,464,100

966,306

46,287,701

29,466,355

Transport 

0

0

0

0

0

0

0

0

0

0

0 

0 

0

2,950,858.49  22,500,000 

9,668,557.17

0 

0 

837,193.08 

6,000,049 

1,437,198.08

0 

0 

213,398.86 

966,306 

773,044.80

4,001,450.43  29,466,355  11,878,800.05

0 

0 

60,182,962

28,789,180

0 10,465,390.39  28,789,180  23,031,344.00

0

0 

0

0

0

0

741,738

482,130

0

0

0

0

0 

0 

0 

0 

0 

0 

192,852.00 

482,130 

385,704.00

60,924,700

29,271,310

0 10,658,242.39  29,271,310 

23,417,048

Horizontal 

262,335

262,335

0

0 

262,335 

209,868

107,474,736

59,000,000

0 14,659,692.82  59,000,000  35,505,716.05

Technical assistance 

8. 

FORMS AND METHODS OF PROVIDING TECHNICAL ASSISTANCE 

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Two types of technical assistance measures are utilised: 

- technical assistance which is carried out on the initiative of the beneficiary country 
and which is directly related to project funding, e.g. project preparation/development, 
technical  assistance  for  implementation,  and  technical  assistance  for  enhancing 
administrative capacity; 

-  technical  assistance  which  is  carried  out  on  the  initiative  of  the  Commission  and 
which mostly relates to activities performed by the EU Delegation, including project 
appraisal; 

9. 

TECHNICAL ASSISTANCE ON THE INITIATIVE OF THE BENEFICIARY COUNTRY 

Project preparation and institutional strengthening 

The total number of TA measures between 2005 and 2006 stands at three. Two for 
project  preparation,  representing  a  total  eligible  cost  of  EUR  2,205,838  of  which 
EUR 1,448,436  (65.6%)  is  being  financed  by  ISPA.  One  technical  assistance 
measure for institutional capacity building was approved in 2006, representing a total 
eligible cost of EUR 262,335 which is 100% financed by ISPA. 

Two  of  the  three  technical  assistance  measures  are  aimed  at  preparing  IPA  project 
pipelines in the environment and transportation sectors. The TA measure for project 
preparation  in  transport  sector  was  finalised  in  2010.  The  TA  measure  for  project 
preparation in environment sector is still under implementation. The third  measure, 
finalised in 2010, was aimed at developing the institutional capacity of the CFCA to 
manage and implement the ISPA projects. 

The two TA measures which have been finalised in 2010 reached the payments level 
of  80%  of  the  ISPA  contribution.  The  remaining  balance  will  be  paid  once  the 
closure procedure for these measures is finalised and the final payment accepted by 
the Commission. 

Table 5: Technical assistance measures on the initiative of Croatia  
2005-2009 – in Euro 

Sub-sector 

No of 
projects 

Eligible 
cost 

ISPA 
contribution

Commitments 
2010 

Payments 
2010 

Commitments 
2005-10 

Payments 
2005-10 

Environment 

Sector total 

Sector total 

Sector Total 
TOTAL 

1 

1 

1 
3 

1,464,100 

966,306 

0 

213,398.86 

966,306 

773,044.80 

Transport 

741,738 

482,130 

0 

192,852.00 

482,130 

385,704.00 

Horizontal TA 

262,335 
2,468,173 

262,335 
1,710,771 

0 
0 

0 
406,250.86 

262,335 
1,710,771 

209,868.00 
1,368,616.80 

10. 

TECHNICAL ASSISTANCE ON THE INITIATIVE OF THE COMMISSION  

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Since  the  beginning  of  ISPA,  technical  assistance  activities  carried  out  on  the 
initiative, or  on  behalf of the Commission, have been concentrated on enabling  the 
EU Delegation to perform its ex-ante control procedures (including project appraisal) 
in accordance with the standards required for the management of EU funds. No such 
technical  assistance  measures  have  been  funded  by  ISPA  since  2006.  All  such 
measures since that time have been financed from IPA. 

Management and implementation  

11. 

IMPLEMENTATION 

The first two projects in Croatia were approved in December 2005 with a final four 
being  approved  in  July  and  September  2006.  By  the  end  of  2010,  physical 
implementation  was  ongoing  on  all  the  6  ISPA  projects.  Two  ISPA  measures  have 
been completed and for the four remaining measures the final date for eligibility has 
been  extended  until  31  December  20112.  Contracted  amount  at  the  end  of  2010 
equals to 95.8% of the allocated amounts.  

By the end of 2010 two contracts were in the evaluation stage (works and supply). 
Three  contracts still remained to be tendered  out. These were: one supply contract, 
one framework contract and one works contract. For the latter one there is a risk that 
its implementation will go beyond the end date of eligibility.  

Most of the ISPA projects are now entering the final stages of implementation. As a 
result attention is being focused more and more on completing the measures within 
the given deadlines and ensuring that the ISPA measure is fully functional and fully 
compliant with its objectives.  

12. 

PROJECT MONITORING 

Overall  monitoring  and  evaluation  of  the  progress  and  effectiveness  of  ISPA 
implementation  is  ensured  by  regular  meetings  in  the  EU  Delegation  offices, 
monitoring reports submitted by the implementing bodies, site visits by Commission 
staff  and  formal  monitoring  through  the  twice  yearly  ISPA  Monitoring  Committee 
meetings  held  in  Croatia,  as  well  as  the  receipt  of  annual  reports  for  each  ISPA 
project from the implementing authority.  

Two  ISPA  Monitoring  Committees  were  held  in  Croatia  in  2010;  in  June  and 
November  respectively.  Considerable  attention  was  given  to  the  delays  in 
environmental  projects.  The  extension  of  eligibility  dates  for  four  ISPA  measures 
was also thoroughly discussed in the monitoring committee.  

2 

Following  modification  of  Guidelines  on  the  Closure  of  Cohesion  Fund  and  Ex-ISPA  projects  2000-
2006  adopted  in  order  to  extend  the  final  date  of  eligibility  of  expenditure  up  to  31  December  2011, 
similar  provisions  were  made  for  the  ISPA  projects  presently  under  implementation  in  Croatia.  In 
Croatia one year extension was granted to four ISPA measures.  

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13. 

FINANCIAL MANAGEMENT AND CONTROL, INCLUDING EDIS 

The  principal  requirements  for  both  the  financial  management  and  control  and  the 
treatment  of  irregularities  are  governed  by  the  provisions  of  the  ISPA  Regulation3 
and of Annex III of the Financing Memorandum, as applicable under the regime of 
ex-ante control by the Commission. The key elements relate to the establishment of 
internal  financial  control  systems  and  procedures  that  can  ensure  transparent  and 
non-discriminatory  procurement  procedures,  the  accuracy  of  declared  expenditure, 
adequate internal audit capability, sufficient audit trail and appropriate treatment of 
irregularities. 

The EU Delegation in Zagreb continued as the main mechanism for ensuring sound 
financial management and control. The rejection rate for ISPA documents continued 
to be high which is a clear sign that still more work needs to be carried out by the 
Croatian  authorities  before  confidence  exists  of  their  ability  to  correctly  manage 
ISPA funds independently.  

DIS 

The requirement for the DIS (Decentralised Implementation System) accreditation of 
the implementing agency in Croatia, the CFCA, follows the provision of Article 164 
of the Financial Regulation4. DIS accreditation was awarded by the Commission on 
13th February 2006.  

EDIS 

Since ISPA ended in 2006 with the introduction of the Instrument for Pre Accession 
(IPA)  the  purpose  of  moving  ISPA  to  EDIS  (using  the  Extended  Decentralised 
management  Implementation  System  –  EDIS  with  only  ex-post  control  by  the 
Commission)  has  become  superfluous.  Recent  efforts  by  the  Croatian  authorities 
have  therefore  been  concentrated  on  preparing  the  IPA  structures  for  the  move  to 
decentralised  management  without  ex-ante  controls  as  these  structures  will  stay  in 
place  after  accession.  In  the  meantime  the  EU  Delegation  in  Croatia  continues  to 
perform its important role in supervising the daily management, implementation and 
monitoring of the ISPA measures.  

14. 

RISK ASSESSMENT 

The  audit  strategy  planned  for  2010  was  based  on  the  results  of  an  analysis  of  the 
state of ISPA implementation and the related objectives of the Audit Directorate of 
Directorate  General  for  Regional  Policy.  The  audit  strategy  sets  out  the  objectives 
which  are  defined  by  the  senior  management  of  Directorate  General  for  Regional 
Policy.  These  objectives  are  defined  on  the  basis  of  detailed  discussions  with  the 
operational  directorates  during  which  information  on  potential  risk  is  shared.  The 
audit strategy then sets out the actions to achieve the objectives, taking account of the 

3 

4 

Council  Regulation  (EC)  No  1267/1999  of  21  June  1999  establishing  an  Instrument  for  Structural 
Policies for Pre-accession [OJ L 161, 26.6.1999, p. 73]. 
Provision, however, deleted as of 1 May 2007 by Regulation (EC, Euratom) No 1995/2006 [OJ L 390, 
30.12.2006, p. 1]. 

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risks identified. In general, risk is minimized by implementing this strategy. Audit of 
ISPA was carried out in Croatia in 2010.  

The  audit  unit  of  DG  REGIO  carried  out  in  March  2010  audit  for  ISPA  measure 
Vinkovci to Tovarnik to State Border Railway Rehabilitation. The audit covered the 
implementing  agency  (CFCA),  the  final  beneficiary  (Croatian  Railways)  and  the 
national authorising officer for the selected measure. The findings of this audit refer 
to  1)  the  delays  in  implementation  of  signalling  contract,  2)  delays  between  tender 
evaluation meetings and contract signature in three contracts, 3) and maintained high 
rejection rate by the EU Delegation within ex-ante controls. 

Under  the  system  of  ex-ante  approval,  priority  is  given  to  ensuring  that  sufficient 
control procedures are put in place regarding project implementation and payments. 
However, the  management of pre-accession  funds carries an inherent risk since the 
funds  are  delivered  by  a  variety  of  organisations  and  systems.  Eligibility  of 
expenditure is determined by compliance with rules and conditions fixed at EU and 
national level which can lead to complexity and risk of misinterpretation.  

15. 

EUROPEAN COURT OF AUDITORS FINDINGS 

European  Court  of  Auditors  initiated  in  spring  2010  "Performance  audit  of  pre-
accession  assistance  to  Croatia".  The  audit  covered  all  types  of  pre-accession 
instruments  including  ISPA.  The  two-week  audit  mission  to  Croatia  took  place  in 
October 2010. The audit report has not been finalised yet.5 

16. 

CO-FINANCING PARTNERS – EIB AND EBRD 

Given their expertise in project preparation and implementation, the Commission has 
maintained regular contact with these lending institutions, both at a horizontal level 
to  co-ordinate  policy  and  methodological  issues  related  to  programming  and 
implementation, and at country level. The European Investment Bank is not involved 
in any ISPA project in Croatia.  

The  European  Bank  of  Reconstruction  and  Development  is  the  only  International 
Financial Institution which is actively involved in an ISPA project in Croatia with the 
provision of a EUR 10 million loan for an environmental project approved in 2005 – 
the  Karlovac  Water  and  Wastewater  Treatment  Programme.  Representatives  of  the 
EBRD  therefore  took  part  in  both  ISPA  Monitoring  Committees  held  in  Croatia  in 
2010. 

Contribution to European Union policies 

17. 

PUBLIC PROCUREMENT 

5 

At the time of drafting this report the statement of preliminary findings has been communicated to the 
Commission services. 

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The  fulfilment  of  the  legal  requirements  for  sound,  fair  and  transparent  public 
procurement as enshrined in the PRAG rules has proved to be a major challenge in 
the  implementation  of  ISPA  projects.  Difficulties  in  complying  with  PRAG  led  to 
delays  in  the  implementation  of  ISPA  projects.  The  EU  Delegation  in  Zagreb 
continued  to  intervene  to  ensure  that  procedures  were  correctly  applied  and  errors 
rectified.  

The  ex-ante  approval  by  the  Commission,  which  governs  the  tendering  and 
contracting  of  ISPA  projects,  continues  to  be  entirely  justified  as  plans  to  move  to 
EDIS  have  now  been  dropped  (see  point  15).  Under  the  current  ex-ante  system  of 
approval and in line with the DIS decision for the conferral of management, only the 
CFCA  plays 
the  contracting  authority  responsible  for  project 
implementation,  whereas  the  Commission  endorses  each  step  of  the  procurement 
process.  It  follows  that,  although  the  Commission  is  not  a  contracting  partner,  it 
bears shared responsibility for the procedural correctness of the procurement process 
(without the Commission’s approval, contracts concluded between beneficiaries and 
contractors are not valid).  

the  role  of 

18. 

COMPETITION POLICY 

As ISPA assistance is directed primarily to cover public expenditure - or equivalent - 
concerning utility projects, this does not generally raise problems of incompatibility 
with  the  EU  rules  on  competition.  Unless  the  rules  on  public  procurement  are 
infringed,  and  provided  free  access  to  such  infrastructure  is  guaranteed  for  all 
operators meeting the necessary technical and legal conditions, such assistance does 
not confer any special advantage to specific firms.  

19. 

ENVIRONMENT POLICY 

By  providing  direct  assistance  to  priority  projects  for  the  environment,  ISPA 
contributes  to  the  implementation  of  environmental  policy  and  to  the  compliance 
with  EU  standards  in  Croatia.  Experience  gained  through  project  development  and 
implementation  enhance  administrative  capacity  in  the  environment  sector.  ISPA 
environmental  projects  and  experiences  paved  the  way  for  bigger  number  of 
environmental projects being currently financed under IPA. 

20. 

TRANSPORT POLICY  

The  transport  networks  in  Croatia,  agreed  in  accordance  with  TINA  (Transport 
Infrastructure  Needs  Assessment)  and  REBIS  (Regional  Balkans  Infrastructure 
Study) were constructed around the framework of pan-European corridors. Several of 
them run across the territory of Croatia including Corridors VII (the Danube river), X 
(Salzburg-Ljubljana-Zagreb-Beograd-Nis-Skopje-Veles-Thessaloniki, 
including 
branch Xa) as well as Corridor V, which has two branches in Croatia (Vb - Budapest, 
Zagreb  Rijeka,  and  Vc  -  Budapest,  Sarajevo,  Ploče).  These  networks  were  used  as 
the  planning  basis  for  the  national  transport  strategy  for  ISPA  purposes.  As  a 
consequence the single ISPA transport (railway) project forms part of the TINA and 
REBIS networks, i.e. it concerns the construction or rehabilitation of a section, nodal 
point or access relating to the networks. The TEN-T networks for Croatia are based 
on SEETO (South East Europe Transport Observatory) recommendations. 

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Co-ordination among pre-accession instruments 

21. 

CO-ORDINATION WITH THE IPA INSTRUMENT 

Management of ISPA measures and IPA programmes under Regional Development 
component  by  the  same  Commission  services  ensures  close  coordination  of 
activities, complementarity of supported actions and continuity of policies. 

Publicity 

22. 

PUBLICITY ACTIONS 

ISPA monitoring committee in June 2010 was held in Karlovac where investments in 
water and wastewater sector are supported by ISPA. At the margin of the committee 
press  conference  was  organised  which  was  followed  by  the  visit  on  project  site. 
Moreover,  EU  assistance  is  advertised  in  all  investment  projects  by  billboards  and 
publicity actions in media. 

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