Fraser Associates Management and Economics Consultants

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1 Management and Economics Consultants EX POST EVALUATION OF THE COHESION FUND (INCLUDING FORMER ISPA) - WORK PACKAGE D: MANAGEMENT AND IMPLEMENTATION (N 2011.CE.16.C.AT.004) COUNTRY REPORT CZECH REPUBLIC February 2012

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3 TABLE OF CONTENTS 1. INTRODUCTION ISPA/COHESION FUND INVESTMENTS IN CZECH REPUBLIC FUND MANAGEMENT AND IMPLEMENTATION The Baseline Position The Fund Management and Implementation Architecture, The Effectiveness of Management and Implementation Architecture, Evolution and the Integration of Learning STRATEGIC PLANNING The Baseline Position Strategic Planning Arrangements, The Effectiveness of Strategic Planning Arrangements, Evolution and the Integration of Learning PROJECT DESIGN AND DEVELOPMENT The Baseline Position Project Design and Development Arrangements for ISPA/CF, The Effectiveness of Project Design and Development Arrangements, Experiences of the Decision Process Evolution and the Integration of Learning PROCUREMENT The Baseline Position Procurement Arrangements for The Effectiveness of Procurement Arrangements, Evolution and the Integration of Learning PROJECT MANAGEMENT AND IMPLEMENTATION The Baseline Position Project Implementation and Management Arrangements, The Effectiveness of Project Implementation and Management Arrangements, Evolution and the Integration of Learning CONCLUSIONS: A SYSTEM-WIDE PERSPECTIVE General Performance of the Cohesion Fund Delivery System Key Learning The Contribution of Capacity-Building Support Scope for Management Improvements: Issues for the Member State Scope for Administrative Reform: Issues for the Commission ANNEX I: MANAGEMENT AND IMPLEMENTATION ARCHITECTURE...25 ANNEX II: DOCUMENTARY SOURCES...26 ANNEX III: LIST OF CONSULTEE ORGANISATIONS...29 i

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5 EXECUTIVE SUMMARY This report presents an overview and summary evaluation of the management and implementation of the Instrument for Structural Policies for Pre-accession (ISPA) and the Cohesion Fund (CF) in the Czech Republic from 2000 to 2011, focusing on projects approved in the period. It has been prepared by EPRC, and Charles University in Prague. The research in the Czech Republic and the drafting of the report were carried out in October - December 2011 by Dr Marie Feřtrová, Dr Lucie Jungwiertová and Assoc. Prof. Jiří Blažek. Research assistance was provided by Lucie Pospíšilová. The report was edited by Frederike Gross, Alec Fraser and John Bachtler. 1 During , 58 projects were planned and implemented, with total eligible expenditure amounting to 2 billion. By the start of November 2011, 89.2 percent of the planned allocation had been spent. Strategic planning provided a generally robust priority framework for project funding. With regard to management and implementation structures, considerable capacity building was required with the new ISPA/CF related structures but overall the system operated largely successfully and as required by the Regulations. The most significant issues concerning the performance of the delivery system included: lack of funding-ready projects, especially in the area of environment; technical project preparation issues; unwieldy implementation structures in the period especially; deficiencies with the electronic monitoring system; double track governance of EU and national investments; and public procurement. Other external factors affecting delivery included institutional problems, the changing national legislative framework (particularly in public procurement) and political influence on project selection. The evaluation noted a significant increase in capacity across the entire ISPA/CF delivery system in the period. Key lessons learned for the period include: the decentralisation of MA functions to sectoral ministries; improved evidencing and definition in strategic documents; more effective financial flow systems; and improved know-how and use of project appraisal techniques. The main resources for capacity building were TA, framework contractors and advisory activities of the EU Delegation. Twinning took place but was not assessed as very effective. Measures to continue improvements in the effectiveness of the delivery system at national level include the need for TA to be used to support capacity building among project applicants/beneficiaries and the development of tools to reduce political influence on project prioritisation. At EU level, important measures include improved responsiveness, streamlined EU audits, and reduced overall administrative load. 1 The research team are grateful to the staff (past and present) of authorities involved in the management and implementation of ISPA and the Cohesion Fund, who were interviewed for the research and who participated in the workshop, and to the Commission officials in the DG Regio Evaluation Unit and Steering Group who provided helpful comments on an earlier version of the report. The views expressed in the report are those of the research team. iii

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7 1. INTRODUCTION This report presents an overview and summary evaluation of the management and implementation of the Instrument for Structural Policies for Pre-accession (ISPA) and the Cohesion Fund (CF) in the Czech Republic from 2000 to 2011, taking into account projects approved in the period. The report is based on research conducted at national level, comprising a review of documents and data, 11 interviews with stakeholders whose collective experience spanned the period of the evaluation, and a workshop where all levels of the Czech Republic s Cohesion Fund delivery system were represented. The report begins with a brief review of the allocation and absorption of ISPA and Cohesion Fund investment in the Czech Republic, followed by assessments of each of the components in the Czech Republic s ISPA/Cohesion Fund delivery system, and it concludes with a synthesis of findings. 2. ISPA/COHESION FUND INVESTMENTS IN CZECH REPUBLIC Prior to the Czech Republic's accession to the EU, the country was granted ISPA investment assistance in the areas of transport and environmental infrastructure and related technical support measures. As a Member State from mid-2004, the Czech Republic became eligible for Cohesion Fund support, and its ISPA projects continued to be implemented according to the Cohesion Fund Regulations. During , 15 transport infrastructure, 40 environmental infrastructure, one mixed and two Technical Assistance projects were planned and implemented. Total eligible expenditure on the projects amounted to 2.0bn, of which ISPA/CF amounted to 1.2bn (61.6 percent). Of this total, 55.6 percent was allocated to transport ( 1.1bn eligible expenditure, 604.2m ISPA/CF), 42.5 percent to environmental projects ( 852.4m eligible expenditure, 598.6m ISPA/CF), 1.8 percent to mixed projects ( 35.3m eligible expenditure, 30m ISPA/CF) and 0.1 percent to Technical Assistance ( 2.4m eligible expenditure, 2.1m ISPA/CF). At the beginning of November 2011, absorption levels were relatively high in the Czech Republic. In the transport sector, 94.3 percent of commitments had actually been paid, whereas in the area of the environment the figure was lower at 83.6 percent. Spending ratios for Technical Assistance were the lowest, at 81 percent. The high absorption levels in the Czech Republic are also reflected in the high completion ratio of projects, with all transport projects and the majority of environment projects physically completed at the start of November 2011 (see Table 2.1). It is important to note that ISPA/CF transport investments in reached considerably smaller funding volumes in comparison to investments from national sources. 1

8 Table 2.1: ISPA/ CF commitments, payments and implementation progress Area of investment Commitments ( million) Payments ( million) Spending ratio (%) No. of projects Physically completed projects 1 Formally closed projects Transport Environment Mixed n/a n/a TA Total 1, , This refers to projects, for which payments are at around 80 percent or more of commitments. Source: DG Regio, Information on Cohesion Fund financial execution, cut-off date FUND MANAGEMENT AND IMPLEMENTATION 3.1 The Baseline Position Before 2000, national transport and environmental policies and key strategic decisions were prepared and implemented by the respective sectoral ministries, i.e. by the Ministry of Transport (MoT) and the Ministry of Environment (MoE). In addition, the State Environmental Fund (SEF) was a key implementing agency for environmental policy from 1992, and the State Fund for Transport Infrastructure (SFTI) was established in 2000 to facilitate financial management of transport investments. Other state sectoral entities (e.g. the Road and Motorway Directorate, the Czech Railway, the State Waterway Service) with traditional strategic management capacities existed prior to ISPA. In the transport sector, strategic decisions on the key priorities were based on a centralist approach, while decision-making on some environmental investments also involved the regional level of public administration from its establishment in Nevertheless, strategic and financial management of foreign aid prior to 2000 (including Multiprogramme PHARE, PHARE, SAPARD) was carried out by the Ministry of Finance (MoF), which developed the necessary capacities and acquired unique know-how. Investment priorities were suggested by sectoral ministries. However, in the case of ISPA, the anticipated needs included new implementation structures within existing institutions, adequate administrative capacities, IT systems and procedures for monitoring and evaluation, control procedures and a mechanism for procurement supervision, and a system for thorough strategic management of investment. 2 Nevertheless, the main capacitybuilding activities occurred around or after the year The Fund Management and Implementation Architecture, The architecture of the management and implementation of ISPA in and the CF in and is shown in Annex I. The role of the experienced MoF acting as a managing authority of ISPA was discontinued by a political decision to move this task to the Ministry for Regional Development (MRD) in 2002, and this resulted in the deterioration of the existing knowledge base and necessitated the establishment of new capacities. The 2 Based on a politically accepted overall strategy on project priorities selection. 2

9 overall implementation structure was defined by a Governmental Decree in The MoT and the MoE were Intermediate Bodies for the transport and environment sector respectively. The formation of structures was nevertheless becoming firmly established in 2003 in preparation for the CF commencement. In addition, the EDIS process requested a clear division of particular ISPA and later CF processes; accordingly, within the individual implementing institutions, separate units had to be established to undertake management, control and payment procedures. Moreover, an agreement on the delegation of competencies between the MoE and the SEF allowed more decentralised management of environmental investments. Delegation was necessary as, in contrast to the MoE, the SEF incorporated administrative and expert capacities to fulfil the role of IB (concerns e.g. capability to control eligibility of expenditure) and it would have been inefficient to create identical structures within the ministry. In addition, an inter-ministerial management committee was established at the start of the Cohesion Fund period to avoid problems from disagreements among the MA and the IBs stemming from the national Competence Act, i.e. from the perspective of national law, the three ministries were at the same level, so the government would take the decision. Therefore, this committee was established as a subordinated body of the government. With representatives from all levels of the implementation structure (to meet the requirements of the national Competence Act), the committee was responsible for presenting pre-final project selections to the Monitoring Committee. Whereas the management and implementation systems of the CF for the period were organised separately from those for Cohesion policy (even within the same institutions), they were merged in to eliminate bottlenecks in financial flows and enhance strategic efforts pursued via the Structural Funds. As a result, the MoT and MoE became managing authorities for the CF and ERDF in The Monitoring Committee The main capacity-building undertaken for the Monitoring Committee (MC) related to standardising procedures and formalising inputs for the meetings. The main changes, which were funded by TA, took place in 2004 as a result of the transition to the CF. The composition of the MC was enlarged after the EU accession by involving representatives of NGOs, of regions and municipalities, and of the Ministry of Agriculture. The MC was an active platform, focused on both strategic and operational issues of projects. Particular added value was perceived in the opportunity for final beneficiaries to confront problems and review progress in projects with EC representatives The Central Administration The main capacity-building undertaken in relation to the central administration related to (i) clear distinctions of responsibilities and competencies, (ii) preparation of consistent and well-justified strategies for the CF , (iii) an increase in the administrative capacity of the structure and its functioning, (iv) development of an electronic monitoring system 3

10 and (v) the examination of irregularities for the CF period. Some of these activities (i-ii) were funded predominantly from national sources and others (iii-v) by TA. The electronic monitoring system was funded by TA, it was fully operational in 2004, and since 2005 the final beneficiaries have been allowed to feed project-progress data directly into the system. This has ensured standardised monitoring overviews and reduced paper monitoring sheets on each project. The monitoring system was designed independently of the existing Czech IT monitoring system of financial flows, as a modification of the monitoring system used for the Structural Funds. Over time, further modules were added to monitor controls and financial flows and to solve irregularities. Technical Assistance also contributed to the development of capacities in publicity. The development of evaluation capacity commenced later on with the start of the CF; however, internal analyses were undertaken initially, rather than evaluations. The impact of staff turnover on capacity-building in the central administration was moderate in the period in comparison to when the creation of new structures created intense competition for experienced personnel in the absence of a Public Service Act. Nevertheless, senior officials were retained in the system over the entire period, which maintained the effectiveness of the delivery system. 3.3 The Effectiveness of Management and Implementation Architecture, The management and implementation of ISPA and the Cohesion Fund operated largely as required by the Regulations and was to a large extent successful. Given the starting point of ISPA, 3 the success comprised (i) the establishment and operationalisation of the delivery system, and (ii) the eventual successful absorption of the ISPA/CF allocation. In addition, the arrangements facilitated an increased capacity for project preparation corresponding to the ISPA/CF requirements, and the introduction and development of a monitoring system. Lastly, the effectiveness of the implementation system was enhanced by strong leadership and a proactive approach characterised by progressive thinking, particularly in some of the responsible institutions (e.g. the SEF). On the other hand, the main deficiencies in effectiveness comprised (i) the change of the managing authority during the ISPA period (i.e. from the MoF to the MRD), (ii) the weak position and coordinating role of the principal official coordinator of ISPA/CF (i.e. the MRD), (iii) persistent deficiencies in the electronic monitoring system, (iv) the complicated system for reimbursing funds to final beneficiaries, and (v) the late launch of the EDIS process and failure to gain accreditation to the Czech delivery system. 3.4 Evolution and the Integration of Learning Capacity-building activities during the period especially included training under the ISPA Technical assistance (TA) managed by the Commission (e.g. feasibility studies, CBA, project design) and TA-funded supervision of public procurement. Twinning at the MoT, MoE and the SEF was aimed at supporting a wide range of capacity-building; however, 3 E.g. endorsement of the respective Regulation on ISPA by the EC only in July

11 interviewees have agreed that its contribution was moderate due to the substantial discrepancy between the national needs and the scope offered by the Twinning arrangements. As recommended inter alia by the EDIS gap assessment, managing and implementing departments and units were reorganised around 2003/2004 within the MoF, the MoT, the MoE and the SEF to establish new units according to particular programme processes, and the procedures of strategic planning, monitoring, public procurement, payments and controls were formally divided. For the period, the role of Managing Authority was decentralised towards sectoral ministries, financial flows of the CF and the ERDF were unified, organisational units were created according to programme/project cycle processes jointly for CF and ERDF (previously, they were organised according to the particular funds), and the system of payments reimbursement was modified. The adjusted fund management systems are widely assessed to be working well. Gradual adoption of the new aspects of management and implementation (monitoring, control, evaluation, reporting) has helped to educate a new generation of public servants that utilise modern techniques of fund management and implementation. 4. STRATEGIC PLANNING 4.1 The Baseline Position Prior to 2000, the strategic planning of transport investments was the responsibility of the MoT, and transport policy had a long tradition in the Czech Republic. Due to the geopolitical change in 1989, a general strategy for the transport network was reformulated to reflect socioeconomic needs to reorient transport relationships from the East to the West. In 1998, the government approved the transport network strategy, but it did not meet the ISPA requirements (e.g. multi-criteria assessment of the need for individual investments was missing). Implementation strategies were also prepared. Essentially, the key investment priorities were decided predominantly by the MoT and relevant sectoral organisations (the Road and Motorway Directorate, the Czech Railway, the State Waterways Service), i.e. by central authorities on the basis of logical demands of the economy, and the main investment projects were selected on the basis of an analysis of priorities With regard to this stage, no significant need for specific capacity-building in strategic planning was identified by the research. The direction of environmental investments was ensured by the MoE and partly by the MoA on the basis of strategic documents. The first environmental policy strategy was produced in 1995, but updated in the light of pre-accession negotiations in 2001 to reflect requirements laid down by Regulation No. 91/271 on urban sewage treatment. Pre-2000 strategies met the ISPA requirements only partially. The key imperfections and hence the focus for capacity-building in future encompassed the assessment of expense-to-revenue ratio, analysis of needs, and the issue of project maintenance. Nevertheless, prior to 2000, these important aspects for capacity-building had not been identified and addressed. 5

12 Furthermore, strategic direction and investment priorities were justified by plans for the modernisation of waterlines and sewerage providing information on potential projects. 4 The plans were prepared by the MoA in cooperation with the MoE and regional and municipal administrations, and therefore the process was more inclusive than in the case of transport investments. 5 However, even though strategic documents provided a framework for priorities and project selection, the eventual decisions were to a certain extent a political question due to the competition for funding from a large number of environmental projects meeting the strategic criteria. 4.2 Strategic Planning Arrangements, The National Strategy for ISPA in the transport sector was derived in 2000 from the existing national strategies, prepared by national public administration and encompassing broadly designed priorities. Although priorities/projects were evidence-based, given the extensive underdevelopment of transport infrastructure, the key criteria for inclusion of specific projects in the strategy, or - more precisely for recommending them for EU funding were (i) compliance with the TEN-T network development plans, (ii) indisputable prioritisation for the national transport network, and, the most important, (iii) the state of technical preparation. To smooth the dialogue between the Czech Republic and the EC on project selection, Corridor and Project sheets were prepared, specifying the primary transport lines across the Czech Republic as well as potential projects and thus facilitating projects pre-selection from the EC side. For the period, a National Strategy for the Cohesion Fund in the transport sector was prepared, and the process was slightly more inclusive. 6 The strategy immediately extended the ISPA Strategy and, again, the priorities reflected the EU TEN-T goals and national transport strategy and were based on in-depth sectoral analysis and socioeconomic needs; however, they lacked any cost-benefit analysis. The treatment of the environmental impacts of proposed projects was an enhanced aspect of evidencing. Seven priority projects 7 were included into the CF strategy, and the priority did not change over time. With regard to the environment sector, a broad National Strategy for ISPA Environment was derived in 2000 from existing strategic documents of environmental policy by the MoE, including a wide range of priority spheres, which covered all possible projects. Gradually, supplementary strategies (e.g. plans for the modernisation of waterlines and sewerage produced by the MoA) specified the priorities in more detail (e.g. a definition of agglomeration was crucial), following the decision to concentrate the ISPA and later the CF sources on fulfilling the requirements of Directive No. 91/271/EEC by the Strategy for 4 In addition, other strategic plans dealt with specific environmental issues (e.g. renewal of former military areas, desulphurisation of coal factories), but they were not relevant for future targeting of ISPA/CF investments. 5 However, this is logical due to the nature of transport and environmental investments. 6 Due to lower levels of transport investments funded by ISPA/CF in compared to levels of domestic funding, there was a lack of interest from a wider spectrum of actors. 7 In this context, a priority project refers to, for example, a priority highway, but not a concrete part of the highway, which should be funded from the CF. This was a question of further prioritisation and a project s readiness. 6

13 Financing of the Implementation of Council Directive 91/271/EEC on Urban Wastewater Treatment, which has been annually updated and approved by the government. The strategic decision on the concentration of ISPA/CF on wastewater treatment was made at the central level, as a result of the commitments by the Czech Republic in the EU accession agreement. Nevertheless, detailed specification of concrete needs involved a wide range of national, regional and municipal stakeholders. Subsequently, the MoE developed the National Strategy for the Cohesion Fund in the environmental sector. The strategy was based on a profound analysis of the actual state of environmental problems, an assessment of the Czech Republic s international and EU commitments in the sphere of environment, and an assessment of the investment demands of individual priorities. In summary, the environmental priorities were stable over time and were gradually narrowed and specified towards drinking water and wastewater management priority projects. Apart from the sectoral CF strategies, the National Strategy for the CF Implementation was produced by the MRD and approved by the government in February 2004 in a form of a Governmental Decree, specifying implementation structures, procedures and responsibilities. 4.3 The Effectiveness of Strategic Planning Arrangements, The strategic planning arrangements for the period were successful in providing a generally well-justified priority framework. They included specific priority transport lines (e.g. a particular highway, but not specific parts of the highway selected for support) and priority environmental themes. Nevertheless, they were not adequate for directing and prioritising investments, as they covered literally all priorities. This was a consequence of the extensive absorption capacity in both the transport and the environment spheres. Eventually, the priorities were very stable and, in the vast majority of cases, were reflected in actual investments. Strategic planning arrangements were facilitated by the fact that the Czech Republic has good experience in planning and socio-economic analysis, supported by very good availability of necessary data, and hence reliable information on needs. On the other hand, the effectiveness of the ISPA/CF strategic arrangements was hindered by: The absence of an overall investment strategy linked to the Czech Republic s preparations for transposition of EU legislation (esp. Directive No. 91/271/EEC), which could have helped to narrow the priorities from the very beginning of the programming period, especially in the environment sector. As a result, not all supported projects in wastewater management helped to meet the respective EU Directive, and some projects that might have contributed towards fulfilling the EU legislation were not funded. The fact that the ISPA/CF environmental strategies were defined broadly allowed flexibility and uptake of the allocation. However, it eventually hindered efficiency, especially in the period, as numerous project applications were prepared within the priorities but not supported due to limited funds. The finance spent by project applicants to prepare these project applications was wasted. 7

14 Despite the strategic approach to the ISPA/CF investments, the overall contribution of concrete ISPA/CF transport projects (e.g. in the highway segment) might be undermined by a delay in investments in the same transport line funded from other (possibly national) sources, i.e. selected projects did not always comply with the broader context of other investments (for example, highway no. D8). In general, strategies were very ambitious and to a large extent unrealistic, but it is necessary to point out that ISPA/CF represented only one possible funding source. Another important factor related particularly to the transport sector is the level of politicisation even though priorities have been well justified by experts, political decisions have played a significant role in most cases. 4.4 Evolution and the Integration of Learning Due to the pre-existing planning culture in the Czech Republic, strategic planning did not represent a component of the ISPA/CF delivery system that would have required fundamental capacity-building. Nevertheless, adjustments (narrowing) were necessary in the environment sector when shifting to the CF because of the requirements established in the accession negotiations. As a result, environmental investments were concentrated on wastewater management. In addition, the term agglomeration had to be clarified for the purpose of joint projects. Overall, the influence of strategic planning on investment decisions increased over the period under review. However, at the beginning of the programming period, there was a lack of capacity/knowhow in (i) needs analysis, and (ii) the profound justification and argumentation of strategies based on CBA, environmental impact assessment (EIA), and feasibility studies. The CF strategies had to develop these new techniques of evidencing, which were nevertheless more important in the project design and development phase. In this instance, twinning and training activities under the TA represented a good opportunity to adopt these methodologies, but interviewees highlighted that learning by doing was the key for capacity-building. Experience gained during the and periods has impacted strategic planning for the CF as follows: integration of the CF strategy and sources into the mainstream of the Structural Funds; strategies incorporated new techniques of evidencing (CBA, needs analysis) and an obligation to conduct EIA when applying for building permission; the overall quality of strategic documents improved significantly (e.g. in order to avoid EC criticisms that occurred with the previous strategies); specifically for transport sector, more realistic priorities and goals were defined for the new generation of strategic documents; and 8

15 priorities within environmental strategies were defined in more detail, and the strategies and supplementary documents specified additional requirements in procurement as a result of experience from ISPA and the findings of EC audits (emphasis on 3E rule). Furthermore, conditions for acceptability were defined to avoid problems with water-operating contracts in water management infrastructure. 5. PROJECT DESIGN AND DEVELOPMENT 5.1 The Baseline Position In principle, the project design and development system was organised in the same way before and after 2000 in both sectors. The responsibility for transport project design and development was divided between the MoT and the state organisations subordinated to the MoT. In the area of environment, the key role was played by potential beneficiaries, such as municipalities or their semi-budgetary organisations established for the purpose of design, development, ensuring financing and the realisation of projects. Central institutions (the MoE, the SEF) were also important actors as far as the design and development of large environmental infrastructure projects are concerned. Whereas the transport area worked with a pipeline of funding-ready projects, a similar pipeline of environmental projects did not exist at the central level, even though the absorption capacity was immense. This is due to the nature of environmental projects and beneficiaries and the level of strategic decision-making (at the level of municipalities in contrast to the large state organisations in the transport sector). As far as capacity-building is concerned, some beneficiaries (mainly large cities, such as Plzeň) established specialised administrative bodies, but these were not only for ISPA projects but also as a tool to handle anticipated future EU funding possibilities. For other actors in the system, a progressive increase of staff or the establishment of an EU funds department were more typical. Although much greater development of expertise was necessary, this was not evident before 2000 as concrete needs were unknown at that time. 5.2 Project Design and Development Arrangements for ISPA/CF, In both sectors, external consultants were involved at different stages of project design and development, especially in project option appraisal, project design and technical appraisal, project cost estimation, demand assessment and tariff-setting, identification and valuation of project socio-economic benefits (CBA), and the identification and assessment of project environmental impacts/scope for mitigation (EIA). On the other hand, identifying and securing project finance was seen exclusively as an internal issue. The involvement of external consultants has been increasing, but it has depended on the capacity and experience of the beneficiary. Central institutions and large cities could have employed specialists or could have established specific administrative structures, and therefore there was potential to perform some of these tasks internally. This approach represented a relatively frequent practice. The requirements for technical skills and experience specific 9

16 to the project were the main factors driving consultants involvement. The external consultants were previously based in and working on projects in the Czech Republic. In the field of transport, the MoT and its semi-budgetary organisations 8 actualised a pipeline of projects in different stages. The most appropriate variant of each project was selected based on a feasibility study comparing the considered project alternatives. Given the fact that the Czech Republic lacked main transport lines and that the development of large transport projects has usually taken years, funding-ready projects for ISPA/CF were already available when the opportunity arose to utilise ISPA/CF sources. In the transport sector, CBA and EIA were used especially to compare project options and to set design specification/standards. It was obligatory to elaborate the EIA in accordance with Czech legislation. Considering ISPA conditions (mainly its time-schedule and integration into the TEN-T), eligible projects were limited in number. Preparation of an application was understood as a rather formal and complicated process, presenting suitable justification to ensure EC approval of already technically prepared projects. The process was considered to be timeconsuming. Technical assistance was used only for the preparation of applications, and in this phase framework contractors and other measures of technical assistance (e.g. training in CBA and in other specific topics) were useful. The EU Delegation also had an important role in knowledge transfer. The process of project design and development was two-stage in the environment sector divided into project concepts and project applications. At the beginning, there was a lack of awareness and interest among potential applicants, and therefore it was necessary to stimulate absorption capacity, and joint projects (e.g. encompassing numerous small towns) were encouraged. Working groups for the collection of project ideas (prepared by potential applicants but intensively supported by experts from central implementing institutions and the EU Delegation) were established in the majority of self-governing regions, composed of representatives of the MoE, the MoA, the SEF, regions, the EU Delegation and independent experts. The working groups decided which project themes were suitable for further development. Next, at the central level, another working group that included a wide range of stakeholders assessed the selected priority project themes and decided which should be developed into project applications on the basis of a more detailed technical and economic specification. Ensured co-financing was also an important criterion. Project applications were hence developed after the approval of the initial project ideas, and this was the responsibility of the applicants, based on their internal capacity or by working with external consultants. CBA and EIA were outsourced and were prepared to meet EU application requirements and to determine the funding gap. In any case, the national implementation system assisted project applicants intensively, and the mutual consultations enhanced knowledge transfer and substituted for the absence 8 I.e. the Czech Railways (since 2003, Railway Infrastructure Administration), the Road and Motorway Directorate of the Czech Republic and the Directorate of Waterways. 10

17 of systematic methodological support that characterises the period. The applications (formal aspects, financial and technical analysis) were pre-controlled by the SEF and the EU Delegation. The capacity of the SEF was increased also by Technical Assistance (e.g. supporting economic analyses within project development, or translation of documentation). At the level of beneficiaries, Technical Assistance was of only minimal use; the involvement of international project partners (companies, NGOs, public institutions, etc.), particularly regarding their experience in project argumentation and justification, was perceived as more important. Due to the broadly defined environmental strategy and limited funds, many funding-ready projects could not be supported. Although some of these projects were included in the project pipeline, the applications still had to be revised. Consequently, the initial project development arrangements led to financial and capacity costs for many unsuccessful applicants. Subsequently, in , a suitable project pipeline was established, and therefore the stage of submitting project concepts was abolished. Nevertheless, the main criterion for project selection was its readiness for funding, supplemented by political interests. 5.3 The Effectiveness of Project Design and Development Arrangements, It could be argued that the arrangements for designing and developing transport projects worked well in These arrangements resulted in the reasonably rapid design and development of projects that were funding-ready, and they were also utilised in the period as a proven system. However, some problematic aspects were identified amongst the arrangements as hindering the implementation of ISPA/CF investments. From the categories outlined, firstly, identification and assessment of project environment impacts/scope for mitigation (EIA) resulted in delays because the solution of environmental aspects was often time-consuming and expensive and involved difficult negotiations with environmentalists. Environmental impacts of investments have been an important topic in transport projects in both the and the periods. Secondly, complicated land property rights have sometimes impeded the preparation of projects. Thirdly, weak coordination of transport investments funded from different sources initially caused the emergence of a double-track system of decision-making on the investments that needed to be revised. This problem was mitigated by the increasing importance of European resources distributed in the Czech Republic in comparison with national grant systems; hence the national administrative system has been sidelined. Nevertheless, the double-track system still prevails in principle. In the environment sector, the prevailing assessment is also positive, i.e. that the arrangements for designing and developing projects in worked adequately. Nevertheless, the situation was more complicated in this sector primarily because of the character of environmental beneficiaries they were high in number and they had a greater dependence on factors that were not easy to predict. In addition, municipalities were less experienced and received much less state support than the state transport organisations. Moreover, at the beginning of the ISPA implementation, there was a relatively generous and straightforward national funding system that did not require final beneficiaries to provide 11

18 co-financing. This competition of national and EU programmes contributed to initial concerns about sufficient absorption capacity. Gradually, the system began to work well, all levels became better informed, and interest among potential beneficiaries increased significantly. The SEF played a positive role in increasing the effectiveness of environmental project design and development arrangements, in which consultations encouraged the preparation of projects and supported a higher quality of project applications. Within the special administrative bodies set up for the purposes of project design and development, the real benefit comprised the scope for specialisation and concentration amongst staff within the institution, and capacity-building became more systematic. Amongst the arrangements for designing and developing projects that hindered the implementation of ISPA/CF investments, weaknesses can be highlighted in the identification and evaluation of project socio-economic benefits (CBA). This new instrument was applied rather formally at first, as its usage was required by the EC. The interviewees stressed that a more systematic approach in know-how transfer (e.g. more training of central institutions and potential applicants) would have facilitated more rapid acceptance of the CBA. In addition, water-operating contracts represented a very significant issue that hindered project development and overall implementation, as the operators of the water management infrastructure were private companies, and it was necessary to ensure a fair environment for all stakeholders. In some instances, projects even proved ineligible for support due to conditions set in these contracts. 5.4 Experiences of the Decision Process The length of the decision process was different during and The interviewees stated that it usually took 2-to-9 months in the case of environmental projects (but in some cases delays exceeded a year) and 6-to-18 months for transport projects. The length of the decision process jeopardised project realisation in some cases (e.g. due to expiration of various permissions). The CF period is seen as more effective than the ISPA period, because by then the beneficiaries were more experienced and the Commission was not so overloaded. Commission overload is perceived as one of the main reasons for the long delays in the period, and the situation up until 2010 is thus considered less effective than in the CF period. In , no project application was rejected. In rare instances, if a serious problem endangered project approval, the project was withdrawn by national institutions and substituted by another project. Requests for clarification usually came within three months or even within a few weeks in the period. Requests for additional information were justified in principle, but some questions were regarded as inappropriate, possibly due to a misunderstanding of the Czech situation. This problem is of a long-term nature, and it is felt that staff fluctuation within EU institutions has contributed to making the delivery system less effective. The most important questions in the transport sector concerned the environmental aspects of projects, for which the intermediary role of the EU Delegation experts who explained the EU perspective was appreciated. 12

19 5.5 Evolution and the Integration of Learning In the project design and development component, the only significant change in was in the preparation of project applications. The most important milestone was EU accession and the transfer of ISPA to the CF funding system. However, the modifications did not entail any important changes to the internal system. The key change comprised an acceleration in communication with the EC and in the system of tender documentation approval (by no longer requiring EU Delegation approval). Furthermore, implementation was facilitated by better knowledge of the EU funding system and no further requirement for translations. In the environmental sector, the stage of submitting project concepts was abolished, and the system has been based on an open-call approach. This transfer was logical, as the absorption capacity was already encouraged, and the two-stage approach was no longer required. Among the investments in capacity-building in within this component, the experience with the framework contractor was highly appreciated as an effective intermediary between the DGs and the Czech counterparts. The advisory/controlling role of the EU Delegation was also assessed positively. Concerning JASPERS, the interviewees identified important drawbacks. While the Czech authorities understood the JASPERS experts as EU delegates and valued their opinions, the EC did not consider these experts assessments (in project completion notes accompanying project applications) as binding, and requests were made to analyse some topics again. This mismatch was found to have substantially prolonged the appraisal process. Regarding the learning process, the know-how deficit was particularly pressing in areas specific to the EU funding system (i.e. how to write comprehensible project applications, performance of CBA or EIA, project appraisal process or feasibility study). For all these topics, technical support measures and twinning activities were utilised. However, trial and error and learning by doing often proved to be the best ways to acquire these skills. Amongst the know-how transfers, the techniques of CBA and feasibility studies imposed by the EU were gradually accepted by the Czech stakeholders as important instruments with well-developed methods. Whereas they were considered as a formality to start with, unified models were developed for all applicants for the period, and these models became even more precise in PROCUREMENT 6.1 The Baseline Position The very first Czech law on public procurement after the collapse of communism was adopted in and came into force in 1995 on the basis of a model act on procurement produced by UNCITRAL (United Nations Commission on International Trade Law). In the light of the forthcoming EU accession process, the Act was modified several times. Prior to 2000, procurement procedures of PHARE projects were undertaken according to the Decentralised 9 Act no. 199/1994 Sb. on Public Procurement. 13

20 Implementation System (DIS) Manual. The responsibility for the organisation of procurement rested on particular beneficiaries/investors; however, the relevant Czech institutions (mainly MoF) and the EU Delegation controlled and approved all steps of the procurement process. The Centre for Foreign Assistance at the MoF contained significant knowledge of EU procurement standards, but a need for capacity-building was identified (although after 2000), as there was practically no experience with public procurement according to EU standards in the Czech Republic. 6.2 Procurement Arrangements for Procurement arrangements differed between the pre-accession and the periods. In the pre-accession period, tendering and contracting of ISPA projects followed the rules in the Practical Guide to PHARE, ISPA and SAPARD contract procedures (PRAG) and were based upon the FIDIC guidelines for specifications of technical aspects of tender documentation. Although responsibility for procurement was officially placed on final beneficiaries, all the steps and parts of the procurement process (e.g. the preparation of tender documentation, the composition of appraisal committees, or the conclusion of agreements with suppliers) had to be approved in advance by the EU Delegation after having been approved by the relevant Czech implementing institutions (SEF, MoE, MoT, MoF, MRD). At the start of ISPA, the EU Delegation played an incremental role in spreading know-how on public procurement within the Czech implementation structures. Representatives of the EU Delegation, as well as the SEF in the case of environmental projects and the MoT for transport investments, were present during the assessment of bids to supervise compliance with the PRAG rules (the EU Delegation as an observer, the SEF and MoT representatives as members of appraisal committees). At the beginning, as for other components of ISPA implementation, there was a need to set up adequate structures within the institutions, as well as building up procedures and expertise to use PRAG. Specifically, acquiring new thinking on decision-making on public funds within the Czech administration required developments and procedures to strictly control the overall procurement process; its stages were of key importance, as hitherto public procurement did not correspond to EU standards. Capacity-building was a continuous process based on day-to-day practice, acquiring essential know-how and exchanging experience between the EU Delegation and the relevant staff of Czech institutions when exante controls of tenders and further stages of public procurement were undertaken. An ISPA seminar organised by ECORYS is widely considered to have introduced useful insights into public procurement for relevant selected public servants. Final beneficiaries in the transport sector (the Road and Motorway Directorate, the Czech Railway) were more experienced in carrying out tenders for a large project than were the beneficiaries (mostly municipalities) of environmental projects, but in both cases specialised companies assisted the preparation of tender documentation. As a side-product of the ongoing EDIS process, Czech implementation structures gradually embraced the fact that, from EU accession, Czech institutions would be fully responsible for the correctness and transparency of public procurement. The EU Delegation recorded gradual improvements in tender documentation submitted for approval. The EDIS process 14