Annexes to SEC(2009)1159 - Annex 1: Commission Staff Working document - Annex to the Annual Report of the Cohesion Fund (2008) - Main contents
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This page contains a limited version of this dossier in the EU Monitor.
| dossier | SEC(2009)1159 - Annex 1: Commission Staff Working document - Annex to the Annual Report of the Cohesion Fund (2008). |
|---|---|
| document | SEC(2009)1159  |
| date | September 15, 2009 |
The Commission approved one modification decision concerning a technical assistance project for preparation and management of the Cohesion Fund. The decision consisted in extending the eligibility end date and modifying the list of sub-projects and their cost without any modification of the project's total cost.
Delays in the progress of project implementation were mainly due to delays in the design and/or construction, and/or to cost overruns.
The Estonian authorities had some difficulties in meeting the requirements of cost-benefit analysis during the closure process of projects. Consequently, closure of environment projects took between six months and one year. In the meantime, the Estonian authorities decided to take measures to improve their compliance with cost-benefit analysis. Nevertheless, at the end of 2008, nine projects were closed and two were under the process of being closed.
3.6.2. Transport
Works on all transport projects have started on the ground. Three modification requests were submitted in 2008 in the transport sector. They concerned "Tallinn-Tartu-Võru-Luhamaa road Vaida-Aruvalla section and Puurmanni junction"; "Eastern extension of Muuga harbour", and "Jõhvi-Tartu-Valga road".
Technical assistance has helped prepare transport infrastructure projects for implementation in the 2007-2013 programming period. The use of the JASPERS facility enabled a better preparation of major projects to be submitted in future.
By the end of 2008, seven projects (including two technical assistance projects) were closed. Among the closures, one technical assistance project that did not reach its objectives was identified. The Estonian authorities agreed to correct the final payment request accordingly.
3.7. Hungary
3.7.1. Environment
In 2008, 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.
A number of projects in the solid waste sector show significant cost overruns due to the underestimation of initial budget for the rehabilitation of landfills, which were non-compliant with the European and national legislations. Most of these projects were modified and their scope reduced. The rehabilitation works which were taken out from the 2000-2006 period, will be carried out in the 2007-2013 period.
In the case of two solid waste projects (North-East Pest and North Balaton) notoriously lagging behind, the contracting rate improved significantly in 2008 (58% and 92% respectively). These projects are now on track and will be completed by the end of 2010.
Waste water projects are mostly faced with cost savings, which shall be used within the projects by the end of 2010 for financing additional elements in line with the initial project objectives. The savings within the biggest ongoing environment project – the Budapest Central Municipal Wastewater Treatment Works and Collector Systems – amount to € 63 million. Due to the financial corrections to the main contract, additional € 62 million are likely to be replaced with new elements within the framework of the current modification request.
The Győr wastewater project and two technical assistance projects (Zagyva-Tarna river basin management plan; Preparation of Ex-ISPA projects) were closed.
Closure documentation for two projects (Miskolc waste and Szeged wastewater) were submitted to the Commission in the fourth quarter of the year. Their closure procedure is ongoing.
3.7.2. Transport
The projects' implementation continued at an increased pace, due to the fact that four modification decisions were adopted by the Commission.
Cost overruns were encountered in a number of rail projects, but the necessary funds to cover overruns in the railways projects were made available from national sources at the end of 2008.
In several projects public procurement problems have led to the re-launch and review of a number of contracts. This caused 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 were closed or are in the process of being closed. Four modification requests (three rail projects; one road project) were received in the fourth quarter of the year.
3.8. Latvia
3.8.1. Environment
Closure payments for two projects were effected: "Solid waste management in Ziemeļvidzeme region" and "Technical assistance for environmental projects".
The Commission also adopted four modifying decisions for the following projects:
"Development of Water Services in Rēzekne City"; "Technical assistance for projects for water services development in Latvian municipalities"; "Development of Water Services in Daugavpils, Stage II"; "Technical assistance for the environment sector in Latvia". The modifications mainly concerned an extension of the eligibility en date; adjustment to some of the physical indicators and consequently to the description of the projects; inclusion of additional components.
3.8.2. Transport
Closure payments for three projects were effected: "Improvement of Via Baltica road from Gauja to Lilaste", "Improvements of links to Via Baltica (Airport Access Road and a related section on A10" and "E67 Via Baltica, section Ķekava – Iecava".
The Commission also adopted four modifying decisions for the following projects:
"Riga Airport: Runway extension and lightning system reconstruction"; "Modernization of the signalling system in Latvia"; "Technical Assistance for Transport Sector in Latvia"; "Technical Assistance to Ministry of Transport". As for environment projects, the modifications mainly concerned the extension of the eligibility end date; adjustments of some of the physical indicators; the inclusion of additional components.
3.9. Lithuania
3.9.1. Environment
The closure procedure for two environment projects was successfully finalised at the beginning of 2008; the closure of a third project was initiated in July 2008.
Four modifying decisions, related to the extension of the end date and adjustment of monitoring indicators, were adopted. In addition, nine modification requests were received in the last quarter of the year, of which the majority concern cost overruns and the extension of the eligibility end date.
3.9.2. Transport
Four projects were closed before 2008. In 2008, the closure procedures were initiated for two transport projects, of which one was successfully completed; the closure of the second project was finalised in January 2009.
Lithuania also submitted four modification requests for transport projects. All of them were infrastructure projects. The modifications included the extension of eligibility end dates and adjustments to the physical monitoring indicators.
3.10. Malta
3.10.1 Environment
The project "Upgrading of Sant' Antnin waste treatment facilities" aims at reducing the negative environmental impact of the waste cycle, which is of utmost importance for the Malta main island due to its very high population density.
The Commission decision was modified on 13 August 2008 with the result that a new mechanical treatment plant will be built instead of upgrading the existing one. An extension of the eligibility end date until 31 December 2010 was also included.
The project is progressing well. The material recycling facility has been completed; the acceptance certificate for the final handover was issued in May 2008.
3.10.2. Transport
The project "Restoration and upgrading of sections of TEN-T" consists in the upgrading of three lots of the TEN-T network in Malta and Gozo (St. Paul's Bay by-pass, Civil Aviation Avenue in Luqa and Mġarr Road in Għajnsielem in Gozo) in order to reduce travel time, accident rates, transport costs and facilitate competitiveness in the transport of goods.
The Commission decision was modified on 17 October 2008, covering transfer of funds between the project sections and extending the eligibility end date until 31 March 2010.
The project is physically complete. Further savings have arisen and an additional modification request to include further section(s) of the TEN-T network is awaited.
Technical Assistance
The project aims at preparing the environment projects pipeline for 2007-2013 (mechanical biological waste treatment plants and storm water master plan). The Commission decision was modified on 30 July 2008 in order to take into account the delays in the identification of potential sites for the waste treatment plant and the need to comply with obligations arising from Directive 2001/42/EC. In addition, the deadline for the eligibility of expenditure was extended until 31 December 2010.
3.11. Poland
In 2008, the Commission adopted fourteen amending decisions granting assistance from the Cohesion Fund – eight in the environment sector and six in the transport sector. In addition, the Commission adopted eight modifying decisions. The modifications mostly concerned the physical scope and/or the eligibility end date of the projects, as well as the increase of the threshold for interim payments.
A substantial number of projects will be finalised in 2010, which means that the bulk of closures can be expected in 2011. Numerous projects in both sectors indicated significant cost overruns which in total represent approximately 1/3 of the Cohesion Fund allocation for Poland.
In 2008, the Commission authorised payments amounting to € 784.6 million.
3.11.1. Environment
The level of contracting was over 100% of the originally estimated costs for environment projects, taking into account the cost overruns. The physical and financial progresses aggregated for the sector were about 55% and 50% respectively. About one third of projects reached the threshold for interim payments at the end of the year.
At the end of the year, unlike for transport projects, there were still some environment projects for which the national authorities were still seeking for appropriate solutions to finance cost overruns. Seven environment projects were subject to pending environmental impact assessments (EIA).
One closure was ongoing for an environment project.
3.11.2. Transport
The level of contracting was over 100% of the originally estimated costs for transport projects, taking into account the cost overruns. The physical and financial progress aggregated for the sector was about 57% (both physical and financial) for roads and 62% (both physical and financial) for railways. Almost half of transport projects reached the threshold for interim payments.
At the end of the year, three transport projects were still subject to pending environment impact assessments (EIA).
The closure procedures for 3 investment projects were ongoing. In the sector of transport, the national authorities managed to secure the additional financing for all projects concerned by cost overruns.
Technical assistance
One closure was ongoing and another one was initiated for technical assistance projects.
3.12. Slovakia
3.12.1. Environment
Significant progress in financial and physical implementation was recorded in the majority of environment projects. Relatively few projects remain problematic: Galanta, Samorin, Home Kysuce, and Velky Krtis water sector projects. In the case of these projects the Slovak authorities were advised to draw up action plans to monitor progress closely and identify steps to be taken to ensure their completion by the end of 2010.
Ten modification decisions were adopted (Komárno, Kosice, Humenne, Trnava, Piestany, Zvolen, Zilina WWTP, Poprad, TA Regional water companies, and TA water sector). The modifications concerned mainly the extension of eligibility end dates to take account of delays incurred in particular during the earlier procurement stage, and the adjustment of physical indicators. Cost overruns are a growing problem in a number of projects, with final beneficiaries (public water sector companies) having to fund the additional costs.
Three water sector infrastructure projects were completed in 2008 (Nitra, Považská Bystrica, and Martin) plus one technical assistance project. The quality of final reports was generally considered to be insufficient and final payments were therefore interrupted pending improvements. Weaknesses related in particular to the project descriptions, statements on achievement of project objectives, and demonstration of financial sustainability.
3.12.2. Transport
All contracting within the transport projects had already been completed in 2007 (with some minor exceptions) and physical implementation further advanced satisfactorily during 2008. As for environment, the Slovak authorities were advised to draw up an action plan for the main problematic transport project: Mengusovce-Janovce motorway, which has suffered implementation delays, cost increases and design changes.
The first transport project "Modernisation of rail track Bratislava Rača-Tmava (section Bratislava-Rača-Šenkvice)" was closed and two other projects (one road infrastructure and one for technical assistance) were submitted for closure. The road project in question relates to the Bratislava-Vienna Port Bridge.
3.13. Slovenia
3.13.1. Environment
In line with the Strategic Reference Framework for the Cohesion Fund, the main aim for 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 (a total of 12 projects in the water sector) and waste management (4 projects).
In 2008, after several years marked by delays in public procurement, the last contracts for works were successfully concluded. As many projects are set up as design and build, the actual construction lagged several months behind the date of contract signature. However, those projects which entered the construction phase steadily progressed both physically and financially.
Four projects in the water sector completed already in 2007 yet remain to be closed. Construction and/or trial operation on one further water project and one in the waste sector were finished as well. In compliance with the relevant procedures, closure of these projects is expected in 2009.
3.13.2. Transport
The national authorities have 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. It involves the country establishing itself as a maritime transit country within the European Union and market 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 involving the completion of the motorway network, upgrading, modernisation and completion of the rail network and the increase of the range of logistical services.
The Cohesion Fund co-finances six railway and two motorway projects. In early 2008 one motorway and one railway project were closed, while construction on the second motorway project was finished. After reported delays due to public procurement in previous years, railway projects (except partially one) were fully contracted and marked progress in works as well as in payments executed. The closure of remaining transport projects is expected in the beginning of 2010.
4. Monitoring, inspections, financial corrections and irregularities
4.1. Monitoring: committees and missions
4.1.1. Greece
One major technical meeting took place in June in Brussels with the managing authority of the Cohesion Fund and DG REGIO to review and monitor the progress of all projects. Three other technical meetings took place in Athens to ensure the close monitoring, indentify the critical issues, boost further the implementation and identify actions that will ensure total absorption of funds by 2010.
No monitoring missions for ongoing projects were carried out in 2008.
4.1.2. Spain
The monitoring committee met in Madrid on 24 April. In preparation for the meeting the national authorities submitted information sheets outlining the implementation situation as at 31 December 2007 in respect of all the decisions (single projects or groups of projects) still ongoing. From these information sheets the managing authority, in partnership with the Commission services, selected 50 projects which, by virtue of their particular situation, were subject to specific monitoring and analysis by the Committee during its sessions. At the meeting the Commission services highlighted three points:
- It was underlined that, although some flexibility was introduced in the revised guidelines on the amendment of Cohesion Fund projects, there was no automatic entitlement to further modifications; requests still have to meet the conditions laid down in the guidelines; the eligibility end date of 31 December 2010 was also confirmed.
- The Guidelines on the Closure of Cohesion Fund Projects were adopted by the Commission on 4 April. The Commission services invited the Spanish authorities to organise a seminar on this question, which was subsequently held in Madrid in October.
- The third point concerned the recurring problem of the recovery of VAT amounts concerned by the Court of Justice judgment of 16 October 2005. The Commission services urged the Spanish authorities to effect these recoveries without delay, even if this means leaving open the cases affected by tax inspections or legal appeals.
Finally, the Commission services mentioned Commission Regulation (EC) No 621/2004 of 1 April 2004 concerning publicity measures. They pointed out the obligation to take effective information and publicity measures so as to increase the visibility of Cohesion Fund projects and raise public awareness on the role the European Union is playing through its Cohesion policy.
Technical and follow-up missions
On 28 November a technical meeting was held in Madrid between the managing authority, the certifying authority and DG REGIO to address the problems encountered in the day-to-day management of projects and possible measures for solving them. Three main topics were discussed, namely delays in the examination of modifying requests; difficulties encountered during the closure of projects; organisation of the "information and publicity" day concerning port infrastructures.
In addition, two follow-up missions took place in 2008. The first was a visit to Pamplona on 19 February, concerning project "Actuaciones en materia de residuos urbanos en la Comunidad Foral de Navarra" (Urban waste management measures in Navarra). The object of the visit was to examine alternative waste treatment solutions to that proposed in the decision adopted in 2001, as a court decision had brought the infrastructure works to a halt.
The second, on 20 May, was a visit to project "Actuaciones de Suministro de Agua y Abastecimiento a poblaciones ubicadas en la Cuenca Hidrográfica del Río Guadiana: Comarca del Andévalo" (Water supply to populations living in the Guadiana river basin, district of Andévalo), to check how the project was progressing on the ground. The visit was decided upon as a result of the Member State having applied for a second amendment to extend the period of eligibility. The inspectors were able to obtain clarification from the project leaders on the difficulties encountered in implementing the project and to evaluate the "force majeure" arguments put forward by the project managers.
4.1.3. Portugal
The two monitoring committee meetings concentrated on the follow-up of the implementation of the projects and the solution to the problems encountered. Both meetings were held in Lisbon, on 26-27 May and on 25 November.
The May monitoring committee reviewed approximately half of the ongoing projects and those approaching closure. It also examined the prospects for implementation during the rest of the period. It was preceded by a technical meeting between the Cohesion Fund national authorities and the Commission, in order to discuss the main outstanding issues.
The November monitoring committee meeting focused on projects or types of projects with particular problems or outstanding issues, as identified by the Commission and/or the Member State. General questions were also discussed, notably the perspectives for completion of open projects or groups of projects in the two full years still available. It was also preceded by a technical meeting between the Cohesion Fund national authorities and the Commission.
During the year, several projects were visited by the Commission services in order to take note of their state of progress and, in certain cases, to discuss with the national authorities technical or legal problems which have arisen.
4.1.4. Cyprus
Technical meetings took place in June and 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 general, two Cohesion Fund monitoring committee meetings are organised each year. Due to heavy workload at the end of 2007, the second 2007 monitoring committee took place on 15-16 January 2008. Further monitoring committees took place on 24-25 June and on 9-10 December. Discussions were organised on a project-by-project basis using the monitoring sheets and giving substantial time to the national authorities, beneficiaries and the Commission to clarify any outstanding issues. Issues of general character were discussed in the Core Group meeting with the national authorities.
In the course of the year, the Czech Cohesion Fund managing authority further improved the monitoring of the implementation of projects allowing for a better overview of the progress on the ground.
4.1.6. Estonia
One monitoring committee was held in 2008 covering implementation, quality of spending, financial progress and publicity actions. Furthermore, a contract of confidence was signed on 12 February between the Commission and the national audit authority. The compliance assessment of the monitoring and control system for the Operational Programmes 2007-2013 has not been completed in 2008.
Situation regarding lags in the implementation has been followed on a constant basis. The Commission highlighted mainly the need to learn from the past and try to improve and build on existing experience for the 2007-2013 programming period. Issues relating to the Cohesion Fund under the 2007-13 period were covered in the two Monitoring Committees held in April.
4.1.7. Hungary
Four Cohesion Fund monitoring committee meetings (two for each sector – environment and transport) were held in Budapest, on 8-10 April and 29-31 October. All adopted projects were reviewed and overall presentations were provided.
The monitoring committee meetings were conducted in the form of technical discussions on a project-by-project basis, giving sufficient time to each final beneficiary to present the progress of each project.
4.1.8. Latvia
Two monitoring committees took place in Riga, on 11 April and on 7 October. The meetings were used for the monitoring and assessment of the progress in implementation as well as for discussions on any problem encountered and on horizontal issues such as financial execution, publicity, technical assistance.
During the April meeting, the impact of cost increases on projects was discussed and the Latvian authorities reported on the steps taken to combat inflation. In both meetings problematic projects were closely monitored: i.e. "Track renovation on stages of the East-West rail corridor in Latvia", "Modernisation of rail signalling systems" and "Development of the district heating supply system in Ventspils". On 10 April, the Commission representatives visited the project "Solid Waste Management in the Maliena Region" and observed planned administrative, financial and technical checks performed by the Ministry of Environment.
On 7 October, the Commission representatives visited two projects: "Modernisation of the signalling system" on the upgrading of the Latvian East-West railway corridor; and "Hazardous waste management in Latvia, Stage I" for the establishment of a national Hazardous Waste Management System.
4.1.9. Lithuania
Two monitoring committee meetings took place, on 21-23 April and 6-7 November. 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 their implementation. In addition, an ad-hoc monitoring committee meeting was held on 28-29 July to address the amendment of certain environment projects having encountered significant cost overruns.
Two technical missions took place in February for on-site visits, meetings with the final beneficiaries, discussions on the implementation and closure of projects, preparation of applications for major projects, support from JASPERS (Joint Assistance in Supporting Projects in European Regions), and foreseen publicity measures.
4.1.10. Malta
The monitoring committee meetings for all three Cohesion Fund projects were held on 23 May and 16 October. Annual progress reports were submitted for all three projects.
A monitoring mission on the project "Upgrading of Sant' Antnin waste treatment facilities" took place on 21 May.
4.1.11. Poland
Two monitoring committees were held, on 27 June and 12 December. The meetings were preceded by meeting of working groups for the environment sector and the transport sector.
The meetings were dedicated to the review of the progress in implementation of individual projects. Besides that, a number of horizontal issues were discussed, namely: payment rate and financial forecasts, cost overruns, EIA conditions, closure forecast, modifications of projects in terms of scope and timeline, delays in implementation, and compliance with the "M+24" and "M+12" rules. The review of end dates revealed that a substantial number of projects will be finalised only in 2010 which means that the bulk of closures can be expected in 2011. Numerous projects indicated substantial cost overruns which in total represent approximately 1/3 of the Cohesion Fund allocation for Poland. The sector of transport secured the additional financing for all concerned projects. In the environment sector, there was a limited number of projects for which the national authorities were still seeking for appropriate solutions. These cases were closely monitored in both monitoring committees. A special attention was paid to the monitoring of seven projects with pending EIA conditions. No projects breaching the M+24 and M+12 rules have been recorded.
No Cohesion Fund monitoring missions were carried out during the year.
4.1.12. Slovakia
Two monitoring committee meetings were held, in Bratislava (March) and Nitra (October). The monitoring committees reviewed the state of progress of all ongoing ex-ISPA and Cohesion Fund projects. Recommendations were made to improve reporting on physical indicators, identification of legal and technical problems in implementation, and on audit findings. Attention focused in particular on projects at risk of not being completed by the end of 2010, for which the Slovak authorities have now drawn up action plans.
In addition, key horizontal issues were discussed: privatization of water companies; cost overruns; closure of projects; quality of final reports; and the need to identify lessons learned from the 2000-2006 period to be applied in future major projects.
Site visits to the Kosice and Humenne water sector projects took place in April, during which the proposals for modification were discussed and progress on the ground was observed. In addition, site visits to the Komárno WWTP project was undertaken during the March monitoring committee, and to two additional projects on the occasion of the October committee: Nitra WWTP (completed project under closure procedure) and Galanta (problematic project).
The representatives of the Commission also participated in two audit missions in April (follow-up systems audit for the Cohesion Fund) and in November (retrospective verification of public procurement).
4.1.13. Slovenia
One monitoring committee meeting was held, on 25 November. It focused on the ongoing implementation of projects, delays in public procurement, cost overruns, project closure and publicity. The meeting included a detailed review of all ongoing environment and transport projects as well as a discussion on payments and payment forecasts. The Commission in particular highlighted the necessity to further accelerate the implementation of projects where substantial delays occur.
One project visit was carried out in the framework of the monitoring committee. The three visited environment projects (one in the water sector and two in the waste sector) showed satisfactory progress.
4.2. Audits and financial corrections
2008 was a year of overlap between the management of the final stage of implementation of the 2000-2006 programming period including the preparation for its closure, and the opening of the 2007-13 programming period. The management and control environment in place in 2008 was therefore meant to address both risks related to the preparation for closure of past programmes and projects and the risks of set up of management and control systems in the new programmes.
Audit work for Programming period 1994-1999 - EU 4 (Greece, Ireland, Portugal, Spain):
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 breaches of public procurement rules. Financial correction procedures resulting from the closure enquiry were concluded during 2008, except for three remaining projects (two in Spain, one in Portugal) which will be finalised in 2009.
Audit work for Programming period 2000-2006 - EU 14 (EU 10 + EU 4):
For EU-14 Member States in 2008, four audit missions were carried out which focused on the follow-up of previous audit recommendations. In addition, five missions for the review of winding-up bodies were performed in order to verify the preparation of Member States for closure and to identify and mitigate related risks.
In 2008, DG Regional Policy examined winding up declarations submitted for the closure of 2000-2006 Cohesion Fund projects, of which 60 (representing 5% of all projects) related to Spanish projects.
Other audit work for the programming period 2000-2006 included the examination of the annual control reports received under Article 12 of Regulation No. 1386/2002. By the end of 2008, the majority of reports had been analysed, and replies sent to the Member States with observations and, where necessary, requests for additional information in order to be able to draw as much assurance as possible from the results of national audit work. Furthermore, a number of national system audit reports were received in 2008.
The last of the annual bilateral coordination meetings with the Directorate General for Regional Policy for the year 2007 was held in February 2008. As 2008 was a transitional year, it was decided to reschedule the bilateral coordination meetings for 2008 to the first half of 2009. Bilateral meetings are held annually with national audit authorities to exchange information on the implementation of audit work and to discuss progress on sample checks and follow-up of audit findings. The meetings in 2009 will cover issues concerning both programming periods 2000-2006 and 2007-2013.
Impact of controls
Financial corrections
In the exercise of its supervisory role, DG Regional Policy has implemented a policy of suspending interim payments and applying financial corrections as soon as it is established that there are serious deficiencies which put at risk the reimbursements of Funds made to Member States. It also established a revised manual of procedures to streamline the internal arrangements for the adoption of suspension and correction decisions.
Where, after due verifications, the Commission finds that the expenditure certified in an interim payment application is linked to a serious irregularity and not immediate remedial action is taken by the Member State, the formal suspension of payments procedure is launched. During 2008 DG REGIO adopted for the Cohesion Fund one suspension decision concerning Bulgaria in relation to two projects in the road sector.
Financial corrections totalling € 92.7 million were made in 2008 as follow-up to audits by the Commission or the Court or Auditors or to OLAF enquiries. Of this total, € 38.2 million related to projects of the 1994-99 programming period and
€ 54.5 million to the 2000-2006 period. The corrections were either applied by formal Commission decisions (€ 66.2 million) or were accepted by the Member States without the need for a decision (€ 26.5 million).
Four financial correction decisions related to Cohesion Fund projects in the 1994-1999 programming period were adopted for an amount of € 31.5 million and nine for the 2000-2006 programming period for an amount of € 34.7 million.
Of the € 26.5 million of corrections accepted by the Member States € 6.7 million related to 1994-1999 and € 19.8 million to 2000-2006. These are implemented by deduction from payment claims or from the balance payable at closure.
Table 5 illustrates the amount of financial corrections by Member State and programming period.
Table 5: Cohesion Fund financial corrections in 2008 by period and country (in EUR)
| Member State | Cohesion Fund | TOTAL | |
| Period 2000-2006 | Period 1994-1999 | ||
| Greece | 23,405,436 | 5,674,477 | 29,079,913 |
| Spain | 19,927,164 | 32,483,151 | 52,410,315 |
| Ireland | - | - | - |
| Portugal | 11,062,188 | - | 11,062,188 |
| EU 4 | 63,259,764 | 38,157,628 | 92,552,416 |
| Cyprus | - | - | - |
| Czech Republic | - | - | - |
| Estonia | 125,073 | - | 125,073 |
| Hungary | - | - | - |
| Latvia | - | - | - |
| Lithuania | 65,833 | - | 65,833 |
| Malta | - | - | - |
| Poland | 123 | - | 123 |
| Slovenia | - | - | - |
| Slovakia | - | - | - |
| EU 10 | 191,029 | - | 191,029 |
| Bulgaria | 6,156 | - | 6,156 |
| Romania | - | - | - |
| EU 2 | 6,156 | - | 6,156 |
| TOTAL | 54,591,973 | 38,157,628 | 92,749,601 |
.
Management and Control systems
In the Directorate General's Annual Activity Report for 2008, for the functioning of the management and control systems (2000-2006), an unqualified opinion, signifying that there are no material deficiencies in key elements of the system, was given for the Cohesion Fund systems in seven Member States (Cyprus, Estonia, Hungary – transport sector, Latvia, Malta, Portugal and Slovenia) corresponding to 15.45% of payments made in 2008 as a proportion of total payments for the Cohesion Fund.
For ten Member States, representing 84.55% of CF payments made in 2008, the opinion was qualified, signifying the existence of material deficiencies in key system elements. This concerned Bulgaria, the Czech Republic, Greece, Hungary (environment sector), Ireland, Lithuania, Poland, Romania, Slovakia and Spain. In all cases the impact of the deficiencies was judged to be moderate, except for the road sector in Bulgaria.
For the road sector in Bulgaria the opinion was qualified with the impact of the material deficiencies affecting key elements of the system being judged significant. Accordingly, a reservation was made for the road sector in Bulgaria in the Directorate General's Annual Activity report for 2008. The Commission suspended payments to the Bulgarian road sector projects between July 2008 and May 2009 for this reason.
4.2.1. Greece
In 2008, DG Regional Policy carried out two audit missions for the Cohesion Fund in Greece. For both audits a qualified opinion was given with possible financial implications after the contradictory procedure. As concerns audit work from previous years, three open audit missions carried out in 2007 were closed in 2008 or early 2009 without financial corrections. Fourteen winding up declarations for projects' closure were examined in 2008.
In 2008, one important financial correction decision was taken relating to systemic irregularities in the public procurement procedure for both closed projects and projects under implementation.
In the Annual Activity Report of 2008 a qualified opinion with moderate impact and no reservation was given to the Cohesion Fund in Greece as each project is audited by the national authorities (EDEL) at least once before closure and as the Commission examines the winding-up declarations before the closure of projects on an individual basis and any irregular expenditure can be identified and deducted at closure of each project.
4.2.2. Spain
No audits on Cohesion Fund were carried out by the Commission in Spain in 2008. As to the follow-up of previous missions, DG Regional Policy concluded the financial correction procedures for eleven projects during the year 2008 with a total corrected amount of € 52.4 million.
60 winding-up declarations for the closure of Spanish projects were analysed during the year and, as a result, irregular expenditure declared to the Commission were detected, mainly related to public procurement procedures and certain VAT eligibility issues.
In the Directorate General's Annual Activity Report for 2008 for the functioning of the management and control systems (2000-2006), a qualified opinion with moderate impact was given for the Cohesion Fund in Spain as a result of material deficiencies affecting key elements of the systems. However, no reservation was proposed as the Directorate General concluded that it obtains reasonable assurance for payments and the financial risk to the Community budget is mitigated by the fact that the winding-up declarations are assessed before the closure of projects on an individual basis and any irregular expenditure can therefore be identified and deducted at closure of each project. Also, the maximum interim payments prior to closure are capped at 80% of the Community contribution.
4.2.3. Portugal
In 2008, no missions were carried out by DG Regional Policy in Portugal as regards Cohesion Fund. However, the European Court of Auditors audited one project in Portugal in the context of their DAS 2007 enquiry, with findings on public procurement issues.
As to the follow-up of previous missions, DG Regional Policy concluded the financial correction procedures for six projects and launched new financial correction procedures for two other projects in 2008. The financial corrections concluded for the six projects amounted to € 10 212 814, of which only € 720 731 was enforced through a Commission Decision and the remaining corrections were accepted and executed by the Portuguese authorities themselves. The audits done by DG Regional Policy in regard to five other projects were closed without financial corrections.
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 risks in respect of public procurement were mitigated as the national authorities implemented new control procedures following an action plan carried out in 2005. On the basis of that enquiry, together with the conclusions drawn from Commission audits and the analysis of national audit strategy, DG Regional Policy signed on 22 January 2008 a contract of confidence with "Inspecção-Geral de Finanças" (Portuguese winding-up body and audit authority) covering the Cohesion Fund and ERDF.
In 2008, DG Regional Policy analysed nine winding-up declarations for closure of Portuguese Cohesion Fund projects.
In the Directorate General's Annual Activity Report for 2008, for the functioning of the management and control systems (2000-2006), an unqualified opinion was given for the Cohesion Fund in Portugal.
4.2.4. Cyprus
One audit mission was carried out by DG Regional Policy in 2008 in Cyprus reviewing the work of the winding up body for ERDF and CF. There were no outstanding issues concerning CF from previous years' audits to follow-up in 2008 and no financial corrections were carried out in 2008. No projects were closed in 2008 in Cyprus.
Based on the positive results of the review of the winding up body, of the positive conclusions from other audit missions carried out in Cyprus, as well as of the desk work carried out, a contract of confidence for ERDF and Cohesion Fund was signed between the Commission and the Cypriot Internal Audit Service (as the audit body in Cyprus) on 17 December.
In accordance with the above there was an unqualified opinion with no reservations for Cohesion Fund expenditure in Cyprus in the Directorate General's 2008 Annual Activity Report.
4.2.5. Czech Republic
In 2008 in the context of the Action Plan to strengthen the Commission supervisory role in the management of structural actions, the Commission services requested the Czech authorities to carry out an exercise of retrospective verifications of Cohesion Fund projects with the aim to determining the extent and potential systemic character of previously detected audit findings in the area of public procurement. The final report on this exercise was due in January 2009.
The Commission services carried out two audit missions for Cohesion Fund in the Czech Republic in 2008. The Commission services also closed one previous audit by opening a financial correction procedure for infringement of public procurement rules concerning a railway project. Eight winding-up declarations for closure of Czech projects were examined in 2008 by DG Regional Policy and as a result one financial correction was proposed on an environment project before closure.
In the Directorate General's Annual Activity Report for 2008, for the functioning of the management and control systems (2000-2006), an unqualified opinion was given for the Czech Republic as the winding-up declarations are assessed before the closure of projects on an individual basis and any irregular expenditure can therefore be identified and deducted at closure of each project.
4.2.6. Estonia
On the basis of audit work carried out in 2006 and 2007, a contract of confidence was signed in 2007 between the DG Regional Policy and Estonia covering the Cohesion Fund and ERDF.
No missions were carried out in Estonia in 2008. However, some follow-up work on an audit mission carried out in 2006 was done resulting in closure of all findings without financial correction. Additionally four winding-up declarations were examined in the context of closure of Estonian projects.
In accordance with the above there was an unqualified opinion with no reservations for Cohesion Fund expenditure in Estonia in the Directorate General's 2008 Annual Activity Report.
4.2.7. Hungary
The Directorate General's 2008 Annual Activity Report for the Cohesion Fund in Hungary contained an unqualified opinion for the transport sector and a qualified opinion for the environmental sector. The latter qualified opinion was linked to a reservation originating from a significant public procurement-related finding2 identified during the project audit of the Budapest Wastewater Treatment Plant in November 2007.
Considering financial impact of irregular procurement procedure, one audit mission was carried out by DG Regional policy in 2008 as an extension to audit work executed in 2007. Based on the work performed, it was concluded that the management and control systems function effectively, and that they are in compliance with Community legislation, in particular, with EU and national public procurement rules. A second audit mission carried out in Hungary in 2008 by DG Regional Policy focused on the review of the work performed by the winding-up body in the context of ERDF programmes and CF projects closure.
Three winding-up declarations related to closure of Cohesion Fund Technical Assistance projects, were examined in the course of 2008.
4.2.8. Latvia
DG Regional Policy did not carry out any Cohesion Fund audit missions in Latvia in 2008. However, findings from previous missions were followed up and during 2008 the Latvian authorities took corrective action, in particular in the field of public procurement procedures by issuing new guidelines and reviewing and correcting all non-compliant supplementary contracts.
One financial correction procedure was launched by the DG Regional Policy in 2008 for the project "Solid Waste Management in the Region of South-Latgale" due to irregularities detected in public procurement procedures.
The case by case assessment of closure declarations by DG Regional Policy and the actions undertaken by the Latvian Authorities to address the risks identified in the Cohesion Fund management and control systems were considered to provide adequate assurance that all irregularities will be detected and corrected before closure of projects. Accordingly, there was an unqualified opinion with no reservations for the Cohesion Fund in Latvia in the Directorate General's 2008 Annual Activity Report.
4.2.9. Lithuania
DG Regional Policy carried out one audit mission in Lithuania in 2008 on Cohesion Fund projects. The main findings related to cost increases, tendering issues and the IT monitoring system. DG Regional Policy and the Lithuanian winding-up body (NAO) are supervising closely the follow up of these issues.
All Cohesion Fund audits from previous years are closed, with one financial correction procedure of € 0.7 million launched in 2008 relating to public procurement issues. In addition, one complaint on a public procurement procedure concerning Lithuania was handled by DG Internal Market in 2008 concluding that the public procurement procedure in question was irregular. As the project linked to the contract in question was co-financed by the Cohesion fund, the follow-up of this case, including possible financial corrections, will be done by DG Regional Policy.
Three winding-up declarations in the context of closure process of Lithuanian Cohesion Fund projects, were examined by DG Regional Policy in 2008.
In the Directorate General's 2008 Annual Activity Report a qualified opinion with moderate impact was given for the Cohesion Fund in Lithuania on the basis of the above material deficiencies affecting key elements of the systems in Lithuania. No reservation was proposed, as the DG is able to exercise a close management of each CF project and check in detail the risk areas at closure, and because the maximum interim payments prior to closure are capped at 80% of the Community contribution for CF projects.
4.2.10. Malta
No audit missions or financial correction procedures for Cohesion Fund were carried out in 2008 for Malta by DG Regional policy. One previous audit mission carried out in 2007 did not give rise to any significant findings.
Accordingly, there was an unqualified opinion with no reservations for the Cohesion Fund in Malta in the Directorate General's 2008 Annual Activity Report.
4.2.11. Poland
In 2007 and 2008 the Polish authorities undertook to implement a remedial action plan to ensure that all bodies in charge of carrying out public procurement checks apply financial corrections when irregularities are detected, and to revise their methodology for public procurement checks in order to ensure an adequate level of checking. The Action Plan was closed in March 2009 by DG Regional Policy.
In 2008, DG Regional Policy lifted the reservation given in its Annual Activity Report in 2007 for the Cohesion Fund in Poland as the systemic deficiencies in the area of public procurement had been identified during previous audit work and the Commission services are in a position to check during the assessment of individual winding-up declarations whether the ineligible expenditure resulting from these deficiencies have been identified and corrected by the Polish authorities.
No new audit missions were carried out by DG Regional Policy on Cohesion Fund projects in 2008. All previous systems and project audits have been closed. Most important systemic findings were followed up within the Action Plan for Poland which was closed in March 2009. The only missions remaining open are two public procurement audits with findings on discriminatory selection criteria, direct awarding of additional works/services, and modification of terms of contract after the contract award. The findings were accepted by the Polish authorities during the follow-up of the Action Plan, and the financial corrections will be finalised during 2009.
In 2008, DG Regional Policy examined five winding-up declarations for Polish projects.
4.2.12 Slovakia
Two audit missions concerning Cohesion Fund were carried out by DG Regional Policy in Slovakia in 2008: The first one was a follow-up audit to verify the implementation of previous recommendations and to audit selected projects. The second audit mission focused on verifying the quality of the retrospective review of public procurement procedures in the Cohesion Fund and ERDF projects, which was carried out by the Slovak Managing Authorities at Commission request.
In 2008, financial correction procedures were initiated for two Cohesion fund projects due to public procurement issues. One winding-up declaration and two annual control reports were examined in 2008. An annual audit coordination meeting between the Commission and the Slovak audit bodies was held in Brussels.
A qualified opinion with moderate impact was expressed on Cohesion Fund Slovakia in the Directorate General's 2008 Annual Activity Report. The main reason for the qualification was shortcomings detected in the management verifications in public procurement. The seriousness of the qualification was downgraded from 2007 and the reservation expressed in 2007 was lifted in 2008 due to the mitigating measures adopted by the Slovak authorities in 2008 (retrospective review of public procurement).
4.2.13 Slovenia
Following the positive results of audit work carried out in previous years, a contract of confidence was signed with Slovenia in February. No Cohesion Fund audit missions were carried out by DG Regional Policy in Slovenia in 2008. However, follow up work continued for previous missions resulting in the closure of one audit mission. No financial corrections procedures are ongoing or envisaged for the Cohesion Fund in Slovenia.
In 2008, other audit work included the examination of the annual control report under Article 12 of Regulation (EC) No 1386/2002 and several system audit reports from the Budget Supervision Office, and participation in the annual co-ordination of controls meeting with national audit body. Annual summary for 2008 confirmed the information available from other reports. Moreover, three winding up declarations submitted for the closure of three 2000-2006 projects were examined in 2008 with no major remarks.
Accordingly, there was an unqualified opinion with no reservations for Cohesion Fund expenditure in Slovenia in the Directorate General's 2008 Annual Activity Report.
4.3. Irregularities notified by the Member States
In 2008, the Member States communicated to the Commission, in accordance with Regulation (EC) No 1831/94, 140 notifications of irregularities involving a total affected amount of € 56,328,911 in respect of co-financed projects. Out of this amount, € 19,768,042 has been recovered, and the remaining amount is to be recovered. The Member States reporting the majority of cases are Spain, Portugal, Hungary and Greece (64, 21, 13 and 12 respectively). Spain reported more than 46% of the total of the cases and 44% of the involved amount. However, it is to be pointed out that Ireland, with three notifications relating to the 1994-1999 period, stands on the second highest level in terms of amount involved, followed by Lithuania.
The number of notifications shows an increase, with a radical decrease of the involved amount, compared to the previous year. The main types of irregularities reported are ineligible expenditure, and infringements to public procurement rules. These two typologies cover almost 75% of all cases reported. However, the Lithuanian authorities reported two cases of "suspended fraud". The involved amount concerning both cases is yet to be calculated.
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 for cost-benefit analysis. The guide, first published in 2003, was updated in 2008 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.
In 2008, the Commission continued to assist Member States through actions of capacity building aiming to improve the consistency of the ex-ante financial and economic analysis of the projects. As a result, the Guide rapidly achieved a wider circulation, both within civil servants in Member States and candidate countries as well as within the staff of financial institutions and consultants involved in the preparation and evaluation of major projects. A printed version of the Guide was therefore published, providing methodological guidance to project promoters in the Member States and candidate countries, while serving as a reference to Commission officials involved in the appraisal of major projects.
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 will be launched in the last quarter of 2009 and will look at a sample of both Cohesion Fund and ISPA projects implemented during the 2000-2006 period.
6. Information and publicity
6.1. Information to/from the Member States
As indicated in the annual report for 2007, 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 ERDF and Cohesion Fund, some issues of specific interest for the Cohesion Fund were presented or discussed during the following meetings of the COCOF:
February: Revised Guidelines for the amendment of Cohesion Fund projects 2000-2006.
April: Guidelines on the closure of Cohesion Fund and Ex-ISPA projects 2000-2006, which were adopted by the Commission on 4 April (No (SEC(2008)415).
6.2. Commission measures on publicity and information
As regards the Commission measures on information and publicity, the focus in 2008 was on implementation of the publicity requirements for the 2007-2013 period. One of the biggest challenges was the examination of compatibility of the communication plans, as requested by Commission Regulation (EC No 1828/2006. Out of the 272 communication plans submitted to the Commission by managing authorities (communication plans could cover one or more Operational Programmes, and thus cover Cohesion Fund jointly with other funds), 212 were deemed compliant in 2008 (78%).
INFORM - a network of communication officers responsible for implementation of the information and publicity rules for ERDF and Cohesion Fund met for the first time in June. The second meeting took place in November. At each meeting around 130 communication officers exchanged experience and views on the practical aspects of their work. Both meetings provided opportunity for enhanced cooperation with Commission Representations, Europe Direct network, as well as with DG Employment, Social Affairs and Equal Opportunities.
DG Regional Policy published a "Review of EU Cohesion Policy Communication Plans 2007-2013 - Activities of national and regional managing authorities in the field of communication", which was carried out in the second half of 2008. The review, materials from the INFORM meetings, as well as various information and publicity tools prepared for both Cohesion Fund and ERDF, are available at a dedicated website3.
1Treaty establishing the European Community, Article 104 on excessive government deficits.
2A financial correction of 25% on the contract concerned was accepted by the Member State in 2009.
3http://ec.europa.eu/regional_policy/country/commu/index_en.cfm?nmenu=1
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