Annual Programme 2005

Cost: €154.5 million


Budget heading:

CARDS Action Programme 2005

Total cost:

EC contribution: €154.5 million

Legal basis:

Council Regulation 2666/2000 as amended by

Council Regulation (EC) 2415/2001 (CARDS)

Annual programming/ implementation:

European Agency for Reconstruction €147.0 million;

Commission headquarters (Tempus and Customs) €7.5 million


    € million (+/-20%)1
1.1. Minority Rights and Refugee Return  
1.1.1. Support to Refugees and IDPs €12.5 million
1.2. Civil Society  
1.2.1 Support to Civil Society €2.0 million
1.3. Media  
1.3.1. Support to Media Sector €2.5 million
2.1. Justice & home affairs  
2.1.1. Justice and Home Affairs €13.8 million
2.2. IBM  
  No expenditures are forseen in the 2005 Programme  
2.3. Public administration reform  
2.3.1. Public Administration Reform / Public Finance €4.0 million
2.3.2. Support to European Integration Process €2.0 million
2.3.3. Support to the Health Sector Reform €8.5 million
2.3.4. Local and Regional Development Programme 2005 €19.7 million
2.4. Customs & Taxation  

Support to the Customs and Taxation Administrations

€2.5 million
3.1. Investment climate  
3.1.1. Support to Pre- and Post-Privatisation, Enterprise Restructuring and Development €11.5 million
3.1.2. Capacity Building for the Implementation of the Cadastre €5.0 million
3.2.  Trade  
3.2.1. Strengthening Food Safety and Quality €8.0 million
3.3. Infrastructure  

Support to the Energy Sector Reform

€25.5 million
3.3.2. Support to the Transport Sector Reform €14.0 million
3.4. Environment  
3.4.1. Capacity Building in the Water Sector €9.5 million
3.5. Education & employment  
3.5.1. Tempus €5.0 million
3.5.2. Reform of VET System in Serbia, Phase II €3.5 million


4.1. General Technical Assistance Facility (GTAF) and Programme Reserve €5.0 million
  TOTAL2 €154.5 million

1 Individual financial allocations are subject to fluctuations of up to ± 20% over the programme’s lifetime

  2 EAR running costs not included  

Republic (country and regional) update

The process of political and socio-economic transformation continued in 2004. In a difficult political environment, maintaining macro-economic stability has been the main challenge facing the Government. The restrictive budgetary practices implemented by the Government mean that limited new resources were committed to the public sector. Under these circumstances, the Government remains highly dependent on the donor community to drive the reform process. 


The combined pressures of high unemployment (14%), an ever expanding trade deficit and inflation returning to double digits has made the introduction of new reform initiatives problematic. Despite this difficult policy environment a series of laws including legislation on Value Added Tax, Energy, Bankruptcy, Business Registration and Gambling were introduced in 2004. The implementation of the new bankruptcy and energy legislation can make an important contribution to restructuring the private sector. In addition a new Privatisation Agency director was appointed to re-start the privatisation process. GDP growth for 2004 is estimated to be approximately 6% but such growth levels have to be translated into employment generating opportunities and increased revenues to the public coffers.


The government is well aware that the ongoing restructuring of the private sector and the business enabling environment forms the optimum long-term solution to Serbia’s socio-economic challenges. To capitalise on this support the government has increased donor coordination under the direction of the Minister of Economy. The Serbian government is keen to exploit the new policy environment afforded by the introduction of the ‘Twin Track Approach’ with Montenegro. In October 2004 the Public Administration Reform Council adopted a Public Administration Strategy that outlined a strategy of public administration reform to meet the principles of European good governance.


The Serbian local elections held in September saw the opposition parties, Democratic Party (DS) and Serbian Radical Party (SRS), win the largest number of votes. This success at local level may put increased pressure on the governing coalition. Difficult political decisions remain to be made concerning cooperation with the Hague Tribunal (which is having a direct impact on economic development, particularly FDI levels) and implementation of new VAT legislation. What would be very much welcomed is strategic policy thinking by the Government linking EU and other donor support to address the fundamental questions of national competitiveness and economic growth.


Summary of the Action Programme

A description of proposed project actions within each programme component is given in the following sections. Background material is also provided for each sector so as to highlight the justification for the projects subsequently proposed. Further details on individual projects are available in a separate set of Project Annexes. Operational duration, as indicated in the project fiche, may be extended up to the maximum duration allowed by this programme.

• Democratic Stabilisation (approx. €17.0 million)

The 2005 programme builds upon actions and measures developed in earlier programming periods to enhance civic participation in the political/economic process, build an inclusive society (PRSP) and reinforce democratic stabilisation. A pressing concern continues to be the situation of refugees, IDPs and the Roma community. As such the 2005 programme looks to supporting just and durable solutions in terms of the right to return and building the capacity of Government to meet the special needs of these groups. With EU assistance NGOs are playing a more pro-active role in civil society. This support continues in 2005 including assistance to the Parliamentary Committee for Poverty Alleviation and the Civil Service Advisory Committee. In the Media sector, the EU will support, among other things, the implementation of media legislation to build the regulatory environment for media.

• Good Governance and Institution Building (approx. €50.5 million)

The role of the EU in Serbia is changing from supporting the reconstruction process to building the necessary institutional machinery and strategic awareness required to meet the EU accession process. To that end the 2005 programme supports the new institutional arrangements afforded by the Twin-Track approach by identifying where State and Republic can best meet mutual objectives to prepare for EU membership. Support will be directed to improve Serbia’s capabilities in Public Administration (civil service reform), Public Finance, European Integration, Economic Management, Justice, Integrated Border Management and Customs and Taxation. A major obstacle continues to be the weak absorption capacity of the Serbian administration to engage successfully with institutional building support. In 2005 the EU’s support to municipal government will continue with new investments to target municipalities. For the Health Sector Reform in 2005 the focus will be on improving management and equity in terms of service delivery.

• Economic and Social Development (approx. €82.0 million)

The weak performance of the Serbian economy, high unemployment and the widening trade deficit makes institutional economic reform more pressing. For 2005 the emphasis continues to focus support on the SME sector which will form the backbone of the future Serbian economy, the privatisation process, land ownership and trade (specifically in the agriculture sector). Education assistance will continue to support capacity building in the Ministries of Education and Labour and Employment, curricula development and funding vocational education pilot schemes. The Serbian administration has to begin making the strategic connections between the privatisation process, economic reform, education, export support and FDI to coherently address economic challenges and how best to exploit EU funds. Support to the transport sector will be directed to facilitating trade by enhancing inter-modal transit opportunities, attracting IFI finance and aligning transport legislation to EU standards. EU support under 2005 to the Environment will primarily concentrate on water/ wastewater management while the Energy sector will benefit from continued restructuring and district heating investment.

• Other, (GTAF, Programme Reserve…) (approx. €5.0 million)

The General Technical Assistance Facility (GTAF) is a valuable resource to prepare for future programmes, feasibility studies, evaluations, monitoring etc. The Programme Reserve component may be used to provide additional funds for priority projects included in this action programme, to cover unforeseeable priorities, and for other programme related expenditures.


Past EC assistance and lessons learnt

Past EC Assistance

From 1998 to 2004, the EU committed over €1.5 billion to Serbia and the State Union. The funds were used for emergency and humanitarian relief, reconstruction and development activities and balance of payments support. Furthermore, the EU assistance has gradually shifted to more development type of activities, especially with regards to institution building and sectoral capacity building measures linked to EU integration.


Reconstruction and development assistance (CARDS/OBNOVA)

€ 979.7 million

Humanitarian assistance (ECHO)

€ 218.5 million

Macro financial assistance

€ 490.5 million1


As of 22 December 2004, the Agency’s global rate of contracting for combined 1998-2004 EC funds was 82% funds contracted and 63% disbursed. Although 2004 funds only became available in August, the Agency percentages for the 2004 programme funds are: 40% funds contracted and 4% disbursed. The table below summarises progress on the implementation of previous Action Programmes:



Funds Committed

(EAR managed) M€


by 13 December


by 13 December

Action Programme 2001




Action Programme 2002




Action Programme 2003




Action Programme 2004





1 Another €45.0 million to be allocated to Serbia and Montenegro (incl. Kosovo) in 2004 + EIDHR €0.45 million

Lessons Learnt

Some of the most valuable lessons learnt during the preparation of the 2005 Action Programme may be summarised as follows: (i) when drafting the programme for next year with the beneficiaries, accept only proposals and projects that are mature and can be implemented in a reasonable time frame and with tangible results; (ii) ensure institutional absorption capacity, institutional memory of past EU assistance, sufficient counterparts and budget allocations before actual implementation and funding begin; (iii) when doing physical rehabilitation, make sure that all permits (i.e. land rights and building permits) and detailed designs are in place and received on time; (iv) ensure that, before engaging in major rehabilitation work or equipment supply, there is an EU compliant strategy of the sector or at least a strong commitment from the beneficiary to undertake drafting of such a strategy as soon as possible; (v) ensure proper coordination and cooperation from other donors when trying to deliver an important message to the Government; (vi) continue to push for adoption of laws vital for smooth implementation of projects, enlist the help of all parties concerned – line ministries, other donors, etc.; (vii) communicate all problems and unresolved issues to the Ministry for International and Economic Relations (MIER) as soon as they arise so as to avoid unnecessary delays in project implementation; (viii) sign a Memorandum of Understanding whenever competencies and responsibilities between stakeholders are not clear; (ix) continue with the capacity building of Serbian administration in order to help them prepare for eventual management of EU funded projects.


Complementary actions2

The main objectives of EU-funded programmes managed by the Agency are: (i) to support good governance, institution building and the rule of law; (ii) to continue supporting the development of a market economy while investing further in vital physical infrastructure and environmental actions and (iii) to support democratic stabilisation, social development and strengthening of civil society. These objectives contribute to the all-encompassing goal of this Action Programme which is to help the Serbian, Montenegrin and the State Union administrations prepare for the subsequent EU accession.


All ongoing and future projects implemented by the Agency reflect the objectives outlined above. The present Action Programme relies on lessons learnt and experience from the previous CARDS national programmes and the regional CARDS programme. CARDS regional and national programmes complement each other in the areas of institution building, justice and home affairs, environment, integrated border management, transport, civil society, etc. Preparation of the 2005 programme was also closely coordinated with the EC Delegation in Serbia and Montenegro. The Delegation was included in the programming meetings the Agency held with the Serbian authorities. Finally, activities of other donors have also been taken into account during the preparation of this programme. During the design of projects it is of the utmost importance to make sure that no overlaps with activities of other donors occur. Donor coordination process is described in the section below (section 6. of the Action Programme).


The Government’s role in the implementation of EU programmes should be related, but not limited to, backing the legal and policy reform within a given sector and facilitating investments by providing adequate and competent staff necessary for the implementation of projects. The EU encourages the Government to work on and subsequently produce sector strategies. A strategy puts the EU assistance in a certain context and provides both the Agency and the beneficiaries with a likely focus for future funding.

2 Detailed information on complementary activities, activities of other donors and the Government can be found in the individual project annexes