THE COUNCIL OF MINISTERS DECREED:

DECREE No. 62 of 21 MARCH 2007 ADOPTING NATIONAL RULES ON ELIGIBILITY OF EXPENDITURE UNDER THE OPERATIONAL PROGRAMMES, CO-FINANCED BY THE STRUCTURAL FUNDS AND THE COHESION FUND OF THE EUROPEAN UNION, WITHIN THE 2007-2013 FINANCIAL FRAMEWORK Effective as of 1 January 2007 Promulgated, SG No. 27 of 30 March 2007 THE COUNCIL OF MINISTERS DECREED: Article 1. The rules on eligibility of expenditure under the Operational Programmes, co-financed by the Structural Funds and the Cohesion Fund of the European Union, hereinafter referred to as the rules, shall hereby be adopted. Article 2. The rules shall apply to all expenditure paid under the Operational Programmes, as follows: 1. Operational Programme Development of the Competitiveness of the Bulgarian Economy ; 2. Operational Programme Human Resources Development ; 3. Operational Programme Administrative Capacity ; 4. Operational Programme Technical Assistance ; 5. Operational Programme Regional Development ; 6. Operational Programme Transport ; 7. Operational Programme Environment ; 8. the Operational programmes under European territorial cooperation objective. Article 3. (1) The expenditure under the Operational Programmes actually paid from 1 January 2007 until 31 December 2015 shall be deemed eligible. In the event of amendment of or supplement to any Operational Programme, the expenditure shall be deemed eligible as of the date of submission of the request for such change or supplement to the European Commission. (2) During the period from the date of presentation of the Operational Programme to the European Commission and the date of its approval, the Managing Authorities and the Intermediate Bodies, if vested with such function, may enter into contracts with the beneficiaries in amounts of up to 50 percent of the total value of the annual financial resources, committed under the respective Operational Programme for 2007. (3) The expenditure under the Operational Programmes for activities, determined and performed under the responsibility of the respective Managing Authority and in accordance with the criteria for selection of activities, approved by the respective Monitoring Committee and in accordance with the rules under this Decree and the detailed

rules on eligibility of expenditure, approved for the respective Operational Programme shall be deemed eligible. (4) The expenditure for remunerations and supplements to the remunerations of employees, paid in connection with the preparation, management, monitoring, evaluation, information and control over the Operational Programmes, shall be deemed eligible for financing as part of technical assistance. Article 4. (1) The expenditure, paid by beneficiaries under Operational Programmes in the process of the implementation of the activities in accordance with Council Regulation (EC) No.1083/2006, hereinafter referred to as General Regulation, shall be in monetary form, taking into account the exceptions, indicated in paragraph (5). (2) In the case of State aid schemes within the meaning of Article 87 of the Treaty establishing the European Community expenditure, paid by beneficiaries shall denote aid, provided to individual recipients from the administrators of aid, within the meaning of Law on State Aid. (3) When granting State aid under paragraph (2) all aid administrators, as well as the aid beneficiaries, shall be obliged to check, comply with and apply the rules on State aids, adopted in the European Union, and payments on the part of beneficiaries must correspond to the goals, eligible expenditure and the conditions for each individual type of State aid. (4) In cases other than those, referred to in paragraph (2) expenditure, paid by beneficiaries shall denote payments, made by legal entities, determined in the respective Operational Programme, directly responsible for awarding the specific activity. (5) Depreciation, in-kind contributions and organization and management expenditure may be considered as expenditure, paid by beneficiaries, provided that the amount of the expenditure would be accounted for based on accounting documents, equivalent in evidence strength to invoices and according to the provisions of paragraphs (6) (8). (6) The expenditure for depreciations of depreciating assets, which are directly relevant to the objectives of the activity, shall be eligible expenditure, provided that: 1. the assets would not have been purchased, even in part, using public grant aid; 2. the expenditure for depreciation shall be calculated in accordance with the rules, contained in the Law on Corporate Income Taxation; 3. the expenditure would relate exclusively to the co-financing period of the respective activity. (7) The in-kind contributions shall be deemed eligible expenditure, provided that: 1. co-financing from the Structural Funds and the Cohesion Fund would not

exceed the total eligible expenditure, after subtracting the value of such contribution; 2. the in-kind contribution shall constitute provision of land or real property, supply of materials, research or professional activity or unpaid voluntary labour; 3. the in-kind contribution shall not apply to financial engineering measures; 4. the value of the in-kind contribution would be determined by an independent appraiser or an independent auditor; 5. in cases of provision of land or real property the value would be certified by an independent licensed appraiser or respectively authorized official body; 6. in cases of unpaid voluntary labour its value shall be determined, taking into account the length of time worked and the customary hourly or daily rates of compensation for equivalent labour; 7. the provisions regarding purchase of land and real estates shall be complied with, where applicable. (8) Organization and management expenditure shall be eligible, if they are based on actual expenditure, which is relevant to the implementation of the respective activity or to the average actual expenditure, which is relevant to activities of the same type. In any case the organization and management expenditure must not exceed 10 percent of the total eligible expenditure, except indirect costs under Article 8(3) item 2 and the expenditure under Article 10(5) for organization and management of the activities within the European territorial cooperation objective. (9) Paragraphs (6) (8) shall also apply to individual recipients under paragraph (2) in cases of aid schemes under Article 87 of the Treaty establishing the European Community and aids, provided by bodies, designated by the Republic of Bulgaria. (10) Payments in regard to financial engineering instruments: venture capital funds, guarantee funds and loan funds, as well as the financial products ensured via them for enterprises, such as loans, guarantees and equity, in accordance with Article 44 of the General Regulation, shall be treated as expenditure paid in accordance with Article 78(6) of the General Regulation, provided that the expenditure would meet the conditions of the detailed rules on the respective Operational Programme. (11) The intermediate and final payments shall be made by the beneficiaries against invoices. Where this would not be feasible, payments shall be made against accounting documents, equivalent in evidence strength to invoices under Bulgarian law. (12) The following expenditure shall be also eligible: 1. costs of legal advice and Notary services; 2. costs of technical and financial experts, if directly related to the activities cofinanced and required for their the preparation or implementation; 3. book-keeping and audit costs, costs of insurance of fixed tangible assets, acquired as a result of the activity, if related to the requirements, imposed by the respective Managing Authority.

(13) The following expenditure shall be deemed ineligible: 1. fines, financial sanctions and dispute settlement costs; 2. the expenditure on guarantees, provided by a bank or any other financial institution, except for the expenditure under Article 4(10) and Article 10(1) p.3. Article 5. (1) The expenditure, related to the following agreements with subcontractors shall be deemed ineligible for financing under the Operational Programmes: 1. contracts with sub-contractors, which increase the expenditure for carrying out the activity, without creating added value; 2. contracts with brokers and consultants, where the payment is specified as a percentage of the total expenditure for the activity, unless the beneficiary would be able to prove that payment would relate to work or service actually performed. (2) In regard to all contracts with sub-contractors the sub-contractors shall undertake to make available to the audit and control bodies, the entire required information, relevant to the activities, assigned to them. Article 6. (1) As regards income-generating projects, specific rules shall be determined, regulating the treatment of revenue, which are precisely defined in the detailed rules on eligibility of expenditure for each Operational Programme. (2) The detailed rules under paragraph (1) must be complied with Article 55 of the General Regulation. Article 7. The following expenditure shall be ineligible for co-financing from the Cohesion Fund: 1. interest on loans; 2. refundable value added tax; 3. residential construction; 4. purchase of land, the value of which would exceed 10 percent of total eligible expenditure for the respective activity; 5. decommissioning of nuclear power plants. Article 8. (1) The European Social Fund (ESF) shall ensure support for eligible expenditure which, without prejudice to Article 53(1) b) of the General Regulation, may include all kinds of financial resources with joint participation of employers and employees. The support would be in the form of grant aid, reduced interest rates on loans, micro-credits, guarantee funds and purchase of goods and services in compliance with the public procurement rules. (2) The following expenditure shall be ineligible for co-financing from the European Social Fund 1. refundable value added tax; 2. interest on loans;

3. purchase of furnishings, equipment, vehicles, infrastructure, real estates and land with the exception of the expenditure under Article 11. (3) The following expenditure shall be eligible for co-financing from the European Social Fund, if paid in accordance with national legislation, including book-keeping rules and under the following specific conditions: 1. labour and other remunerations, scholarships and other income, paid by third parties in favour of the participants in a certain activity and certified to the beneficiary; 2. in cases of grant aid indirect costs, declared on the basis of a flat rate, not exceeding 20 percent of the indirect costs of the activity. Article 9. (1) The following expenditure shall be ineligible for co-financing from the European Regional Development Fund (ERDF): 1. interest on loans; 2. purchase of land, the value of which would exceed 10 percent of total eligible expenditure for the respective activity; by way of exception and in duly substantiated cases the Managing Authority may authorize a higher percentage for activities, related to protection of the environment; 3. decommissioning of nuclear power plants; 4. refundable value added tax; (2) Expenditure for residential construction, paid under the conditions, defined in the Operational Programmes, and in accordance with Council Regulation (EC) No.1080/2006 shall be eligible for co-financing from the European Regional Development Fund, related to: 1. multi-family residential buildings; 2. buildings property of public bodies or non-profit legal persons, used as residential buildings by low-income households or individuals with special needs. Article 10. (1) As regards expenditure under European territorial cooperation objective, financed via the European Regional Development Fund, the following expenditure shall be eligible: 1. charges for transnational financial transactions; 2. bank charges for opening and separate account(s) service if the implementation of a certain activity would require opening such accounts; 3. the expenditure for guarantees, provided by bank or another financial institution if such guarantees would be required by national or Community legislation. (2) In addition to the technical assistance under the Operational Programmes in compliance with Article 46 of the General Regulation, the following expenditure shall be eligible, paid by public bodies for preparation or implementation of certain activity: 1. costs of professional services, performed by public bodies, other than the beneficiary, in the preparation or implementation of activities; 2. costs for providing services, related to the preparation and implementation of

certain activity, performed by a public body, which is also the beneficiary and which is implementing the activity autonomously, without seeking help from other external service providers. (3) The public bodies shall issue invoices to the beneficiary for the expenditure paid under paragraph (2), p. 1 or certify the expenditure by documents, equivalent in evidence strength, which enable identification of the actual expenditure, paid by the respective body under this activity. (4) The expenditure under paragraph (2) shall be eligible, if they are of a complementary nature and would be related either to the expenditure, actually and directly paid for co-financing of the activity, or made in kind. They shall be certified by documents, which enable the identification of the actual expenditure or the in kind contributions, provided by the respective public bodies under this activity. (5) The organization and management expenditure shall be eligible if based on actual expenditure, which is relevant to the implementation of the respective activity or to the average actual expenditure, which is relevant to activities of the same type. The flat rates, based on average costs, may not exceed 25 percent of those direct costs for a certain activity, which may impact the figure of the organization and management expenditure. The calculations of the flat rates shall be duly documented and periodically checked. Article 11. Without prejudice to the exceptions, provided for in the special regulations of the Funds, the European Regional Development Fund and the European Social Fund may finance in a complementary manner and in compliance with the 10 percent limit on Community financing for each priority axis of the Operational Programme activities, falling within the scope of aid from the other fund, provided that those activities would be required for the proper implementation of the operation and directly related to it. Supplementary Provisions 1. Within the meaning of this Decree: 1. Refundable value added tax shall denote the amount of the value added tax paid which the person, registered under the procedure of the Law on Value Added Tax would be entitled to subtract from its liabilities under the said Law, including where, it had been entitled to it, but failed to benefit under the terms and conditions of the law. 2. Public bodies shall denote the enterprises, funded from the national budget, pursuant to 1, p. 1 of the Supplementary Provision of the Law on Accountancy. Transitional and Final Provisions 2. This Decree shall be adopted on the basis of the Treaty of Accession of the

Republic of Bulgaria to the European Union and, Article 56(4) Council Regulation (EC) No. 1083/2006. 3. The implementation of this Decree shall be assigned to the Minister of Finance, the Minister of Economy and Energy, the Minister of Labour and Social Policy, the Minister of State Administration and Administrative Reform, the Minister of Regional Development and Public Works, the Minister of Transport and the Minister of Environment and Water. 4. Within a period of 3 months of the adoption of this Decree the Ministers under 3 overseeing the structures, designated as Managing Authorities of the Operational Programmes, must propose for approval by separate Decrees of the Council of Ministers detailed rules on eligibility of expenditure under the respective Operational Programme, with the exception of the Operational programmes under e European territorial cooperation objective, for which the deadline shall be set at 6 months. The preparation of the detailed rules on eligibility of expenditure on all Operational Programmes shall be conducted under the methodological guidance and coordination of the Central Coordination Unit. 5. The detailed rules under 4 shall apply to all expenditure, paid in accordance with Article 3(1). 6. Within a period of 3 months of the adoption of this Decree the Minister of Finance shall issue an instruction concerning the cases of treatment of the value added tax as eligible expenditure. 7. This Decree shall enter into force as of 1 January 2007.