Quarterly report to the European Parliament
April to June 2006

This report is issued in accordance with Article 5 (5) of Council Regulation 2667/2000 of 5 December 2000

(as amended by Council Regulation 2415/2001 of 10 December 2001)

1

Overview & highlights of the past quarter

2 Serbia

3

UN-administered Kosovo

4

Montenegro

5

The former Yugoslav Republic of Macedonia

6

Coordination

7

Evaluation

8

Information & Communication

9

Administration

10

Key figures at a glance

Annex

List of evaluations & joint missions

Preface

The European Agency for Reconstruction manages the European Union's main assistance programmes in the Republic of Serbia (including UN-administered Kosovo), the Republic of Montenegro and the former Yugoslav Republic of Macedonia.

The Agency was established in February 2000 as the EU's main reconstruction arm in war-damaged Kosovo and later expanded to Serbia and Montenegro and the former Yugoslav Republic of Macedonia. The Agency is based in Thessaloniki, Greece. It has operational centres in Pristina, Belgrade, Podgorica and Skopje.

An independent agency of the European Union, the EAR is accountable to the Council and the European Parliament and overseen by a Governing Board composed of representatives from the 25 EU member states and the European Commission.

The European Commission funded programmes managed by the Agency are designed to support good governance, institution building and the rule of law as well the development of a market economy while investing further in critical physical infrastructure and environmental protection. They also focus on social development and the strengthening of civil society.

The purpose of these efforts is to reinforce the region's own reform processes by strengthening the central and local administration, the police, the judiciary, public finances, and state utility providers.

The Agency works within the Community Assistance for Reconstruction, Development and Stabilisation (CARDS) Programme, a wider European Union commitment which also includes Albania, Bosnia & Herzegovina and Croatia. This in turn is part of the EU’s 'Stabilisation and Association' process – a key element of the Union's policy toward the region.  

Serbia, Montenegro, UN-administered Kosovo, and the former Yugoslav Republic of Macedonia also benefit from European Commission assistance not managed by the Agency. This includes macro-financial, humanitarian, democratisation, customs and fiscal planning aid, support for higher education cooperation programmes, a CARDS Regional Programme, and support for the European Union Pillar of the UN administration in Kosovo. The region also benefits from bilateral contributions made by EU member states.

 

1                An overview & highlights of the past quarter

Agency-wide

There have been a number of developments in the region in the second quarter of 2006. On 3 May the EU suspended Stabilisation and Association Agreement (SAA) negotiations with Serbia following its failure to fully co-operate with the International Criminal Tribunal for the former Yugoslavia (ICTY) by handing over indicted Bosnian Serb war criminal Radko Mladic. On 21 May, Montenegrins voted 55.5% in favour of independence from the State Union of Serbia and Montenegro, the successor state of the Federal Republic of Yugoslavia. The last member state of the former Yugoslavia declared independence on 3 June.

Meanwhile, negotiations on the future status of Kosovo continued while the positions of both parties on the future status of the province remained far apart. These developments appear to be resulting in an increasing anti-EU sentiment among the population. There have been several statements made by Serbia’s Prime Minister Vojislav Kostunica, his cabinet and some opposition politicians critical of what they term the “EU’s policies of constant conditioning”. The government is now preparing a Plan of Action in an attempt to prove its willingness to fully co-operate with the ICTY, which it hopes will facilitate renewed negotiations on a SAA with the EU.

The former Yugoslav Republic of Macedonia entered an election campaign, marked by sporadic incidents of violence. These parliamentary elections are seen by the international community as an important test case for the democratic credentials of the Skopje government.

The European Agency for Reconstruction continued to deliver assistance. Annual Programmes for all four Agency locations were finalised, signatures are now pending signature for the financing agreements by the governments and the European Commission.

Court of Auditors

In line with practice, the Court of Auditors spent the April to June period of this year preparing preliminary findings on the Agency's 2005 accounts following their visits to the EAR earlier in the year. Following completion of the draft findings, the Court is now finalising the details of this document. The final report will be sent to the European Parliament at the end of the year.

In parallel, during this reporting period the Agency continued to address issues raised by the Court in previous reports. The 2004 report, although positive for the greater part, did still highlight areas where the Agency could improve, particularly in aspects related to evaluation and tendering.

One previous criticism focused on the Agency’s treasury management, which the Agency has now addressed. Likewise, efforts are on-going in order to improve all aspects of the procurement process including training in each of the centres on the new EC Practical Guide, on follow-up to last year’s Court of Auditors’ report, and the organising of a procurement seminar in May (one of many training sessions this year) for 45 staff members dealing with procurement across the Agency's five locations.

The European Court of Auditors is also in parallel finalising findings of a management audit of the CARDS programme, also including the Regional Programme, Albania, Bosnia & Herzegovina, and Croatia. This report will also be released officially later this year.

OLAF

Given the large amount of funds it manages on behalf of the European Commission, the Agency works together with the EU’s anti-fraud office, OLAF.

On a monthly basis updates are shared between OLAF and the EAR. The Agency on occasion passes issues on to OLAF for investigation, recognising the need for openness and in a determination to eliminate any suspicion of wrongdoing inside, or as is more often the case, outside of the Agency. In this period one case was closed and three were opened.

As a sign of this cooperation, OLAF's Philippe Ullmann, Head of Unit for Internal Investigations, attended the Agency's Governing Board meeting in May where he presented an overview of OLAF’s work covering the Agency and answered questions from the Board. He highlighted the good relations between OLAF and the Agency.

In order to further promote awareness of ethical issues, the EAR organised an anti-corruption training for its staff in May. A total of 76 staff members from all across the Agency attended the one-day training held both in Belgrade and Skopje.

Highlights

As of 26 June 2006, the Agency had managed €2.6 billion (1997-2005 funds), of which 90% had been contracted, and €2.1 billion, or 78%, paid.

Some of the highlights of the Agency’s programmes in the second quarter of 2006 include:

Serbia

In the area of support to returns and reintegration of refugees and IDPs, more than 4,750 people have benefited from a project to support the closure of collective centres, which has recently been completed. Over 62 collective centres have been closed.

Thanks to EC support to public administration reform, the Pay Law for Civil Servants and Staff Employees has been approved by the government and submitted to Parliament.

In the justice & home affairs sector, the Integrated Border Management Action Plan has been adopted by the government, and a project to implement the National Judicial Reform Strategy has commenced.

The 2004 programme Improving Preventive Health Services in Serbia officially opened in various Centres of Preventive Health all over Serbia. This is an important step towards the rehabilitation of preventive health care.

In the infrastructure & transport sector, the Serbian Inland Waterways Transport Network Master Plan, and its associated feasibility studies were presented to IFIs, the general public and the beneficiaries.

In environment, a Twinning initiative to benefit the Ministry of Agriculture’s water management directorate has started. The project aims to boost the capacity of the water directorate to safeguard and improve water quality.

The methodology for the development of a Rural Development Strategy and Rural Development Plan was designed and handed over to the Ministry of Agriculture, Forestry and Water Management.

 

As part of the 2005 economic development programme, a project was launched in April for a Development Plan to rehabilitate the middle Danube river basin. Its overall objective is to create innovative approaches to economic and social development of Serbia’s inland waterway system that will maximise employment generation opportunities along Serbia’s Inland Waterway.

In employment, the National Employment Action Plan 2006-08 has been presented and 15 grant contracts signed within the Active Labour Market Measures to assist people to find jobs.

UN-administered Kosovo

 

The Agency launched EC-funded institution building projects totalling €5.6 million to support the recently established Ministry of Justice and the Ministry of internal Affairs, as well as the Kosovo Police Service and other institutions in the justice sector. These institutions face many challenges including the recruitment of qualified personnel, passing critical pieces of legislation, while ensuring EU compatibility and strengthening their leadership in donor coordination.

A new and effective system for public investment programming has been put in place as a result of EC assistance, ensuring the better use of Kosovo’s limited budgetary resources.

The Agency launched a €1.5 million EC-funded project to further assist the Assembly of Kosovo in developing into an effective and professional legislative body. France’s Assemblée Nationale, Germany’s Bundestag, Belgium’s Chambre des Représentants and the National Assembly of Slovenia will provide expert advice and training to Kosovo’s parliament.

The Agency launched a €3.5 million EC funded project that will further strengthen the capacity of Kosovo’s institutions to prepare for the outcome of the status talks, and support the government in implementing EU-compatible reforms. Under the project, experts in EU affairs will be recruited to respond to specific requests from the Provisional Institutions of Self-Government (PISG) for short and medium-term support.

The Agency signed a €3 million grant agreement with UNMIK to support the work of the Kosovo Property Agency (KPA) to resolve agricultural and commercial property claims. The PISG, UNMIK and KPA must demonstrate to potential claimants that the work of the KPA and the courts will be swift, efficient and ethnically un-biased.

The Agency has now contracted more than €1 billion in EC assistance projects. This is a significant achievement in delivering EU assistance quickly and effectively to the region.

Montenegro

An Agency programme is helping to improve literacy and education among Roma, Ashkali and Egyptian (RAE) Internally Displaced Persons (IDPs) residing in an informal settlement in Podgorica. Kindergarten and pre-school activities are organised on a regular basis.  School kits have been provided for some 200 elementary school students, and hygiene items given to approximately 180 children living in the camps. The project enabled the participation of 84 RAE IDPs in ‘go and see’ visits, ‘go and inform’ visits, dialogue facilitation visits, and municipal working group sessions.

 

The work of the Judicial Training Centre (JTC) has been strengthened by further training of judges and court staff. As a result, a law on judicial and professional skills development has been adopted by the Parliament. Under the law, mandatory training for judges has been introduced; the JTC’s mandate was also extended to cover prosecutors, and its independence ensured by becoming a special unit of the Supreme Court.

The EU is continuing to support the Government’s efforts to improve border management, which includes the further development of the Ministry of Interior’s IT system. Enabling linkages between the central database of the Ministry in Podgorica and border crossing points will further enhance border management capacities.

As part of support for public finance reform, new IT systems have been provided to the Ministry of Finance, which should help the Ministry reduce costs and enhance its efficiency

The weak capacity of official statistics in Montenegro prompted additional actions in support of its institutional strengthening.

To support reform of the environment sector, EU funded consultants have established a project implementation unit to manage environmental infrastructure development to be funded by an EIB framework loan of up to €57 million. Feasibility studies have started on the top priority projects identified in EU-funded strategic master plans for wastewater and solid waste treatment.

Three new projects have been initiated in support of reforms in the energy sector. These include capacity building to the Energy Regulatory Agency, continued support for restructuring and preparing for privatisation of the electricity utility company, and technical assistance for establishment of an energy efficiency unit in the Ministry of Economy.

A new project has for the first time been initiated in support of labour market reform. It will comprise workforce development and improvement of official labour statistics. Different components of the project should assist modernisation of employment services and provide support for life-long and entrepreneurship learning

The former Yugoslav Republic of Macedonia

The EU launched construction works in June at the South East European University in Tetovo in order to meet the growing demand for university education from students from non-majority communities.

The country is pushing through reforms to improve the functioning of the public administration. May saw the completion of an Agency project that helped the Ministry of Finance establish an independent Public Procurement Bureau and bring public procurement practices in the country closer in line with EU standards.

The Agency launched a project in April that will contribute to the development of an effective and competition-based electronic communications market in the country, including the adoption of all the required secondary legislation and further strengthening of the regulatory bodies. This will help ensure quality and cost-effective telecommunications services.

 

A new State Phytosanitary Laboratory, established with €800,000 in EC assistance, was opened in June in Skopje. Set up in the Ministry of Agriculture, the laboratory is a key part of a comprehensive, country-wide system to ensure plant health required under legislation passed in April 2005.

In justice and home affairs, the new National Border Management Co-ordination Centre – the first facility of its kind in the Western Balkans – was opened in April in Skopje. The EU provided €1.7 million for the construction of the centre through an Agency project, as part of its wider support to the government’s border management strategy.

In the fight against crime, the Agency launched a twinning project in June through which experts from Hungary and the Netherlands will work with the country’s Ministry of Health and other state bodies to strengthen their ability to combat drugs related crime.

 

In the area of economic development, 42 executives from 18 firms received certificates in May after completing an EU-funded human resources development programme in Strategic Management, Doing Business with the EU, Marketing and Tourism Development. The 18-month project is part of a larger EU programme managed by the Agency, aimed to provide training to SMEs across the country.


2             Serbia

Overview

Contrary to the seemingly good progress made in the first quarter of 2006 with the Stabilisation and Association Agreement (SAA) negotiations, the EU called off the SAA talks on 3 May over Belgrade’s failure to arrest Bosnian Serb wartime commander Ratko Mladic, announcing readiness to resume talks as soon as Belgrade achieves full cooperation with the International Criminal Tribunal for the former Yugoslavia (ICTY) in The Hague. This caused Deputy Prime Minister Miroljub Labus to resign from office. The Minister of Agriculture, Ivana Dulic Markovic has been appointed new Deputy PM, and head of the government’s negotiating team for SAA talks with the EU. The EU Council of Ministers’ meeting in Brussels in May 2006 concluded that the EU will continue to assist Serbia on its path to full European integration despite the ICTY setback, focusing on handling the outcome of Montenegro’s independence referendum and the lack of tangible progress in the Kosovo final status talks, economic and trade assistance, and visa regime liberalisation.

The period after the suspension of SAA talks has been marked with criticism of the “EU’s policies of constant conditioning” by Prime Minister Vojislav Kostunica and some oppositions parties. To re-iterate its commitment to co-operate fully with the ICTY, the Government of Serbia has launched preparations to develop an action plan for cooperation with the ICTY. The government believes that this Action Plan should lead to a re-start of negotiations on a SAA with the EU.

The talks on Kosovo’s final status are to begin in July with a top-level meeting between Serbian and ethnic Albanian representatives. The UN Security Council and Serbian Coordination Centre for Kosovo have expressed conflicting views about the situation in the province, regarding the progress in the implementation of democratic standards and creation of a democratic and multinational society in Kosovo.

Meanwhile, following the referendum in Montenegro on 21 May, the Montenegrin parliament proclaimed independence on 3 June (see more under ‘Montenegro’). Serbia and Montenegro officially established diplomatic relations one month after the referendum. Citizens of both countries are allowed to travel from one country to another without passports or visas.

The IMF has started discussions with Serbia on the overall macroeconomic situation, commending a 40% GDP growth and employment increase in the private sector and the economic and monetary policy measures that have helped contain inflation (5.7% January–May inflation; 0% inflation in June), but also warning that Serbia’s unemployment rate of 20% is rising, which calls for a faster restructuring of loss-making public enterprises and removing of all obstacles to job creation. Serbia’s national employment plan envisages the creation of some 150,000 jobs over the next two years and is calling for more investment and continued financial and logistic support from the EU.

The current account deficit, which equals 10% of GDP, is still too high and Serbia needs to speed up structural reforms in order to boost productivity and exports.

In June, Serbia became the new regional co-chair of the Investment Compact for South East Europe, a programme designed by the Organization for Economic Cooperation and Development to improve the investment climate and encourage private sector development in the region.

The government has adopted a decree that aims to attract more foreign direct investment through financial incentives to investors that open jobs in Serbia or help attract other foreign companies to the domestic market.

Import rules and the privatisation of large public enterprises remain obstacles in Serbia’s admission talks with the World Trade Organization.

Serbia’s Finance Minister presented a €1.3 billion national investment plan, launching a final public debate that will allow local governments across Serbia to propose priorities to be funded under the plan. The plan, approved by the government, aims to improve and modernise the education and health sectors, develop environmental protection, upgrade transport infrastructure, encourage economic development and housing construction, raise citizens’ living standards, and improve public administration.

Serbia still represents Europe’s biggest refugee/IDP shelter, with 107,000 people still having refugee status.

The cumulative portfolio of funds managed by the Agency in Serbia (1998-2005) now amounts to €1.13 billion. As of 26 June 2006, 86% of these funds had been contracted, and 70% paid.

At this writing, implementation of the 2006 programme (another €142 million) is pending the signature of the Financing Agreement between the government and the European Commission.

 

 

 The European Agency for Reconstruction in Serbia (established March 2001)

 

 

at 26/06/2006

 

1998

1999

2000

2001

2002

2003

2004

2005

Total

Allocation (€m)*

*4

*7

*182

*194

168.5

220

205

152

1,132

Committed/

allocated

100% 

100%

100%

100%

100%

98%

71%

39%

86%

Paid/

allocated

 100%

100%

100%

100%

94%

75%

30%

14%

70%

 

* Not included: amount de-committed by the Agency on EC contracts and re-used. Funds allocated come from EC and other donors

Progress in the reporting period

Specific actions related to EAR projects during the second quarter of 2006 include:

Good governance & institution building, 2000–05 (€202 million)

Public administration reform (€76.2 million)

• The Administrative Inspection section of the Ministry of Public Administration and Local Self Government has been supplied with IT equipment. This equipment, together with the training provided, enhances the capacities of this section in performing inspections that are up to EU standards.
• The Pay Law for Civil Servants and Staff Employees was approved by Government and submitted to Parliament in May. Work has started on the development of a pay strategy/blueprint for the public service.
• EC assistance in the field of civil service classification/ranking has been completed. This is now awaiting approval of the Government.
• The first draft of a revised legal framework for Public Internal Financial Control and Internal Audit has been completed and is now being examined by the Ministry of Finance.
• Following the Montenegrin independence referendum, the Agency together with the European Commission is reviewing possible reallocation of funds originally planned within the State Union programme, and their integration into separate programmes for Serbia and for Montenegro. This includes several Agency projects for minority rights and refugee returns, and public administration reform and trade.
• The Agency delivered 17 vehicles worth €117,000 to the main Statistical Office and to 14 regional offices in order to ensure quicker and more efficient data collection, processing and dissemination.
• A contract has been signed with for a Twinning initiative with Germany for institutional capacity building of the Geodetic Authority (Cadastre) to manage land and real estate property information.

Justice and home affairs (€42.8 million)

• The Integrated Border Management Action Plan was adopted by the Government in June. This paves the way to a planned twinning initiative which will assist in the implementation of the Action Plan.
• The Judicial Reform Strategy has been adopted by the Parliament, ensuring broad consensus for its implementation. A two-year project to assist in implementing the strategy started in June.
• A legal database has been established containing commercial, criminal and civil legislation, as well as relevant case law for usage in the judiciary.
• New training curriculum for training of judges and prosecutors was adopted by the Judicial Training Centre (JDC) Programme Council. This is part of the effort to upgrade the existing JDC to a fully-fledged training centre in line with European standards for similar institutions.
• Delivery of IT equipment for a total value of €1.8 million to the Criminal Police Directorate has been completed.

Health (€83 million)

• A project to establish and support the National Blood Transfusion Services was completed successfully in June. The main objectives of the project included the development of a National Blood Transfusion Strategy, development of a Draft Law on Blood Transfusion, and the €650,000 construction of a completely new Blood Transfusion Centre in Nis.
• The preparation for the reform process in the state laboratories in the areas of clinical microbiology and water chemistry started within the project “Strengthening the Services of Public Health Laboratories in Serbia”, with the aim to assist in the identification and institution building of the future reference laboratories in Serbia.
• The project “Improving Preventive Health Services in Serbia” opened officially in various Centres of Preventive Health in primary health care facilities all over Serbia. This is an important step towards the rehabilitation of preventive health care.
• Vehicles (worth a total of €220,000) have been donated to 25 regional health centres, to enable them to take preventative health services to people in the remoter areas.
• The Institute for Mother and Child in Belgrade, the biggest children’s hospital in the region, is being fully rehabilitated with the help of a €2.1 million loan from the EIB. Reconstruction of the Intensive Care Unit within the Institute has recently begun. The EAR provides technical assistance to the Serbian government for the implementation of the loan.

Economic reconstruction, regeneration & reform (€807.7 million)

Infrastructure & transport (€100 million)

• The Serbian Inland Waterways Transport (IWT) Network Master Plan and its associated feasibility studies were presented to IFIs, the general public and beneficiaries in June. This comprehensive study involves a detailed analysis of the transport and cargo situation, the assessment of works required to improve, rehabilitate and develop the Inland Waterway Transport network and the inland ports, an analysis of the institutional and legal aspects and a cost-benefit analysis. It also executes an Environmental Impact Assessment for the proposed works and develops a plan for the Communication and Information System in the IWT network. In total, the study has found that over €500 million in investment is needed to bring the waterway network and ports up to standard.

Energy (€421.8 million)

• Works have started for the first of the major environmental improvement projects in thermal power stations (air filters for Kostolac A Power Plant). The contract for the ash disposal project in Nikola Tesla B Power Plant is planned to be signed shortly.
• The district heating project has started. Five cities have been selected with assistance of the Ministry of Mining and Energy, and preparatory activities for the tender are ongoing.

• The project “Construction of OH Line 400 kV Nis-Macedonian border” (from the 2006 budget) kicked off by defining technical and commercial parameters.

Environment (€34.4 million)

• A twinning initiative to boost capacity at the Ministry of Agriculture’s Water Management Directorate has started. This aims to boost the capacity of the water directorate to safeguard and improve water quality, and bring laws in line with the EU Water Framework Directive.

• The first lot of supply of waste management/cleaning equipment for eight selected municipalities has started. In total, two lots worth €1.8 million will be supplied.

• The first lot of supply of €100,000 worth of IT equipment to the Environmental Protection Agency has been delivered and relevant training commenced.

• The Hydro-meteorological Institute of Serbia and Institute for Public Health of Belgrade have received laboratory equipment for water and wastewater quality monitoring.

Economic development: enterprise (€74 million)

• To date more than 291 SME loans worth a total of €27.6 million have been disbursed through the Revolving Credit Fund since 2001, leading to the creation of over 2,500 jobs.

• The second draft of the National Innovation Strategy has been completed and consultations carried out with relevant stakeholders. Five expert working groups have been formed to help finalise the Strategy’s measures and action plan.

• The evaluation of proposals received within the Enterprise Development and Innovation Fund is finalised. The Fund has generated excellent interest and response with more than 400 applications.

• Under an EC-funded enterprise development and entrepreneurship programme, the Chief Executive of the Irish Association of SMEs visited Serbia to give a series of presentations in Nis, Valjevo, Sremska Mitrovica and Belgrade to members of the SME Council, employers’ associations, chambers of commerce and entrepreneurs on the importance of effective links between the business sector and government.

• The implementation of EC-funded EBRD Turn Around Management activities (company restructuring, increases in turnover and exports) started in 20 out of 39 new enterprises that have been selected for support under the CARDS 2005 Phase II programme.

• A campaign to promote Serbia abroad through a “gateway” programme in cooperation with the national air carrier JAT began, taking advantage of the World Cup event. The programme is assisting the Serbian Investment and Export Promotion Agency in handling clients interested in investing in Serbia.

Economic development: agriculture/rural economy (€72.4 million)

• Instruction manuals have been delivered to the Veterinary Directorate on: a) Assessment of hygiene standards in red meat slaughterhouses, poultry meat slaughterhouses and cutting plants b) Assessment on fulfillment of HACCP (hazard analysis critical control points) standards, and c) A harmonised guidance manual for veterinary meat inspectors on official controls required for products of animal origin intended for human consumption.

• A methodology for development of a Rural Development Strategy and Rural Development Plan was developed and handed over to the beneficiary Ministry of Agriculture. In addition, an assessment report on current budgeting, accounting, payment, and reporting systems and potential ways for their aligning with EU models has been delivered.

• State-of-the-art equipment worth €435,000 was delivered for veterinary and phytosanitary inspection controls and disinfection equipment for combating infectious animal diseases.

• Serbia’s initial agricultural tariff offer for WTO accession for agriculture was prepared with assistance from an Agency twinning project. Furthermore, the project supported the Ministry in developing questionnaires and methodology to implement a national farm business survey, which has now progressed to piloting, and finalisation of the draft Corporate Plan for the Ministry.

Support to municipalities and administrative decentralisation (€83 million)

• Within an exchange programme for municipalities, 29 projects were selected under the second call for proposals, and contracts were signed on 22 May. The projects aim to foster innovation and improvements in the local government sector in Serbia through exposure of Serbian municipalities to good local government practices in Europe.

• The contract for the project Support to Municipal Development in South West Serbia (Sandzak region) was signed on 20 April. The project is designed so as to ensure two goals: a) improve municipal capacity to plan and implement selected priority projects based on sustainable development plans and EU funding requirements; b) creation of inter-municipal and area-based development partnerships for sustainable socio-economic growth and to better exploit future EU funding support in South West Serbia.

• Regional Socio Economic Development Programme: The 29 projects selected under the second call for proposals were signed in June. The projects aim to: a) enhance regional development policies/strategies and institutions, and promote a collaborative culture; b) enhance local government capacity to improve the regions’ business related services and infrastructure (3) create favourable conditions for the development of entrepreneurship in all productive sectors of regional importance; and (4) develop the regions’ human capital and promotion of their socio-economic development.

• As part of the Regional Socio Economic Development Programme for Serbia, which involves setting up an institutional framework for sustainable regional development, the new Regional Development Agency (RDA) for the central Serbian districts of Šumadija and Pomoravlje has been opened in the city of Kragujevac. The RDA develops a wide range of activities in the fields of SMEs, municipalities, employment initiatives, business documentation, agriculture, infrastructure, tourism and others.
• The project An Integrated Socio-economic Development Plan based on the Rehabilitation of the Middle Danube River Basin and Inland Waterway System (IWS) of Serbia started in April. The overall objective of this project is to create innovative approaches to economic and social development related to the IWS that will maximise employment generation opportunities along Serbia’s waterways.

Returns/reintegration of refugees and IDPs (€21.5 million)


• An Agency project to support the closure of collective centres has been completed. More that 4,750 individuals have benefited from assistance through various project components to date, and over 62 collective centres have been closed with the Agency’s assistance.
• Under a project to support the Serbian Commissariat for Refuges and the Coordination Centre for Kosovo, an international conference was organised, as well as a number of training workshops for management/field staff of the beneficiary institutions in Project Cycle Management and Strategic Planning.

Social development & civil society, 1998-2005 (€52.1 million)

Employment, vocational education and training (VET) (€26.9 million)


• The government’s National Employment Action Plan for 2006–08 was presented at a press conference in June, ahead of its presentation at a national conference in July. The Agency provided expert assistance in drafting the plan.
• Capacity building for modernisation of the National Employment Service is ongoing (re-organisation, counselling, IT, train-the-trainers programmes, etc).
• Active Labour Market Measures projects have been assisted with €1 million, and 15 grant contracts were signed to fund projects to help people find work.
• As part of the VET reform programme, five policy and strategy development working groups have been set up and are now operating under the responsibility of Ministry of Education. They are: teacher training, National Qualification Framework, curricula development and social partnership.
• Rehabilitation works have been completed in 49 VET schools.
• Tender documentation for the technical design and technical design control for the €25 million EIB loan for the education sector has been finalised and published.

Civil society & media (€25.2 million)

• A call for proposals for the Media Fund was launched in June. The Fund of approximately €2.8 million will be available for grants to support local media in the area of development of high-quality media production and investigative reporting, and media education.
• Further to the call for proposals launched in October 2005, contracts with 23 NGOs were signed in June 2006 for a period of 12 months for a total amount of €1.9 million. The projects focus on the following areas: development of the legal and financial framework for civil society sector; promoting the role of civil society in environmental protection; and capacity building for local partnership projects.

Other (€20.9 million)

Integrated border management (€20.7 million)

Potential regional economic developments will lead to larger traffic flows between Serbia and its neighbours. Action is needed to improve the most critical border-crossing facilities. The former Federal Republic of Yugoslavia authorities had identified the Horgos crossing between Serbia and Hungary and the Batrovci crossing with Croatia as their first priorities. Subsequently, the Presevo crossing with the former Yugoslav Republic of Macedonia was added. The programme will upgrade facilities at these border-crossing points. The Horgos border crossing was completed and handed over to the government but some contractual issues are still under discussion. The opening date has not yet been decided by the government. Works are now in progress on the Batrovci border crossing. Similarly, for the Presevo project it is expected that the tender for the works will follow by late summer 2006. Under an earlier project to supply customs equipment, procurement was tendered, contracts were made and the deliveries to the customs administration completed in 2003. The items delivered were subsequently put to use by the customs administration, which reports having received benefits from the use of these items.

 

3             Kosovo

Overview

In June, the Special Representative of the UN Secretary-General in Kosovo (SRSG), and representatives from the Provisional Institutions of Self-Government (PISG) and the Government of Serbia signed a Protocol on Voluntary and Sustainable Return. This is the first time that these parties have signed such a document relating to returns. The Protocol acknowledges that successful return of internally displaced persons is based on: ensuring safety of returnees; returning property to the displaced and rebuilding their houses; and creating an environment that sustains returns. In addition, the PISG and UNMIK have published the revised Manual for Sustainable Returns, an operational framework to support the returns process. However, the level of returns to Kosovo in 2006 remains low: according to UNHCR, 422 people have returned so far in 2006.


Six rounds of direct talks between the Kosovo and the Serbian negotiation teams have been convened in Vienna by the UN Special Envoy Marti Ahtisaari and his deputy Albert Rohan. The meetings focused on decentralisation, economic issues, and cultural and religious heritage. Meetings between top level representatives are expected to start in late July.


On 30 June, Soren Jessen-Petersen left Kosovo after having served more than two years as SRSG. The Principal Deputy SRSG, Mr Steven Shook, has temporarily assumed the function of Acting Head of UNMIK until the appointment of a new SRSG.


The EAR has now contracted more than €1 billion in EC projects to support reconstruction and development in Kosovo. This is a significant achievement in delivering assistance quickly and effectively. Since 1999, the focus gradually moved to promoting EU compatible reforms, in line with the Stabilisation and Association process. Today the EAR is currently managing more than €150 million in to build the capacity of Kosovo’s institutions to develop EU compatible policies, enhance economic development and the rule of law, and support the further transfer of responsibilities from UNMIK to local institutions.


The €46.5 million CARDS 2006 Annual Action Programme for Kosovo to be managed by the Agency was formally approved in April following its successful appraisal by the CARDS Committee and the Agency’s Governing Board. An additional €3 million will be managed directly by the Commission. The 2006 programme focuses on building the capacity of the PISG to develop EU compatible policies and strategies, enhance economic development and the rule of law, and support the further transfer of responsibilities from UNMIK to Kosovo’s institutions, in line with the priorities of the European Partnership. Implementation of the programme will be launched by the Agency following the signing of the Financing Agreement governing the programme between UNMIK and the European Commission expected in July.

The cumulative portfolio managed by the Agency in Kosovo amounts to €1.07 billion (1998-2005 funds). As of 26 June 2006, 93% of these funds had been contracted, and 87% paid.

The European Agency for Reconstruction in Kosovo (established February 2000)

At 26/6/2006

1998

1999

2000

2001

2002

2003

2004

2005

2006

Total

Allocated (€m)*

7

115

431

144

164

62

73

77**

46.5***

1,119

Contracted/allocated

100%

100%

100%

100%

100%

88%

72%

45%

-

93%

Paid/allocated

100%

100%

100%

98%

97%

61%

52%

14%

-

 87%

* includes EC funds managed by the EAR (€1,036 million + the pending €46.5 million 2006 funds), but also funds from other sources (UNMIK, Kosovo Consolidated Budget and KFOR) and recycled ‘counterpart’ programme funds under EAR management.

** includes additional EC funds of €25 million, which were approved in December 2005.

*** Implementation of the 2006 programming pending the signature of the Financing Agreement between UNMIK and the EC.

Progress in the reporting period

Democratic stabilisation 1999-2006 (€43 million)

Minority rights & returns (€31 million)


• The EAR and the Swedish Development Co-operation Agency (Sida) have jointly restored the historical Ottoman building known as Gospodarska Kuca-Saraj in the Serbian majority village of Hoça e Madhe/Velika Hoca in the municipality of Rahovec/Orahovac. The co-funded EC-Sida project was implemented by the Swedish NGO, Cultural Heritage without Borders. Restoration work involved cleaning, refurbishing and rebuilding interior and exterior parts of the house. Works included adapting the ground floor to an exhibition space, and providing computers for social projects to be run by the local community.
• The Reconstruction and Implementation Commission was set up between UNMIK, the Council of Europe and the Ministry of Youth and Culture of Kosovo and the Serbian Orthodox Church to rehabilitate religious sites damaged or destroyed in the violence of March 2004. The Agency is currently refurbishing two buildings in the Prizren Serbian orthodox religious complex. Construction work is expected to start this autumn.
• The Agency is implementing six multi-sectoral returns projects for the return of Roma, Ashkali and Serb families to villages in the municipalities of Mitrovica, Peja/Pec, Prizren, Ferizaj/Urosevac, Obiliq/c and Istok/g. In all, over 220 families will be assisted. Housing reconstruction in four of the projects commenced in the reporting period and heads of households of the returning families have already returned to the four project sites.
• The Agency supports development initiatives in disadvantaged minority areas to improve the conditions for sustainable returns. Since its launch in 2002, over 1,300 projects have been implemented. The projects mainly focus on grant support to small businesses for start-ups and expansion, but also include the refurbishment of social, education and health infrastructure, and the strengthening of community services, including in areas where minority returns have taken place. In addition, seven Business Support Centres provide direct economic development support services to minority areas. The centres have organised 175 training sessions for over 1,500 participants in support of micro-enterprise development.

Civil society & media (€11 million)


• The Civil society project under the CARDS 2005 programme aims to strengthen the capacity of selected organisations to implement activities and contribute to policy development in areas including youth, women’s socio-economic development, minorities, environment, education, and EU / regional integration. A call for proposals will be launched August 2006.

Good governance & institution building 1999-2006 (€143 million)

Justice, Police & Integrated Border Management (€43 million)


• In May, the Agency launched a €2 million EC-funded project to support the recently established Ministry of Justice and other institutions in the justice sector to effectively perform their expanding responsibilities. The project will help draft legislation and amendments to laws and by-laws related to the structure and role of the Ministry of Justice, and provide strategic advice on the structure and coordination among judicial bodies. Support will also be provided to the Office of the Public Prosecutor, the newly established Kosovo Judicial Council and the courts. Training is an essential part: tailor-made training modules will be developed and implemented with civil servants, judges and prosecutors. Under the project, particular attention will be paid to aspects of international judicial co-operation at EU level, including with EUROJUST, magistrates in Member States, and similar judicial and prosecutorial structures in the region. The project is expected to assist Kosovo institutions in meeting the rule of law priorities of the European Partnership. The Agency will coordinate its work with the recently established joint EU Police and Justice planning team in Kosovo.
• In June the Agency launched a €1.6 million EC-funded project to providing assistance to the Ministry of Internal Affairs and the Kosovo Police Service. The project comes at a crucial period for the new Ministry, legally established in December 2005, as it takes on powers transferred from UNMIK. Training / technical support will be provided to build the institutional capacity of the Ministry and police staff in formulating policies, drafting legislation and participating in international / regional frameworks to fight organised crime, corruption and trafficking. Support for human rights, gender and minorities also play an important role.
• Also in June, the Agency launched a €1 million EC-funded project to provide comprehensive training to the Kosovo Police Service to combat trans-national crime, while facilitating legitimate movements of goods and people. The project will help set up a Border/Boundary Police Training Unit in the Kosovo Police Service Academy, thereby supporting the transfer of responsibility for border police training to the Service itself. The project will develop both general and specialist training curricula for the police academy, based on an extensive training needs assessment. Border police officers will be trained by experts in the use of modern surveillance equipment, techniques to examine documents and security tactics. This project follows another €1.5 million assistance package launched by the Agency in March to increase co-operation between the different border management agencies in Kosovo.
• The Agency has begun the building of two border crossing points and the refurbishment of another crossing point with Albania (design for works at another three crossing points at the borders with Albania and Montenegro is on-going). Additional upgrading of infrastructure at selected border/boundary posts will be undertaken under CARDS 2006. The EAR is working with the Kosovo s to ensure that EC-funded works are carried out in coordination with any complementary works and measures on the other side of Kosovo’s borders/boundaries.
• Some of the key challenges and issues facing the effective delivery of EC assistance in the rule of law sector include:
  o The new ministries and justice institutions are still in the process of reaching effective staffing levels. This complicates training and institution building activities.
  o Some crucial pieces of legislation, including the Law on Courts, the Law on Prosecutors and the Regulation for the Establishment of Kosovo Special Prosecutor's Office have not yet been signed into law by UNMIK. Such laws are essential for the continuation of EC assistance in the areas covered by the laws. The Agency continues to liaise with UNMIK and the EC to ensure the swift processing of pending laws.
  o The Ministry of Justice has established a donor steering committee. There are regular coordination events between donors and among experts active in the sector. However, further closer donor collaboration and strengthened PISG leadership in coordination activities is still required to ensure effective targeting and delivery of EU assistance.
  o Greater attention needs to be paid to ensuring the EU compatibility of new legislation in the rule of law area. The expert input of EC services is seen as essential for the appropriate leveraging of appropriate EU standards and best practice. The Agency regularly consults with the Commission on such legislative matters.

Public administration reform (€100 million)


• In June, the Agency launched a €3.5 million EC-funded project that will strengthen the capacity of Kosovo’s institutions to prepare for the outcome of the status talks, and support the government in implementing EU-compatible reforms. Under the project, experts in EU affairs will be recruited to respond to specific requests from the PISG for short and medium-term support. The capacity building assistance provides a rapid, flexible mechanism to ensure that experts are available in line with the needs, particularly with respect to implementation of the European Partnership, strengthening the rule of law, and supporting the transfer of responsibilities from UNMIK to local institutions. The two-year project is implemented by the United Nations Development Program (UNDP) office in Kosovo.
• A new and effective system for public investment programming has been put in place, ensuring the better use of budgetary resources. Previously, the public investment programme contained different elements that were not consolidated into a single public sector budget, and were not necessarily in line with government priorities. Over the past 18 months, more than 750 public officials have been trained and some 300 coaching sessions were provided. In April, senior officials from the Ministry of Economy and Finance (MEF) attended study tours in Austria and Slovakia. A comprehensive manual is being produced that will serve as a reference tool for officials involved in budgeting. This is helping officials better manage annual budgets and programmes to provide better public services, faster and at a lower cost. But challenges remain. The new system will be handed over to the MEF’s budget department when the project ends in January 2007. MEF staff point out that those trained in the new system often have to work overtime to deliver training to colleagues, while personnel changes in the ministry also hamper training efforts. Another difficulty is gathering information on donor-funded projects. It is crucial to improve capacities in this area at the Office of the Prime Minister, which is now responsible for donor coordination.
• In May the Agency launched a €1.5 million EC funded project to assist the Assembly of Kosovo. Under the project, the parliaments of four EU countries – France, Germany, Belgium, and Slovenia – will provide expert advice and training. The two-year project will build on previous assistance completed in 2005. The project will help the Assembly adapt the democratic practices and standards observed by the parliaments of EU Member States. It will also support the approximation of Kosovo’s legislation with the acquis communautaire and provide technical assistance to the Presidency and the other bodies of the Assembly, including Committees and Parliamentary Groups, and the Secretariat. EC assistance to the Assembly is coordinated with the OSCE Assembly Support Initiative and USAID.
• EC assistance is strengthening the EU visibility with Kosovo’s citizens through a number of measures in coordination with the Agency for European Integration Processes within the Office of the PM. From May, weekly EU information inserts are being published in three newspapers for a 24-week period. The inserts are in Albanian and Serbian and cover different topics each week.
• The revised Public Procurement Law was approved in May. The Agency, World Bank, and USAID in close consultation with the PISG and other stakeholders negotiated and agreed an updated law. The draft secondary legislation framework is currently undergoing a broad consultative process. On-going assistance is supporting the reform of public procurement, including the development of training materials, study visits and training in cooperation with the Kosovo Institute of Public Administration (KIPA). Some trainers within the Public Procurement Regulatory Commission have left the organisation, thereby reducing the sustainability. Training responsibilities will be transferred to KIPA under the new law.
• In June, the Agency completed a training and needs assessment of the internal audit capacity of ministries, municipalities, and independent agencies. A number of pilot audits were undertaken. The review found that capacities are generally weak and insufficient to provide efficient audit support to the PISG. Key problems include: lack of an internationally recognised certification for auditors; poor understanding of the internal audit function by senior management; inadequate independence of the internal audit function; and resistance to scrutiny and transparency at senior ministerial and management level in government administrations. The review recommended a set of measures, including a comprehensive risk analysis. Further EC assistance will be provided in internal audit under the 2006 programme.
• The Agency had considered the use of Twinning in Kosovo in the framework of the CARDS 2006 programme. However, after in-depth scrutiny, Twinning is not envisaged for this programme, given the nascent state of the majority of Kosovo’s institutions. Twinning has the potential to leverage the expertise of EU member state public bodies to help selected Kosovo institutions to develop modern and efficient administrations in line with EU standards. The use of Twinning will be re-considered under the IPA 2007 programme, given the growing maturity of the institutions, while the identification of possible future Twinning will be advanced by the Agency during 2006 in coordination with the EC Liaison Office in Pristina.

Economic and social development 1998-2006 (€702 million)

Economic strategy & enterprise development (€94 million)


• The European Fund for Southeast Europe (EFSE) is a public/private investment fund established in December 2005 that will provide financing for private sector development. The EFSE. In June the EC launched a €60 million participation in the EFSE. This participation includes the transfer of two EC-financed revolving loan facilities previously under the management of KfW in Kosovo. The EFSE will not only ensure the continuity of these schemes but also leverage private sector capital to the region. The Agency is in discussion with the Commission to decide the reallocation of EC funds made available through the winding-up of another four credit schemes. These credit schemes have successfully met their objectives to provide loans for enterprise development in Kosovo and have become redundant thanks to the successful development of the commercial banking sector in Kosovo.
• EC funds support the Kosovo Development Strategy and Plan (KDSP) a planning mechanism for advancing EU integration, agreeing policy reforms and strategy frameworks within Kosovo’s fiscal constraints, and preparing for a possible post-status donor conference. The Agency works closely with the KDSP Secretariat and other donors (World Bank, DFID and Sida). However, for the KDSP to be a successful reform programme (i) the KDSP Secretariat and the inter-ministerial steering committee need to strengthen leadership, coordination and communication with donors and other stakeholders; (ii) the Secretariat needs to review and streamline the architecture of the process, particularly to ensure coherence with the Mid-Term Expenditure Framework (MTEF), in collaboration with the Ministry of Economy and Finance; and (iii) work on the KDSP needs to be accelerated to ensure the presentation by the end of 2006 of a KDSP that is consistent with the MTEF. The Agency has launched a survey of the financial and environment sectors to input. Further studies will be launched shortly.
• The privatisation process, led by the Kosovo Trust Agency, continues to advance, supported with EC assistance. To date, some 180 enterprises been put up for tender. The assets of 143 enterprises have been handed over to new owners. Around €250 million is expected to haven been raised through privatisation, and some 6,000 jobs created. In April, a sale and purchase agreement for €30.5 million was completed between KTA and International Mineral Resources/Alferon for Feeronikeli –judged to be a potentially important mining company. IMR/Alferon will invest at least €20 million and employ at least 1,000 workers.
• The Agency signed a 12-month €3 million grant agreement with UNMIK to support the work of the Kosovo Property Agency (KPA) to resolve property claims. The courts have a significant involvement in the claims resolution process. Municipal courts have to confirm, reject or request clarification on the initial conclusion of the KPA’s Property Claims Commission on each claim. PISG, UNMIK and KPA must demonstrate to potential claimants and the donor community that the work of KPA and the courts will be swift, efficient and ethnically un-biased. KPA launched the claims intake process in April.
• The EC-funded Council of Europe mission to monitor and observe all phases of the housing and population census from the preparatory phase to the release of the final results was launched in May. Some main issues currently facing the organisation of the census include: agreeing a date for the pilot census; ensuring that the Statistics Office of Kosovo recruits and trains sufficient staff for the census; preparing an updated version of the census budget; and the involvement of minorities in census preparation activities and pilots.

Rural economy (€69 million)


• The first Kosovo-wide food safety seminar was held in Pristina as part of an Agency-managed project. The project is helping to develop a modern and effective food safety control system including the establishment and enforcement capacity of the food control agency, equipment for laboratories, and training for laboratory personnel.
• In June, the Agency launched a project to assist the Ministry of Agriculture, Forestry and Rural Development (MAFRD) to develop, implement and enforce a regulatory framework - in line with EU best practice - to underpin the Law on Agricultural Land including regulations and procedures related to: land consolidation, land leasing, building and development control, environmental protection and land taxation.
• EC assistance supporting the technical and organisational development of rural advisory and support services strategy to serve small farmers, as well as commercial and semi-commercial farmers. To date, 332 farmer’s groups have been established and are receiving on-going visits and advice from advisors.

Energy (€402 million)


• The Agency successfully completed an institution-building programme within the Ministry of Energy and Mining (MEM) and the Energy Regulatory Office (ERO). The support to MEM covered: preparation of secondary legislation; strategy development and the preparation of a strategy implementation programme 2006–08; and support for MEM’s chairing of the Kosovo Energy Community Coordination Group. As a result of this assistance, the MEM has formulated the Kosovo Energy Strategy 2005–15. The strategy has been adopted by the Government and the Assembly and will be the basis for the future development of the energy sector, in-line with the treaty on the Energy Community for South East Europe, as well as the results of the EC-funded Generation Investment Study. Assistance provided through the Agency supported the operational establishment of the ERO and the setting-up of the regulatory framework in line with the requirement of the energy treaty. A complementary phase of assistance to MEM under the CARDS 2005 programme is ongoing.
• EC assistance is helping to address revenue collection, essential for the viability of the energy utility - KEK. Some 300 hand-held automated meter reading units have been supplied resulting in a significant improvement in the accuracy of data collection and billing. KEK previously assessed that over 10% of bills were in error as a result of manual reading of meters. The project provided equipment to the newly opened cash collection offices throughout Kosovo, including the office established in the Serb enclave of Gracanica outside Pristina. This is particularly effective in rural areas where the distances customers had to travel previously to pay bills resulted in lower payment rates. Seven vehicles were provided to the disconnection and cash-collection teams. The programme included a public awareness campaign to raise customer awareness in support of KEK’s strategy. KEK figures show an improvement of 15% in collection in comparison to the same period last year.
• EC-funded technical assistance is being provided to support the establishment of the Transmission System and Market Operator (TSMO) in Kosovo. The TSMO is expected to be fully independent from KEK in July 2006, as required by the energy treaty. The TSMO is in the process of hiring staff and EC training support will be launched in September.

Environment (€66 million)


• The Agency completed a review of the publicly owned water and municipal waste utilities, as part of a wider programme of EC assistance to further strengthen the institutional, financial, operational and corporate management capacities of publicly owned utilities, and to improve revenue collection. The review identifies management, organisational and technical weaknesses, and recommends a management and technical training programme. However, there is a need for the municipalities and the Kosovo Trust Agency (which currently oversees public utilities) to resolve the future status of the utilities and the ownership of their assets.

Vocational education & training (€18 million)


• EC assistance supporting the modernisation of the VET system includes support for the development of institutions, development of curricula based on labour market analyses, development of the Occupational Classification System for Kosovo, and refurbishment and equipping of VET facilities. During the reporting period, support was provided to the Ministry of Education, Science and Technology (MEST) for the development of the legal and policy framework for VET and ’life long learning’, and the drafting of VET and adult training laws, which were subsequently passed by the Assembly of Kosovo. These laws will regulate all training activities and training providers in Kosovo.
• MEST will start working on its National Qualification Framework, which will be in line with EC rules and regulations. Starting in September 2006, the 2005 VET programme will assist this process. The Agency continues to work with the Ministry to ensure that an effective framework is approved in the coming months.

Transport (€52 million)


• The Agency is advancing preparation of the 2006 programme which aims to further build the institutional capacity of the Ministry of Transport and Communications to develop and manage Kosovo’s transport infrastructure, including through the further development of the Ministry’s Multi-modal Transport Strategy.

Other programmes


The Agency also continues to undertake actions which allows for fast project preparation, including launching feasibility studies; monitoring and evaluations of previous EU-funded assistance.

 

4                Montenegro

Overview

Following the referendum of 21 May, in which 55.5 per cent of Montenegrins voted in favour of leaving the State Union with Serbia, Montenegro has proclaimed independence and received international recognition for its new sovereign status. Negotiations with Serbia on future relations are ongoing. All EU member states have recognised Montenegrin independence and are in the process of arranging diplomatic relations with the Republic.

Overall, progress has been achieved in Montenegro in creating a stable legal framework and a sustainable macro-economic environment that is conducive to economic growth and investment. Official data indicate positive trends in the economy and the beginning of a return to growth.

Privatisation initiatives over the past two years in the telecommunications sector, the banking sector, hotel and other industries, indicate the government’s determination to push forward with economic transition although further initiatives are required on a number of social issues (such as redundancies in the public sector, social security reform, and environmental problems).

A review of the final macro-economic data for 2005 shows a positive trend. Official GDP data indicate a slow and gradual return to growth over the period 2003–05, from 2.3% in 2003 to 4.1% in 2005. This increase appears to have been linked to significant growth in credit from the banking sector to the private sector. This was partly the result of a large increase in household deposits with the banking system and partly due to the disappearance of the earlier demand for credit from the government in the face of a declining budget deficit and large privatisation revenues (the latter covering settlement of liabilities, capital repayments on foreign loans and deficit financing). Total loans provided by banks in 2005 also showed a sharp increase on the previous year, and bank credits have stimulated production in a number of key sectors, especially agriculture, manufacturing, services and trade.

The tourism sector in 2005 performed particularly well (with a 16.8% rise in the registered number of tourists over the previous year), while expansion in the financial sector (commercial bank assets increasing 56.6% year-on-year) and the value of construction works (which increased by 40%) also made significant contributions. Industrial output declined by 1.9% in comparison with the previous year, driven by a contraction in the utilities sector.

This gradual increase in economic growth coincided with a significant decline in inflation, to just under 2.0% in 2005 compared to 4.3% a year earlier (and 20.0% in 2001), as the effects of adopting the euro as a currency became ingrained and price increases associated with liberalisation and the transition to a market economy (such as the large price increases in telecom services at the end of 2004) subsided. The average net wage amounted to €213.14 in 2005 (an increase of 6.67% in real terms on the previous year, though slightly below the increase in 2003). The average number of employed persons (official data) was also higher than in 2004 while the unemployment rate, at just over 26.0%, fell slightly in comparison with the previous two years (the Employment Office has a much lower figure of 18.5%).

At the same time, the consolidated government deficit over the period 2003–05 was halved, to about 2.5% of GDP in 2005 and the public regained confidence in the banking system, as evidenced by the strong growth in deposits. Fiscal reforms, including the adoption of a centralised Treasury, further budgetary reforms and changes to the tax system, have continued.

The credit from the rejuvenated banking system has maintained a large current account deficit but this has so far been adequately financed by private inflows and without recourse to significant foreign borrowing. The current account of the balance of payments contracted severely in 2003 (from 12.6 to 7.1 % of GDP) and then exhibited a slow upward trend (to 8.6 % in 2005). Overall, the balance of payments improved significantly in 2005 with a surge in foreign direct investment that was partly offset by an increase in bank deposits abroad.

The 2005 current account deficit widened to 8.6% of GDP (or €141 million), due primarily to an increase in the trade deficit (which rose by 21.5% in comparison with the previous year to €506 million or 30.8% of GDP). This deficit is explained by robust domestic demand which was in turn fuelled by strong growth in real wages, the rise in the number of tourists and a still limited export capacity. In contrast, the balance of services, income and transfers were in surplus and achieved a total of €365 million, due to the growth in tourism and remittances from workers abroad. However, privatisation receipts contributed to the record inflow of €375 million (or 22.8% of GDP), which more than offset the current account deficit.

The Government’s ‘Economic Reform Agenda, 2005–07’ projects an increase in public investment from €60 million in 2005 to €150 million in 2006, and a reduction in the number of employees in the public sector to about 5,000. In addition, the Agenda aims to further reduce the budget deficit and public expenditure from 48.6% to 46.0% by the end of the designated period.

The cumulative portfolio managed by the Agency in Montenegro since it began operations in March 2001 amounts to €109 million (1998-2005 funds). As of 26 June 2006, 89% of these funds had been contracted, and 77% paid.

At this writing, implementation of the 2006 programme (another €18 million) is pending the signature of the Financing Agreement between the government and the European Commission.

The European Agency for Reconstruction in Montenegro (established March 2001)

At 27/03/2006

1998

1999

2000

2001

2002

2003

2004

 

2005

Total

Allocation (€m)*

*4

*8

*19

16

12

12

16.5

22.5

109

Committed/ Allocated

100%

100%

100%

100%

100%

100%

87%

58%

89%

Paid/ Allocated

100%

100%

100%

100%

98%

96%

67%

18%

77%

* Not included: amount de-committed by the Agency on EC contracts and re-used. Funds allocated come from EC and other donors

 

Progress in the reporting period

Democratic stabilisation: minority rights and refugee returns (2005: €0.7million)

The Assistance Programme for the Roma in Montenegro (€0.3 million) commenced in mid-November 2005 with the aim of contributing to the social empowerment of Roma, Ashkali and Egyptian (RAE) Internally Displaced Persons (IDPs) residing in an informal settlement in Podgorica through the enhancement of their literacy and education and by facilitating informed decision-making on return to Kosovo for those who choose to do so.

In the reporting period the project continued to provide pre-school activities as well as hygiene items for approximately 180 children living in the camps. It organised support classes for 42 children on ecology, computers and sport, in addition to workshops on Roma culture and an Albanian language course for 30 children. The project also enabled the participation of 73 RAE IDPs in ‘Go and See’ visits, ‘Go and Inform’ visits, Dialogue Facilitation visits, and Municipal Working Group sessions.

An EU-funded project to support the Commissariat for Displaced Persons in Montenegro (€0.4 million) commenced in March 2006. The project is aimed at strengthening this institution so that it can better address durable solutions for refugees/IDPs still residing in Montenegro, including their integration and return to the countries of origin.

In the reporting period, a training needs assessment was done with 10 members (the majority) of the Commissariat’s staff. The staff also participated in a survey on the views and needs of refugees and IDPs. The project’s implementation was slowed down due to delay in the regulation of future status and consideration of the Commissariat’s mandate by the Government.

Good governance & institution building (2000–05: €15.7 million)

A 2004 project in the area of public administration (central government) has been finalised. EU funds assisted the Montenegrin government in the reform of public administration, including revising, drafting and amending the legal administrative framework. Technical assistance has been provided to finalise the ethics code for civil servants and train approximately 1,200 civil servants in the new framework. The main focus of the assistance has been the implementation of the new Law on Civil Servants. The project team has been working with the HRMA staff and the Ministry of Justice, advising them on organisational issues, recruitment procedures, training of civil servants, and development of an electronic Personnel Information System. However, it should be noted that some of the advice of the technical experts concerning adoption of transparent recruitment procedures has not been followed, and several regulations avoided the “meritocratic approach” suggested for new recruitment of civil servants.

The 2005 assistance project to the Ministry of EU Integration and International Economic Relations and a follow-up to assistance to the HRMA are under implementation. Expertise has been provided in order to reinforce the capacity of the administration to manage the European Commission’s new Instrument for Pre-Accession and other EC programmes as well as to reinforce the Human Resources and IT departments of the HRMA.

In Justice & Home Affairs, 2005 funds are being used for two investment projects which are guaranteeing the extension of the Ministry of Interior’s IT system, and rehabilitation and extension of prison facilities. Space now constitutes a problem in the overcrowded prisons which do not allow appropriate working and living conditions for prisoners. A joint initiative with the Council of Europe to introduce a probation service in Montenegro was signed in May with the purpose of introducing alternative sanctions and facilitating re-integration of prisoners into society. A project with the Judicial Training Centre (JTC) aimed at improving professional standards within the judiciary as well as its effort in driving and promoting judicial reform has been finalised. More than 80% of the overall judiciary participated in training activities.

Specific actions related to EAR projects during the quarter include:

Public administration reform (€8.2 million)

• An IT strategy for the establishment of a Personnel Information System, which will help create a real picture of civil servants’ status, tasks, responsibilities and benefits in the system, has been established; a procurement tender has been launched for the procurement of the IT equipment and software required.
• With EU-funded assistance, the Selection and Monitoring Department of the HRMA developed tests for recruitment. Secondary regulations adopted by government still present problems linked to merit-based recruitment.
• Training of civil servants is being provided, based on a manual developed by the HRMA with previous technical assistance
• Training is being delivered to the Ministry of International Economic Relations and EU Integration staff and senior programme officers in charge of IPA programming on project cycle management and EC procurement procedures
• Assistance and equipment have been provided to IT department of the Ministry of Finance to enhance the capability of the previously-installed SAP-based software system. Assistance also supports improvements to accounting systems, including extra-budgetary funds, facilitating the preparation of a balance sheet for government, and reducing the cost of running existing software.

Justice and home affairs (€3.0 million)

• An extension of the IT network of the Interior Ministry is being implemented with 2005 funds
• Prison rehabilitation works are ongoing
• A workshop to present the new judicial reform strategy was organised by the JTC with all main stakeholders; environmental protection seminars were also held for judges
• A new publication of case laws has been developed and provided to all Montenegrin courts.

Economic reconstruction, regeneration & reform (2000–04: €46.1 million)

In infrastructure, the new EU-funded border crossing facility between Montenegro and Croatia is operating effectively during its first tourist season, while work to improve the Scepan Polje facilities at the border with Bosnia and Herzegovina is nearing completion. In the road and rail sectors, international experts continue to monitor implementation of road and rail infrastructure programmes (€30 million and €15 million respectively) funded by the EIB and the EBRD The rail infrastructure rehabilitation programme has been fully contracted. Works to rehabilitate and extend airport facilities at Podgorica and Tivat have been completed, with €24 million in funding being provided by the EBRD and EIB. Construction of the new passenger terminals was supervised by a team of Agency-appointed international and local experts.

Further EIB and EBRD loans to improve transport infrastructure are currently under discussion.

The environment sector continues to benefit from EU-funded assistance projects. The complex procedure of identifying an institutional “model” for the proposed Environmental Protection Agency (EPA) is underway. The EPA will take over responsibility from a number of governmental institutions for environmental permitting, inspecting, monitoring and enforcement, allowing the Ministry of Environment to focus on its strategic planning and legislative mandate. A project implementation unit has been established to supervise the preparation of studies and designs for a forthcoming EIB-funded infrastructure investment programme of up to €57 million.

In energy, three new projects have been initiated in support of reforms in the sector. These include capacity building to the Energy Regulatory Agency, continued support for restructuring and preparing for privatisation of the electricity utility company, and technical assistance for the establishment of an energy efficiency unit in the Ministry of Economy.

A second phase of the Turn around Management (TAM) and Business Advisory Services (BAS) programme is supporting 12 medium-sized and approximately 60 small companies to restructure and increase competitiveness.

In agriculture and the rural economy, assistance has been provided to the Ministry of Agriculture to help it review policy and assess the business plans of dairy enterprises. Support to veterinary and phyto-sanitary services has enhanced inspection practices, reducing the potential for the spread of transmissible animal diseases and harmful organisms.

The Agency is providing assistance to the veterinary services in order to implement an integrated system of identification and registration of cattle in line with EU standards. Technical assistance teams are providing expertise to carry out an analysis of the fisheries sector’s compliance with the acquis communautaire, as well as providing advice to Ministry staff in their efforts to prepare a comprehensive strategy and policy for the agricultural sector.

Specific actions related to Agency projects during the quarter include:

Transport & infrastructure (€24.5 million)
• Work is advanced on the first stage of a €2.5 million EU-funded project to upgrade approximately 6km of the main coastal road between Budva and Bar. Commencement of the second stage has been delayed due to the Government’s need to resolve land expropriation issues. When completed, journey times during the tourist season will be significantly reduced.
• A new technical assistance team has commenced working with the Ministry of Transport and the Montenegro Railway Company. The focus of their activities is to maintain the momentum of institutional and legislative reform, and to support the project implementation units managing IFI-funded road and rail infrastructure rehabilitation programmes.
• Implementation of an EIB-funded programme to upgrade rail infrastructure and equipment (€15 million) has been fully contracted.

Environment (€5.7 million)
• Progress continues towards the creation of an Environmental Protection Agency within the Ministry of Environment. An advisory committee representing all stakeholders convenes on a regular basis in order to ensure transparency of the institutional reform process.
• A project implementation unit has commenced its task of developing studies and designs in preparation for an EIB-funded programme of infrastructure rehabilitation. The first feasibility study for wastewater treatment facilities has commenced. Priority investment is based on the recommendations of EU-funded strategic master plans for solid waste management, and for wastewater collection and treatment in the central and northern regions.

Energy (€7.1 million)
• The state-run electrical power utility has started implementing the unbundling and restructuring plans proposed by EU experts. The tender panel for privatisation of the Pljevlja thermal plant and coal mine has evaluated bids and announced the start of negotiations with the first ranked bidder. In turn, the recent privatisation of the aluminium company Kombinat Aluminium Podgorica (KAP) has resulted in a highly subsidised power supply contract for 2006, which could put the financial viability of the Electric Power Utility (EPCG) at risk.

Economic development: enterprise & rural economy (€8.8 million)

Agriculture and rural economy
• The Agency is providing assistance to the veterinary services in order to implement an integrated system of identification and registration of cattle in line with EU standards. The aim is to improve the development of the livestock segment and ensure the protection of animal health and control of veterinary public health. The introduction of a food safety control system in line with EU requirements enabling full traceability of all animal movements (‘stable-to-table’ approach). Within the reporting period the specifications for the Project software and hardware have been defined. The project has begun to help the government with the drafting of a new animal identification and registration law and a rule book for cattle.
• The project to strengthen the fishery sector in Serbia and Montenegro is providing expertise in the analysis of wild fish reserves, aquaculture/fish farming activities, current fishing efforts, quantities caught/landed by species, present nature and volume of trade fish landing sites, processing facilities, and the regulatory environment, notably with respect to compliance with the acquis communautaire. Within the reporting period, technical specifications for the equipping of sector laboratories and a strategy document have been prepared. EU consultants are working closely with the government on a strategy for the development of agriculture and rural areas. They are providing advice to the Ministry of Agriculture’s Forestry and Water Management staff, in their efforts to prepare a strategy and policy for the agricultural sector. The project is in a final phase. Two documents were finalised in May-June: “Perspectives of food development production and development of rural areas and budget support for the period 2007-13” and “Instruments for agriculture policy development”.
• Contracts with the suppliers of vehicles and IT equipment for the Montenegrin veterinary and phyto-sanitary inspectorates have been signed; delivery is planned for July 2006.
Dairy processing equipment for farmers was delivered and repayment to the revolving fund is in progress. Within the reporting period an audit and valuation of Agency counterpart funds was completed.

Enterprises
• The second phase of a Turn Around Management (TAM) programme is underway, with 12 companies continuing to benefit from TAM support and 60 small enterprises receiving business advisory support.

Social development & civil society (€10 million)

The 2001 vocational education and training (VET) project is completed. New education laws have been adopted by the Parliament and are now under implementation. In a related development, an education reform strategy has been included in the government’s programme as one of its three main priorities. Vocational schools have been rehabilitated and refurbished. A second phase of assistance has been finalised in order to increase the impact and sustainability of the employment, education and vocational training activities. The focus of the second VET project, finalised end March, was on labour market assessment, new curricula development in the area of tourism, agriculture, wood processing and construction, fiscal decentralisation and development of a new qualification framework. New investments are complementing the institution-building side in order to ensure proper facilities and training equipment.

A new 2006 project has been launched to support the Ministry of Labour and Social Welfare and its employment service (Employment Agency of Montenegro), which have not benefited from any strategic support for development of structures, policy making and monitoring capacities. The project will support the Ministry and employment service in policy development and the elaboration of a national action plan for employment with targeted support for labour market statistics development. A broader dialogue and determination of options for a more strategic development of Montenegro’s human resources will be additionally addressed in the bid to promote greater competitiveness of the country’s evolving economy.

Support has been provided for planned amendments to media legislation. An action plan for implementing the new media laws has been adopted. A joint initiative with the Council of Europe in the implementation of the new laws has been finalised. However, delays are being registered in the implementation of the legislation due to the highly politicised media environment.

Within the framework of the civil society programme, grants have been awarded to specific NGOs targeting drugs education, rights/awareness of the disabled, environmental and ecological planning, consumer rights, development of young people with special educational needs, economic analyses and feedback to the business and public sectors. Implementation is constantly being monitored with the assistance of international expertise which is also facilitating the creation of synergies amongst the different activities foreseen by the NGOs.

Specific actions related to Agency projects during the quarter include:

Education & training (€6.6 million)
• A final VET conference was organised to present to stakeholders and the general public the results achieved in the past few years in the implementation of VET reform.
• Self-evaluation in some pilot schools has been introduced as a method of quality assurance
• The capacity of the Ministry of Education and Science to implement the Book of Changes (a white paper on educational reform adopted in December 2001) continues to improved. A new law on certification has been drafted.
• VET equipment has been provided to the training centres in Herceg Novi for tourism studies and in Berane for wood processing.
• VET equipment will be provided to vocational schools in Podgorica and Bar. The supply tender has been launched.

Civil society & media (€1.9 million)
• Media laws have been prepared by the Ministry of Culture.
• Three NGO projects were completed and the others are being implemented as envisaged by action plans. Positive results have been highlighted through numerous TV debates at the NGO conference by NGO themselves and relevant authorities responsible, such as education of children with special needs, social inclusion of the disabled, drug education, environmental protection. Some of the material produced will be included in regular school curricula.

Other (1998-2004: €19.4 million)

Integrated border management (€4 million)
Potential regional economic developments, particularly tourism, will lead to larger traffic flows between Montenegro and neighbouring countries. Existing facilities are inadequate resulting in ineffective and inefficient border control and delays. A contract has been awarded to upgrade existing infrastructure at the borders with Croatia (Debeli Brijeg) and Bosnia and Herzegovina (Scepan Polje). The objective is to provide improved working conditions for personnel dealing with customs, security, veterinary and phyto-sanitary inspections and introduce an integrated border management system.

Specific actions related to Agency projects during the quarter include:
• Following completion of construction of border crossing facilities between Montenegro and Croatia at Debeli Brijeg in summer 2005, works to improve facilities at Scepan Polje on the border with Bosnia and Herzegovina are nearing completion.
• Construction activities continue to be supervised by an Agency-funded team of consultants.

 

5                  The former Yugoslav Republic of Macedonia

Overview

Being awarded candidate status has proven to be a positive contribution to reinforcing political stability in the former Yugoslav Republic of Macedonia, and it is expected to contribute to better conduct of the next parliamentary elections of 5 July. Moving beyond candidate status and actually beginning accession talks with the EU is expected once a number of major conditions set by the EU are met by the country’s authorities. These include adequate conduct of the elections, reforming the judiciary, the police and wider public service, fight against crime and corruption, further strengthening the process of implementation of the constitutional and legislative provisions inspired by the Ohrid Framework Agreement, particularly targeting the decentralisation and equitable representation processes, and overcoming the structural problems that hinder the country’s social and economic growth.

In the second quarter of the year, the former Yugoslav Republic of Macedonia’s authorities stepped up their efforts to ensure proper conduct of the parliamentary elections. EU integration requirements are expected to set the broad policy agenda in the period following the elections, regardless of the new government’s composition. Following the adoption of the new electoral code in March 2006, other aspects of the management of the elections were tackled, particularly resolving the long disputed arrangements for procedures on nominating members of the State Election Commission and members of other electoral commissions and boards. Visiting EU officials, including the Presidents of the European Parliament and Commission called on the country’s authorities to undertake necessary efforts to ensure the full integrity of the next parliamentary election; failure in ensuring adequate conduct of the elections could delay for some time the country’s hopes for EU integration.

Another area that is closely followed is judicial reform, an important criterion in the EU's assessment of the country’s readiness to start membership talks. The Parliament has approved constitutional and legislative changes in improving the independence and efficiency of the judiciary. Through providing equipment support to all judicial institutions and implementing a legal database and judiciary information systems in the courts and other institutions, support is geared towards developing a sustainable caseload processing capacity within the wider judicial sector.

In the police reform sector, the objective of EU support is to develop an efficient police service characterised by accountability and operational effectiveness. In this spirit, the EC, via the Agency, has provided substantial support to the wider field of home affairs. It requires constant attention to sustain the momentum of police reforms in the country, as efforts in the adoption of the Law on Police remain stalled. While progress has been made in reform of the legislative and regulatory basis of policing, the operational implementation of the reform, particularly at the local level, lags behind. In this context, new assistance programmes to police reform have been launched that contain strong provision of EU member state advisory support, targeting both state and local level police services. The National Border Management Coordination Centre – the first facility of its kind in the region was constructed with EU assistance as part of its wider support to the border management strategy. “All border management agencies will be present in a single physical location, sharing resources and sharing in real-time the information required for effective inter-service co-operation in the field of border management,” said EP President Fontelles attending the ceremony marking the completion of the construction of the building in April.

In the fight against crime, an immediate priority is the adoption of an appropriate legislative and institutional framework in the country to enable the authorities to combat the drug problem in line with EU standards. In this context, the Agency launched a twinning project in June under which experts from Hungary and the Netherlands work with the country’s Ministry of Health and other state entities to strengthen its ability to combat drugs related crime.

The assistance provided in the implementation of the Ohrid Framework Agreement most recently has been complemented with a recently launched project to train managerial civil servants from non-majority communities. The project aims to support the development of a civil service that enjoys the confidence of all its citizens. In this context, the EU also marked the launch of construction works in June at the South East European University in Tetovo in order to meet the growing demand for university education of students from non-majority communities. Another important dimension of the implementation of the Ohrid Framework Agreement has been the decentralisation process that is about to enter its second phase towards the end of the year. The EU also announced the completion of a project in late March that helped local municipalities better manage their finances and deliver public services.

Supporting the development of necessary qualified human resources, improving the investment climate, and providing advisory support to employment, competition and macro-economic policies are among the key areas of the EU’s support to the economic development.

To help the country honour its commitment under the Stabilisation and Association Agreement with regard to the long-delayed liberalisation of the telecommunications sector, the EU recently began a project that will contribute to the development of an effective and competition-based electronic communications market in the country, including the adoption of all the required secondary legislation and further strengthening of the regulatory bodies.

Priorities require the country’s authorities to push through reforms to improve the functioning of public administration. The EU announced in May the completion of a project that helped the Ministry of Finance establish an independent Public Procurement Bureau. The project contributed to bringing practices in the country closer in line with EU standards.

The cumulative portfolio of funds managed by the Agency in the former Yugoslav Republic of Macedonia amounts to some €321 million (1997-2006). As of 26 June 2006, 89% of the 1997-2005 funds have been contracted, and 75% paid.


The European Agency for Reconstruction in the former Yugoslav Republic of Macedonia (established March 2002)

At 26/06/2006

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

TOTAL

Appropriation (€m)

19

23

21

18

57

33

37*

54

31

28

321

Contracted/appropriated

100%

100%

100%

99%

100%

100%

99%

66%

60%

-

89%**

Paid/appropriated

100%

100%

97%

98%

99%

80%

70%

38%

30%

-

75%**

* Note: The amount includes funds of €3.9 million allocated by the Government of Denmark for financing small-scale infrastructure projects.

** Percentages do not include 2006 funds

Progress in the reporting period

Democratic stabilisation (€15.6 million)
Supporting the implementation of the Ohrid Framework Agreement and thus improving inter-ethnic relations, and supporting civil society are two main fields of action.

Specific actions during the quarter include:

Minority rights (€12.1 million)

• Senior non majority civil servants occupying different positions in line ministries were part of a training programme aimed at increasing the equitable representation of minorities in the public service. In its later phases, the training will include managerial non majority civil servants. Complementary assistance in training translators to be employed in line ministries and courts continued with practical assignments held in the courts around the country.
• Works have commenced that will extend the campus of the Southeast European University in order to cope with the high demand from students belonging to non-majority communities. The Agency is providing support to extend the campus and provide additional teaching and office space, and other services.
• Six French textbooks on EU law, policy and institutions have been translated into Macedonian and Albanian languages and distributed to the South East European University and other universities aiming to strengthen their educational capacity in the field of EU integration.
• A strategy for capacity building of minority women associations has been initiated. The project aims to establish a group of women leaders.
• Theatre performances on multicultural themes toured cities around the country aiming to establish bridges among the country’s diverse ethnic groups.

Civil society (€3.5 million)

• Twelve NGO Support Centres, established with EU assistance, have implemented a series of public events around the country on the topic of EU accession. Local activities were organised, including civic initiatives for celebrations of Teachers’ Day (7 March), International Women’s Day (8 March), Roma Day and Earth Day. NGO Support Centres also organised activities to celebrate Europe Day on 9 May.
• The Pensioners’ Association, as one of the beneficiaries of capacity-building assistance, made a study visit to Denmark to meet with different national pensioners associations and to attend the International Federation on Ageing 8th Global Conference on Ageing.
• The Government on 1 June 2006 approved its concept for a civil society strategy, drafted under an EU assistance programme to help develop the government develop strategy and establish a Civil Society Unit in the government.
• A national Civil society platform is being established in order to enhance and strengthen the position and role of national civil society in acting as an effective check on the existence of a good and accountable governance system.
• A campaign is being run for the promotion of the government’s recently adopted National Youth Strategy that aims to improve the general status of youth and respond to the needs and interests of young people in the country.
• The first-ever National Youth Parliament convened on 16 May. 120 young parliamentarians drafted a common declaration, officially delivered to the President of the Parliament.
• A call for proposals for small project funds was launched in the framework of the Neighbourhood Programme between the former Yugoslav Republic of Macedonia and the Republic of Bulgaria. The programme aims to foster social and economic cohesion by increasing cross border relations mainly through supporting inter-linkages between local actors and local communities.

Good governance and institution building (€118.4 million)

The good governance and institution building sector covers two main areas: Justice and Home Affairs and Public Administration Reform.
Specific actions during the quarter include:

Justice and home affairs (€60 million)

• Training of judicial staff is a major component of the ongoing reform of the judiciary. An Agency project will assist drafting secondary legislation and will propose amendments of other laws related to the functioning of the Institute for Training of Judges and Prosecutors.
• The EU handed over equipment worth €500,000 to the Police Special Tasks Unit. A range of equipment is being delivered, including vehicles, and personal safety and communications equipment, to improve the functioning of the Unit.
• A support programme has commenced to provide help in the adoption and enforcement of primary and secondary legislation, and the development of an institutional framework for processing and prosecuting drug offences. Under the Twinning, which sees the partnering of experts from EU member states and their counterparts in the country, technical improvements will be made on the ground, and coordination improved among government bodies in the areas of demand reduction, supply reduction, control of n drugs, psychotropic substances and precursors, data collection and epidemiology, and information systems and processes.
• A comprehensive analysis is being conducted of the requirements and implementation modalities for an upcoming project that is to establish a national digital radio communications system. Supply, installation and commissioning of equipment worth around €8.1 million that will provide the digital radio communication system is expected to be delivered in 2007.
• The National Border Management Co-ordination Centre and executive offices of the Border Police Service in the premises of the Ministry of Interior have been constructed and handed over to the beneficiary institution. It is the first such joint management centre in the region and will be the focal point for mutual support and information. It should reduce duplication of efforts and improve coordination of all of the operational aspects of border management.
• Assistance is being provided in the field of asylum regarding the definition of operational procedures on asylum and the design of an IT platform for the relevant line ministries. The aim of the project is to enhance the asylum management system in the country.
• Following the resumption of activities in November 2005 (suspended in the period of February - November 2005), works are back to the agreed schedule in the construction of a reception centre for asylum seekers. The centre will be located in the vicinity of Skopje and will have an administrative building for registration and administration of asylum seekers and several buildings for hosting asylum seekers.
• An EU member State (Spain) has been selected to assist the country’s Department for Money Laundering Prevention through a Twinning to further develop and consolidate its capacities to exercise its functions in accordance with the new Law on Money Laundering Prevention.
• Experts from Germany implementing the local police grant project have been deployed since 24 May following the signature of the grant on 22 May. The overall objective is to support the implementation of applicable national strategies by direct assistance to the implementation of reform directives at a local level. The project assists with t targeting and implementation of reform actions at local level, and provides valuable feedback on in-service observations in order to refine, and where necessary correct, the strategic direction of the process.
• Renovation works at the Police Academy began in May 2006. Through this project, the EU is providing material support necessary for the establishment and implementation of a framework for the institutionalised and systematic provision of police training, in accordance with accepted international standards.
• Another police initiative, which is to be implemented through Twinning, is being prepared by the selected Member State partner institution (The Police Academy of the Netherlands). The initiative is expected to be launched in autumn and last for 18 months. The project will specifically focus on standardisation and institutionalisation of the training of police cadets; adoption of EU best practice standards and procedures; and introduction of contemporary police management methods and philosophy.
• Works have commenced on the renovation of the country’s forensic laboratory. The project aims to enhance the capacity of the law enforcement agencies in the field of forensics. Once the laboratory is refurbished, equipment will be provided to the technical crime units within the police, enhancing and modernising the methodologies for evidence collection, storage, management and analysis, while a computer network between different units will be established to facilitate the exchange of information.

Public administration reform (€58.4 million)

• A lot has already been accomplished to prepare the country for decentralisation. However, there are still considerable gaps in the overall system of financial relationships between the central and local governments. In this context, the EU helped initiate the establishment of an effective system to manage fiscal relationships between the government in Skopje and the municipalities, which have taken on new responsibilities since last year. A separate project that helped to boost the capacity of local self-government institutions as part of the decentralisation process was completed with the support provided in developing efficient administrative and management practices to ensure proper functioning of their urban planning units. This was the first donor-funded project that provided support to all 85 municipalities. IT hardware was provided to all municipalities and a database that will combine in digital inter-phase the municipal spatial planning documents.
• A pre-selection of six municipalities out of 53 applications was made for the recently launched Municipal Awards, established to reward best practices in the decentralisation process. This was followed up by on-site visits to observe the activities undertaken within the projects proposed. The awards ceremony is to be held after the elections of 5 July 2006.
• Works are to commence soon on the construction of the administrative headquarters building of ZELS (Association of the Units of Local Self-Government). The future ’ZELS House of Municipalities’ will host all ZELS employees and regular visitors in the new facility providing offices, meeting halls and 1100m2 of storage space. The project will support and strengthen the decentralisation process and reforms of local self-government by increasing the infrastructural capacity of ZELS.
• EU assistance has helped the government draft legislation to fully implement EU procurement directives. It also assisted in setting up the Public Procurement Bureau, which was established in July 2005 and is now fully operational.
• A new project has been launched that aims to assist in the set-up of the Directorate for Personal Data Protection as an independent and legitimate state body, and ensure conformity and compliance of the Directorate operations with EU principles and procedures.
• The Agency is helping the government promote an independent electronic communications regulatory framework aiming to ensure quality and cost-effective of services are delivered to the public.

Economic and social development (€117.12 million)

Assistance in the economic and social development sector entails a broad range of projects targeted at the improvement of the investment climate in the country, trade facilitation, infrastructure development, environment, employment and vocational education and training.

Specific actions during the quarter include:

Investment climate (€27.84 million)

• In a programme launched recently through an EU member state advisory twinning arrangement (with Germany), the EU is helping the country bring its competition laws in line with EU policy and strengthen the administrative capacity of the country’s competition protection body. Bringing competition policy in line with EU standards is one of the priorities of the Stabilisation and Association Agreement.
• In supporting the government to further increase economic growth and employment, reduce external imbalances, and secure macroeconomic stability, a separate project has been launched to increase the capacities of the Macroeconomic Policy Department of the Ministry of Finance to analyse economic data and to produce forecasts of the main economic indicators.
• The EU is supporting the government in developing greater transparency and accountability – both between different government functions and between fiscal and monetary authorities –and to use more sophisticated financial management tools in debt and cash management. A draft strategy for public debt management has been prepared for these purposes.
• The Agency recently completed an EU-funded human resources development programme that helped to improve management skills in human resources and strategic planning at companies across the country. Since February 2005, the programme provided human resource development and training to 75 company managers of 30 SMEs in five learning groups. Participants gained skills in key strategic issues, from the importance of systematic analyses and planning, to the techniques of drafting a strategic or business plan.

Trade (€19.5 million)

• A project extension was provided to assist the setting up of a paying agency within the Ministry of Agriculture, so that it will be ready to start using the Instrument for Pre-Accession .
• An agricultural strategy is being drafted for which a strategic planning group and technical working groups have been constituted. The annual Agricultural Report 2005 has also been finalised and presented to the wider public. Moreover, an Inter-Institutional Coordination Body to support rural development strategy has been established. In addition, studies related to organic products and sheep and goat products are being prepared.
• An Albanian-speaking expert has been recruited to promote the successfully established national animal identification and registration system in the Albanian populated areas of the country. As the system established is the best in the wider region of Southeast Europe, it is being promoted widely and receiving wide publicity.
• A new State Phytosanitary Laboratory, established with EU assistance, was opened. Set up in the Ministry of Agriculture, the laboratory is a key part of a comprehensive, country-wide system to ensure plant health required under new legislation passed in April 2005. The laboratory will enable the country to meet international / EU requirements for control of quarantine organisms, seeds, and the use of pesticides. The laboratory is independent and will operate to the highest standards. It will also provide other services in support of the agriculture sector such as joint research projects of a strategic nature with external scientific collaborators and institutions, and the training of new scientists and technicians.

Infrastructure (€45.4 million)

• A programme to provide concrete investment in local infrastructure that aims to empower municipalities and enhance their infrastructure as part of the drive to decentralisation continued with additional funded infrastructure projects in water supply, sewerage, local roads and local public administration buildings in a range of municipalities around the country. A total of 43 projects have been completed and handed over to the local authorities for operation and maintenance. The remaining 48 projects are ongoing. Training is also provided to the municipalities on project preparation, monitoring and evaluation.
• Assistance is being provided to strengthen the capacity of the Ministry of Transport and Communications in managing air transport through the establishment of an Air Transport Unit within the Ministry. This project aims to support the joint efforts of IFIs, including EBRD and EIB targeted at the transport sector.

Environment (€14.4 million)

• Support is being provided in the development of secondary legislation critical to integrated environmental permitting and inspection as well as the establishment of the structure required to administer an Integrated Pollution Prevention and Control (IPPC) based permitting system. The EU is also building capacity in environmental investment project preparation and appraisal to better guide domestic investment in the sector, and also anticipate possible future pre-accession instruments. Assistance will be provided in design and impact assessment of economic instruments for pollution abatement. In a separate project, activities are being undertaken through a grant agreement with EBRD in developing a local expertise in IPPC compliance.
• Support continues to the government in the development of a National Strategy for Environmental Approximation. The project has adjusted its planning to make it mainly geared towards helping the country harmonise its legislation with the EU acquis.
• A work plan has been finalised for a twinning on air quality, and this is being reviewed by the Commission services. The twinning will provide member state advisory support (from Finland and Austria, as a junior partner) in helping the Ministry of Environment and Physical Planning to bring national legislation on air quality in line with EU standards and improve the information base for air quality related environmental management.

Education and employment (€9.98 million)

• A study tour to EU institutions in Brussels was conducted in April 2006 for officials from the Ministry of Social Policy and Employment, which is formulating a National Action Plan for Employment. In a separate project, training seminars were held for the staff of the Employment Service Agency, which is being strengthened in order to provide necessary employment services to the unemployed. Another project is providing training to teachers at 56 VET schools throughout the country in the use of modern technical and sector-specific equipment delivered under a previous phase of assistance in 2005.
• The Roma community is exercising its rights and taking a more active role in political decision-making thanks to the newly formed Roma Representative Body, established under an EU-funded project. The Body has initiated a change in the urban plan of a Roma neighbourhood in order to address infrastructure problems.
• The country’s first national youth parliament held its inaugural session at the National Parliament House in Skopje. Over two days, some 120 young people, aged 15 to 24, from all of the country’s ethnic communities discussed issues of interest to youth, including the economy, quality of life, education and youth participation in society. The final outcome of discussions, the Youth Declaration agreed by the young parliamentarians, was handed over to the President of the Parliament.


6                 Coordination

Regular coordination meetings with EU member states and other donors took place at the Agency’s Operational Centres during the second quarter of 2006.

In Belgrade, the primary donor coordination activities are carried out with the Donor Aid Coordination Unit (DACU) of the Ministry of International Economic Relations (MIER). There have been ongoing consultations between EAR and DACU on methods of improving donor harmonisation and alignment, as well as modifying the current ISDACON donor database to better meet the needs of EU-funded projects. The EAR has been coordinating closely with a DFID/SIDA project aimed at enhancing the programming and implementation skills of civil servants in the MIER and line ministries regarding future EU pre-accession assistance. Regular meetings are also being held between EAR and EU member state representatives in order to enhance the exchange of information and look for possible synergies.

In Podgorica, regular donor coordination meetings continued. Meetings devoted to implementation of the Economic Reform Agenda, chaired by the Prime Minister, were held on 7 April and 27 June 2006. A donor meeting on activities in the energy sector, chaired by the Deputy Prime Minister, was held on 28 June. In April, the Agency organised a meeting on local government reform which was chaired by the Ministry of Justice. It was agreed that donor coordination meetings would continue to be organised regularly by the Ministry of Justice and Union of Municipalities. In May, a donor meeting on public administration reform was held by the Council for Public Administration and the Human Resources Management Agency. In June, the Judicial Training Centre, in the framework of an EU-funded project, organised a meeting including major donors to present the new judicial reform strategy. Donor coordination meeting on environment and tourism relating to Skader Lake were held on 16 June. All major donors and potential donors participated. Ad-hoc coordination meetings with the EIB and the EBRD regarding ongoing and proposed loans to the environment and transport sectors have been regularly organised during the reporting period.

In Pristina, the Agency hosted regular coordination meetings with representatives of the EU Member States, the EC Liaison Office, the Office of the Personal Representative of the Common Foreign and Security Policy, and the Agency for European Integration Processes within the Office of the Prime Minister. The main topic of one meeting was an appraisal of how EC assistance is strengthening the institutional capacity of the PISG in the SAp process. The meeting highlighted the need to strengthen the visibility of the EU among Kosovo’s citizens and ensure that municipal administrations are more involved in the EU integration process. There are concerns that the PISG is putting the quantity of legislation ahead of quality and that not enough effort is being made to ensure the effective enforceability of new laws. During the second quarter of 2006, the Agency continued to coordinate with other donors, including the World Bank, at the sector level, particularly on the formulation of the Kosovo Development Strategy and Plan and the medium-term development of the energy sector.

In Skopje, the Agency coordinates closely with individual international agencies in the sectors where assistance is being provided, while stimulating the relevant beneficiary institutions to become more involved in coordination exercises. A series of monthly sectoral meetings continued to be organised jointly by the EAR and the Secretariat for European Affairs of the Government in accordance with the plan agreed among the major donors in late 2005. Following the initial sectoral meetings tackling Public Administration Reform, the Public Investment Programme, and the National Programme for the Adoption of the Acquis, subsequent meetings were held on the sectors of judiciary, private investment and agriculture, in which the government presented its key strategies and plans for each sector. The meetings have been jointly hosted by the relevant Ministry and a key international donor agency. Preparations are being made for the upcoming sectoral donor coordination meetings to be held once the new government is constituted. Issues to be covered include environment, statistics, employment and social policy, foreign direct investment, information and communication technologies, and the national development plan. Through this process, the Government is taking a strong leadership role in donor coordination, while the EAR plays a supporting role. Further strengthening of coordination is expected through regular ‘operational’ sectoral meetings run by the relevant ministry with the key donors involved, in addition to a once or twice yearly high-level coordination meeting in which the Government presents a key policy document. A high-level, political coordination meeting is planned for the second half of 2006.

7                Evaluation

During the second quarter of 2006, the following evaluations were initiated:
- Support to Local Authorities/Municipalities
- The Agency’s consideration of Environment as a cross-cutting issue
- The Agency’s consideration of Gender as a cross-cutting issue
- The Agency’s consideration of Minorities as a cross-cutting issue
And the following were finalised:
- The Agency’s support of IT equipment and software as a component in institutional capacity building.
- Support to Vocational Education and Training, all centres.
- Counterpart Funds/Credit lines, all centres.

The status of all evaluations planned and undertaken by the Agency is indicated in a cumulative listing in Annex A.

Executive summaries of completed evaluations are regularly presented on the Agency’s web site: http://www.ear.europa.eu/publications/main/news-a1g2.htm.

A list of evaluations by sector is also available.

 

8                 Information & communication

The Agency’s information unit continued to inform the outside world about EAR’s work and mission. It dealt with a host of activities and enquiries in Thessaloniki and in the four Operational Centres. It issued regular press releases and placed occasional op-ed articles in the local media. It also posted feature-type web stories which describe the impact of EU funding on the people the Agency serves. The materials issued by the Unit are available in the languages spoken in the Agency’s area of operations as well as English. This material can be accessed at www.ear.europa.eu/news/news.htm. Internally, the unit was involved in editing and materials for the Agency Intranet and providing a regular digest of news reports on EU and Balkan matters.

 

9                Administration/staffing


Staffing

at 30/06/2006

Thessaloniki

Belgrade

Podgorica

Pristina

Skopje

Total

Temporary Agents

30

23

3

17

15

88

Contract Agents

25

0

0

0

0

25

Local Agents

0

64

14

45

41

164

Seconded National Experts

0

1

0

0

0

1

Total

55

88

17

62

56

278

 

10                    Key figures at a glance, at 26 June 2006

 

Republic of Serbia

 

1998- 2000

2001

2002

2003

2004

2005

Total

Allocation
(€ million)

192

194

169

220

205

152*

1,132

Committed/

Allocated

100%

100%

100%

98%

71%

39%

86%

Paid/

Committed

100%

100%

94%

76%

42%

36%

81%

* €147m for AP 2005 + €5m for the Serbia and Montenegro State Union Programme

 

Serbia  – UN-administered Kosovo

 

1998-2000

2001

2002

2003

2004

2005

Total

Allocation
(€ million)

553

144

164

62

73

76.5

1,072

Committed/

Allocated

100%

100%

100%

88%

72%

45%

93%

Paid/

Committed %

100%

98%

97%

69%

72%

30%

93%

 

Republic of Montenegro

 

1998-2000

2001

2002

2003

2004

2005

Total

Allocation
(€ million)

30

16

12

12

16.5

22.5**

109

Committed/

Allocated

100%

100%

100%

100%

87%

58%

89%

Paid/

Committed

100%

100%

98%

96%

77%

32%

87%

** €20.5m for AP 2005 + €2m for the Serbia and Montenegro State Union Programme

  

The former Yugoslav Republic of Macedonia

 

 

1997-2000

2001

2002

2003

2004

2005

Total

Allocation
(€ million)

81

57

33

37

54

31

293

Committed/

Allocated %

100%

100%

100%

99%

66%

60%

89%

Paid/

Committed %

99%

99%

80%

71%

58%

51%

84%

Agency-wide (Serbia, Kosovo, Montenegro, and the former Yugoslav Republic of Macedonia)

 

   

Allocation*

(€ million)

Committed/

Allocated %

Paid/

Committed %

1997-2005

 

2,607

90%

87%

 

* Not included: amount de-committed by the Agency on EC contracts and re-used. Funds allocated come from EC and other donors

11 Appendix A - List of conducted and planned evaluations & joint missions