1

AN INTRODUCATION TO EU-FINANCED PROGRAMMES IN THE CZECH REPUBLIC

Delegation of the European

Commission to the Czech Republic

February 2002

1 EUR = CZK 32

1

INDEX

Foreword / page 2
Three conditions for EU membership / page 3
What is Phare / page 4
What is ISPA / page 5
What is SAPARD / page 6
EU finance for Central Europe Candidate Countries / page 7
EU finance for the Czech Republic / page 8
Types of Phare Programmes / page 9
Types of Phare Projects / page 10
Sectors allocated EU funding in the Czech Republic / page 11
How the money is spent / page 12
Grant and Loan Schemes / page 13
Management of EU programmes / page 14
Procurement / page 15
For more information / page 16

Foreword

In 1989, the Czech Republic emerged from forty years of communist dictatorship and began to forge for itself a new destiny in Europe. For more than ten years, the Phare programme has been extending a helping hand to the Czech Republic along that road.

In 1996, the Czech Republic embarked on a bold project: it submitted its application to join the European Union. EU membership requires the adoption and implementation of legislation relating to many aspects of daily life. This means changes to the state and the economy, which are all the more profound since the country has had to simultaneously re-establish democracy and a market economy.

The Phare programme has financed cooperation between the Czech Republic and the EU in this remarkable undertaking, thereby helping the country in its preparations for membership. For more than ten years, Phare has provided advice, training, equipment and direct investment in nearly every area of the economy and society. The grand total of EU funds provided to the Czech Republic should top the € 1 billion mark by the end of this year.

Since the year 2000, EU annual funds have more than doubled in value, with the addition of the ISPA and SAPARD programmes for transport, environment, agriculture and rural development. Phare, ISPA and SAPARD have a dual purpose: to ensure the Czech Republic’s speedy accession to the EU and to best prepare it to reap the benefits of EU membership. Although the objectives of the programmes may be clear, the way PHARE, ISPA and SAPARD work is not always simple. This brochure is intended to help you understand the programmes and enable you to take advantage of them.

Ramiro Cibrián

Head of Delegation

European Commission

Prague

The conditions for EU membership

In order for a country to join the European Union, it must fulfil certain conditions. These conditions are laid down in the conclusions of the European Council meeting of 1993 in Copenhagen. Countries that would want to join the European Union must possess:

  • stability of institutions guaranteeing democracy, the rule of law, human rights and respect for and protection of minorities;
  • the existence of a functioning market economy as well as the capacity to cope with competitive pressure and market forces within the Union;
  • the ability to take on the obligations of membership, including adherence to the aims of political, economic and monetary union;

In addition to these three formal criteria, countries that would want to join the EU should also have in place the conditions for their integration through the adjustment of their administrative structures, so that European legislation is implemented effectively through appropriate administrative and judicial structures. This last criterion is sometimes referred to as the Madrid criterion, named after the European Council that took place there in 1995.

All projects receiving EU support are aimed at helping the candidate countries to meet the above conditions, and to ensure that the candidate countries are integrated as smoothly and as quickly as possible into the European Union after accession, so that membership will be a success for all.

In 1996, the Czech Republic submitted its formal request for EU Membership. The following year, the Commission published its Opinion on the Application of the Czech Republic for membership of the European Union, which concluded that, given further work, the country could meet all the criteria for membership of the EU within 5 years. This assessment was endorsed by the Council, and negotiations for membership began in April 1998. At the same time, and in order to guide the pre-accession process, the Commission published the Accession Partnership, which summarises the main priorities to be addressed by the Czech Republic if it is to fulfil the membership conditions. Regular Reports updating the 1997 Opinion were published in 1998, 1999, 2000 and 2001, and the Accession Partnership has also been updated in 1999 and 2001.

What is Phare?

The Phare programme is the main channel for the European Union's financial and technical assistance to help the countries of Central Europe prepare for accession to the EU. Set up in 1989 to support reform in Poland and Hungary, today the Phare programme has been extended to include the 10 countries in Central and Eastern Europe, which have applied to join the European Union, including the Czech Republic. Initially designed to help these countries in their transition towards democracy and a market economy, Phare's role has gradually evolved. Since the mid-1990’s, Phare has been focused on supporting the ten applicant countries in their preparations for accession to the EU. The European Commission, which is the executive body of the European Union, is responsible for Phare funds, in co-operation with the recipient governments.

The Phare budget for the period 1989 to 2001 was over €15 billion (CZK 480 billion). To date, €841 million (CZK 26.9 billion) of Phare funds have been allocated for spending directly in the Czech Republic. In addition to these national programmes, the Czech Republic also benefits from multi-beneficiary programmes that are open to all Central European countries. The total allocation to date for the multi-beneficiary programmes has been €2.6 billion (CZK 83.2 billion). All Phare funds are given as grants, not loans. In some cases the recipient of the grant may decide to use the Phare money to lend to companies or other organisations, but in no case are the Phare grants required to be paid back to the European Union, provided that they were used for the purpose for which they were intended. Projects are implemented by qualified companies selected by a tender process, or by specialised governmental or non-governmental institutions.

Each year, the European Commission agrees with the Czech government on a Phare programme that fits within the budgetary limits and focuses on the agreed priorities in the Accession Partnership. Once the Commission and the EU Member States have given their approval for the programme, the responsibility for management is transferred to the Czech government, which has three years to prepare, manage and complete all projects in the programmes. Any money not used by the deadline flows back to the EU budget.

What is ISPA?

The Instrument for Structural Policies for Pre-Accession (ISPA) programme was launched in the year 2000 to provide finance for large-scale transport and environmental infrastructure projects in the period 2000 to 2006. Projects should help the candidate countries meet EU standards in the environment sector and develop the high-quality transport links necessary for economic development and the free movement of people and goods within the enlarged European Union. The objectives of the programme are similar to those of the Cohesion Fund, which finances similar projects within the European Union.

From the ISPA 2000 and 2001 budgets a total of 137 MEUR (CZK 4.4 billion) has been allocated for 10 large construction projects in the Czech Republic, 5 each in the sectors of transport and the environment. Although the allocation between these sectors should ideally be 50/50, to date transport projects have accounted for 60% of the allocation while the environment has taken the remaining 40%.

ISPA finances up to a maximum of 75% of eligible project costs, with the remainder being covered by Czech national sources, or an International Financial Institution (IFI), such as the European Bank for Reconstruction and Development. To date, however, no IFIs have co-financed ISPA projects in the Czech Republic.

No ISPA projects have yet commenced. Those receiving funds under the 2000 budget are at present out to tender, and implementation should commence in the second half of 2002.

The day-to-day management of the programme is at present the same as that for Phare. However, it is anticipated that by early 2003 it should be completely administered by the Czech Republic (as is the case with SAPARD, and will be the case with EU funds available to the Candidate Countries after accession) without the involvement of the European Commission. In this case, the Commission will conduct an audit after the funds have been spent, in order to check that everything is in order. If there are any irregularities, money may have to be returned to the Commission, just as in the Member States.

Further information on ISPA can be found at

  • DG Regio:
  • DG Regio:
  • Ministry of Finance:
  • Ministry of Transport:
  • Ministry of Environment:

What is SAPARD?

The Special Accession Programme for Agriculture and Rural Development (SAPARD) is another new programme available for the first time in 2000, which should provide investment in the agricultural and rural development sectors to help the ten Central European candidate countries adapt to the European Union’s Common Agricultural Policy and Structural Funds. SAPARD measures are very similar to the measures financed by European Agricultural Guidance and Guarantee Fund (EAGGF). The main areas of investment were set out in the Agriculture and Rural Development Plan of the Czech Republic for the period 2000-2006, which was approved by the European Commission in October 2000:

  • Agriculture

-Investments in agricultural holdings

-Improvement of the processing and marketing the agricultural and fishery products

-Improvement of the structures for quality control and for consumer protection

-Land improvement and re-parcelling

-Agricultural production methods designed to protect the environment and maintain the countryside

  • Rural development

-Renovation and development of villages and rural infrastructure

-Development and diversification of economic activities

-Improvement of vocational training

-Technical assistance

The SAPARD Programme should be operated on a completely decentralised basis. The Czech Republic will therefore be responsible for the administration of the Programme just as the Member States and Structural Funds. This means that individual projects do not have to be approved by the European Commission before their implementation. A SAPARD Agency has been set up by the Czech Government to manage the funds. This agency has to be accredited at the national level by the Ministry of Finance and then by the European Commission to show that the administration of the SAPARD Programme is in compliance with the necessary criteria, and that it has the staff and systems in place to ensure that the money will be spent correctly. The agency has already received the confirmation on the national accreditation and the decision on the conferral of management from the Commission to the SAPARD Agency will take place by April 2002.

Once accreditation has taken place, the SAPARD Programme should be launched in the Czech Republic as a grant scheme. Applications will be invited from individual farmers and eligible organisations and the best applications that conform to the criteria will receive funding. The SAPARD Agency will be responsible for ensuring that the funds are distributed properly. The European Commission will conduct an audit after the funds have been spent, in order to check that everything is in order. If there are any irregularities, the Commission may block the payments, some corrections may be applied or even money may have to be returned to the Commission, just as in the Member States. Further information on SAPARD can be found at:

  • DG Agri:
  • Ministry of Agriculture: dotace a programy

EU finance for Central & Eastern European Candidate Countries

The annual financial allocations planned for the period 2000 to 2006 inclusive are indicated below. These allocations are in 1999 prices, and should be revised in line with inflation.

Phare / €1.56 billion per year (CZK 49.9 bn)

The Phare programme provides finance to help the ten Central European candidate countries meet the conditions for membership of the European Union. Phare also invests in Economic and Social Cohesion projects, which are intended to improve the standard of living in the poorest regions. After accession, this role will be taken over by the European Regional Development Fund (ERDF) and the European Social Fund (ESF).

ISPA / €1.04 billion per year (CZK 33.3 bn)

This programme invests in transport and environmental infrastructure in the ten Central European candidate countries. After accession, this role will be taken over by the Cohesion Fund.

SAPARD / €0.52 billion per year (CZK 16.6 bn)

This programme provides investment in agriculture and rural development in the ten Central European candidate countries. After accession, this role will be taken over by the European Agricultural Guidance and Guarantee Fund (EAGGF).

European Community programmes

As part of the preparation for membership, the ten Central European candidate countries have been invited to participate in European Community programmes that finance projects within the Member States. These include, among others, programmes providing grants for students and educational projects, such as Leonardo da Vinci, Socrates and Youth for Europe; the Research and Development programme; the Small and Medium Sized Enterprise programme; and SAVE, the programme promoting energy saving. Candidate countries participate in these programmes on the same terms as the existing Member States - this means also that they must pay a contribution towards the cost, but the Phare programme helps to finance this contribution.

Structural Funds (after accession)

After joining the European Union, the new Member States from Central European countries will cease to benefit from Phare, ISPA and SAPARD. Instead they will have access to finance from the Structural Funds – the ERDF, ESF, Cohesion Fund and EAGGF - for the poorest regions of the Union. Since the national wealth per person in all the Central European candidate countries is well below the European Union average, all of the new Member States will be eligible for Structural Funds investment.

Total / €3.12 billion per year (CZK 99.8 bn)

EU finance for the Czech Republic

The Phare national allocation for the Czech Republic for the years 1995 to 1999 was €345m (CZK 11 bn) or an average of €69m (CZK 2.2 bn) per year. For the years 2000 to 2002 the allocation is €237m (CZK 7.6 bn) or an average of €79m (CZK 2.5 bn) per year. The total EU financing available exclusively for the Czech Republic is therefore:

1995-99 / 2000-02
Phare / €69 m per year / (CZK 2.2bn) / €79.0m per year / (CZK 2.5 bn)
ISPA / - / €57.2m - €83.2m
per year / (CZK 1.8 bn -2.7 bn)
SAPARD / - / €22.1m per year / (CZK 0.7 bn)
Total / €69m per year / (CZK 2.2 bn) / c.€171.3 m per year / (CZK 5.5 bn)

The Phare national allocation, however, does not include additional funding which is often made available. For instance, in the years 2000 and 2001, the Czech Republic received an extra 23 MEUR (CZK 0.7 billion) and 8 MEUR (CZK 0.2 billion) respectively, while in 2002 it should receive an extra 25 MEUR (CZK 0.8 billion).

Additional financing is also made available through Phare multi-beneficiary programmes.

Types of Phare Programmes

Phare programmes are either implemented nationally in one of the candidate countries, or centrally by European Commission headquarters in Brussels.

National decentralised programmesc.80%

Programmes implemented directly in the countries amount to about four-fifths of the total Phare budget.

National Phare programmes or Phare Country Operational Programmes (COPs)

These are the main instruments by which Phare helps prepare the candidate countries for membership, with projects addressing the three conditions for membership. These programmes began in 1990 for Czechoslovakia and continued after 1993 for the Czech Republic. For the period 1995-99, country operational programmes represented 50% (€35m (CZK 1.1 bn) per year) of the total Phare allocation for the Czech Republic. For the period 2000-02, this proportion will be increased to around 75% (€60m (CZK 1.9 bn) per year) of the total Phare allocation.

Phare Cross-Border Co-operation (CBC) Programmes

The CBC programme was launched in 1994 to provide financing for projects of mutual interest to candidate countries and their neighbours in the European Union. In the Czech Republic, investment has been made in the regions of the Czech Republic bordering on Germany and Austria, many in the areas of environment - for example construction of waste-water treatment plants to improve the quality of water which flows across borders - and transport - for example improving the quality of road links. For the period 1995-99, CBC programmes represented 50% (€34m (CZK 1.1 bn) per year) of the total Phare allocation for the Czech Republic. For the period 2000-02, this proportion has been reduced to around 25% (€19m (CZK 0.6 bn) per year) of the total Phare allocation. The Commission believes that the Country Operational Programmes are more urgent to help prepare the candidate countries for membership, and they should therefore take priority. The CBC programme has been extended to finance projects on the borders between candidate countries, including Czech Republic-Poland and Czech Republic-Slovakia as well as the borders with EU countries.

Multi-Beneficiary Programmesc.20%

These programmes, are designed to meet needs identified in all of the candidate countries. Some multi-beneficiary programmes establish a fund, which invites applications from all over Central and Eastern Europe and finances the best projects submitted. For example, a Fund has been set up to support non-governmental organisations. Other multi-beneficiary programmes finance advice, training, studies or construction for the benefit of several countries at once, in which case the projects are selected by the Commission in consultation with representatives of all the countries concerned. For example, advice has been financed on how to protect the Danube river basin from pollution. The Czech Republic participates in the multi-beneficiary programmes, but no precise figure can be given for amount of money received, since it is shared with other countries.