REPUBLIC OF SERBIA

Ministry of Finance

REPORT ON PROGRAMMING PRE-ACCESSION INSTRUMENT (IPA) FOR 2008

August 2008

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CONTENTS

INTRODUCTION...............................................................................................................3

1. BASIC IPA CHARACTERISTICS.................................................................................4

1.1 LEGAL AND STRATEGIC FRAMEWORK.........................................................................4 1.2 DECENTRALIZED IMPLEMENTION SYSTEM FOR MANAGEMENT OF EU FUNDS ...............6

2. PRINCIPLES AND BASIS FOR PROGRAMMING EU FUNDS...................................9

2.1 BASIC PROGRAMMING DOCUMENTS..........................................................................10 2.2 STEPS IN PROGRAMMING.........................................................................................10

3.ОVERVIEW OF ACTIVITIES IMPLEMENTED IN THE IPA 2008 PROGRAMMING PROCESS.......................................................................................................................12

3.1 PHASES OF IPA 2008 PROGRAMMING PROCESS.......................................................12 3.2 CHARACTERISTICS OF IPA 2008 PROGRAMMING PROCESS.......................................15 3.3. CO-FINANCING .......................................................................................................16 3.4. SECTORAL ANALYSIS..............................................................................................17

4. ADVANTAGES IN THE IPA 2008 PROGRAMMING PROCESS ..............................23

5. CHALLENGES IN THE IPA 2008 PROGRAMMING PROCESS...............................29

6. RECOMMENDATIONS AIMED AT IMPROVING IPA MANAGMENT.......................36

ANNEX I – LIST OF PROJECTS FOR IPA 2008...........................................................44

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Introduction

European Commission (hereinafter: EC) has, in order to simplify the method of planning and managing its budget, passed the decision to replace all pre-accession funds used until 2006 (Phare, ISPA, SAPARD and CARDS), with new pre-accession financial assistance instrument (IPA – Instrument for Pre-accession Assistance). The main objective of creating new financial instrument, IPA, was to make the candidate countries and potential candidates for the EU memebership to use unique and simpler financial rules that would enable quicker cohesion and integration.

The Ministry of Finance, based on Law on Ministries1, took over responsibilities of «harmonizing activities in the field of planning, managing and using donations, European funds and other types of international development assistance». These responsibilities are managed by the Sector for Programming and Management of EU Funds and Development Assistance2. Based on the Governmental Decision 05 no.: 119-2821/2007 dated 31st May 2007, Prime Minister in charge of European Integrations has been appointed as a National IPA Coordinator, while the Sector for Programming and Management of EU Funds and Development Assistance has been appointed for National IPA Coordinator’s Secretariat.

Report on IPA Programming in 2008 underlines and analyses basic characteristics of the IPA 2007 planning and programming process. This document identifies advantages and shortcomings in IPA 2008 programming process, and provides recommendations for the next period, in order to implement measures for improving programming process, development and strengthening capacities in line ministries and to define roles and responsibilities in the programming process, for enhancing capacities and contributing to better efficient use and absorption of pre-accession EU funds.

IPA 2008 programming process represents additional step in raising awearness in the line ministries and other institutions about the importance of long term strategic planning in order to efficiently use EU funds, improve inter-sectoral coordination between institutions, need for establishment of institutional framework for introduction of decentralized implementation system for management of EU funds, as well as necessity of regular training of employees in order to adequately respond to difficult procedures, regarding programming and management of IPA projects.

1 Law on Ministries «Official Gazette of the RS», no.48/07; New Law on Ministries «Official Gazette of the RS», no. 65/08., 2 Sector for Donations and Development Assistance has been, according to the Law on Ministries, taken over by the Ministry of Finance.

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1. Basic IPA characteristics

1.1 Legal and Strategic Framework EC has adopted for the period 2007-2013 new financial instrument, IPA, for providing assistance to the candidate and potential candidate countries for EU membership. Legal basis for IPA has been stipulated in the Regulation of the European Union Council number: 1085/2006, which has been adopted on July 17th 2006 (hereinafter: IPA Framework Regulation). Financial implementation of the Regulation on Establishing IPA is regulated by the Enactment of the Commission (EC) number: 718/2007 dated June 12th 2007 (hereinafter: IPA Implementation Rules).

IPA Framework Agreement between the Government of the Republic of Serbia and EC3 has been signed on November 29th 2007. The Framework Agreement is an international agreement between the Commission of European Comunities and third countries, representing legal basis for cooperation between those countries and the Commission regarding implementation of the European Union financial assistance. Rights and obligations defined by the provisions of the Regulation no: 718/2007, regulating bilateral cooperation between the European Communities’ Commission and beneficiary countries are transposed into Framework Agreement, especially those pertaining to decentralized implementation system for management of EU funds, system of management and control that must be established, transfer of management authorizations by the Commission to the beneficiary country. The quoted provisions have been completely transposed into Framework Agreement and complemented by general provisions, usual for bilateral agreements on developmental cooperation, including clauses pertaining to interpreting and execution of agreement, enactment and possible amendments of the Agreement.

Financial value of IPA for candidate countries and potential candidates for a six-year period is 11.468 billion euros. The financial projections within Multi-Annual Indicative Financial Framework envisage that the Republic of Serbia shall have for the National IPA 2007 Program 186.7 million euros, for 2008 190.9 million euros and for 2009 194.8 million euros. Assistance using Pre-Accession Assistance Instrument (IPA) should offer to candidate countries, as well as to potential candidates, support in efforts for strengthening their democratic institutions and the rule of law, European integrations, state administration reform, economic reform, increase of employment, respect of human and minority rights, promoting gender equality, strengthening regional cooperation, reaching sustainable development and poverty reduction. Looking at the amount of the funds, IPA financial assistance is the highest financial packagae among

3 Original title is: Framework agreement between the Government of Republic of Serbia and the Commission of the European Communities on the rules for co-operation concerning EC financial assistance to the Republic of Serbia in the framework of the implementation of the assistance under the Instrument for Pre-accession assistance (IPA) (Official Gazette no.124/2007). From the Framework Agreement as implementation act derive the Annual Financial Agreements- agreemnr that do not necessitate ratification in the National Assembly, but only decision of the Government of the Republic of Serbia. The Financing Agreement between the Government of the Republic of Serbia and the Commission of European Communities concerning the National Program for Serbia, under the IPA Transition Assistance and Institutions Building Component for 2007, signed in Belgrade on April 4th 2008.

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the Western Balkan countries, which at the same time means that the state authorities and institutions of the Republic of Serbia have to prepare and implement the biggest number of programs and projects.

Measures for implementing required priorities in the outlined documents are defined by Annual IPA Program for each individual beneficiary country for IPA funds. The National IPA Program consists of the final and approved list of projects for financing during one programing year. Beneficiary country and the authorities of the European Commission participate together in preparation of IPA Annual Programme. The Government and the EC shall sign Annual Financial Agreement for each IPA programming year, setting the legal basis for official beginning of implementation of formulated projects.

The IPA has five basic components4:

1. Transition assitance and Institution building 2. Cross-border cooperation 3. Regional development 4. Human resources development 5. Rural development.

Components 1 and 2 are ermarked for potential candidate countries, while the components from 1 to 5 are ermarked for the candidate countries.

The Republic of Serbia, as well as other potential candidate countries shall be enabled to use funds for financing priorities, programs /projects from the first two components. It is also possible to use the first component’s funds to finance programs/projects from the components three, four and five. Reason for such division is difference in the position in relation to the EU membership, as well as lack of existence of adequate regulations, institutions and trained public servants for managing all components according to EU rules, established by decentralized implementation system for management of EU funds.

The first IPA component aims at assisting beneficiary countries in fulfilling political and economic preconditions for acquiring EU membership status that is in implementing requirements from the Stabilization and Association Agreement. The second component supports cross-border activities between beneficiary countries and EU member countries. It also supports participation of the beneficiary countries in trans-national and neighborhood programs with the member states and third countries.

Multi-Annual Indicative Financial Framework-MIFF, is defined by the European Commission and shows indicative distribution of IPA funds per beneficiary and per components. Multi-Annual Indicative Financial Framework covers three-year period and explains criteria for allocation of funds depending on the needs of absorption and managment capacity of the beneficiary country.

Multi-Annual Indicative Planning Document – MIPD is prepared for each IPA beneficiary country and defines priorities per axes, including funds for implementing set of priorities during three budget years. Multi-Annual Indicative Program Document covers three years period and shall be revised annually.5

4 Adequate programs/projects are financed from the quoted components. 5 MIPD for the period 2008-2010 is still in the compilation phase.

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1.2 Decentralized Implemention System for Management of EU Funds

According to the provisions of IPA Implemementing Rules, IPA beneficiary country, are obligated to establish Decentralized Implementation System – DIS for management of EU funds. The IPA Implemementing Rules envisages that the European Communities’ Commission and each beneficiary country must conclude Framework Agreement in order to regulate implementation of financial assistance intended to beneficiary country.

Besides direct financial support of the EU, by signing Framework Agreement the Republic of Serbia took over obligation of developing legal and administrative framework for management of EU assistance, based on introduction of DIS. That represents preparation of the Republic of Serbia for managing cohesion/structural EU funds, after acquiring membership status. This Agreement stipulates obligations to form structures in required period, meaning establishing adequate institutions tthat will enable the Government as well as European Commission to effectively and in accordinace with the rules use and manage EU funds.. The whole process of establishment, accreditation as well as functioning of DIS will be supervised by European Commission.

Decentralized implementation system (DIS) for management of EU funds represents a system within which the beneficiary country gradually resumes responsibilities for management of EU funds, including all phases of project cycle management – from programming to evaluation and monitoring, financial and analytical reporting. The basic prerequisite for accreditation of DIS is that the beneficiary country should establish functional and stable institutional system for management of funds. Accreditation of DIS is a guarantee that the established system is functional and thus can provide adequate use and management of IPA funds and is a precondition for acquiring candidate country status.

Process of introducing DIS is rather complex and extremely long term process and as such requires direct participation and consensus of all institutions in the Government of the Republic of Serbia. Within the structures set within the DIS system, so far the Deputy Prime Minister for EU Integrations is appointed as National IPA Coordinator (NIPAC) and Sector for Programming and Managing EU Funds and Development Assistance in the Ministry of Finance as NIPAC Secretariat. By appointing the National IPA Coordinator, the Government of Republic of Serbia started playing an active role in programming process of IPA and as well as initiating the process of introducing DIS.

The Ministry of Finance within the project Support to Introduction of DIS in the Republic of Serbia6, financed by the Kingdom of Norway, initiated a process of identifying necessary steps for forming institutional framework for establishment of DIS. In this respect, the Government of the Republic of Serbia as a first step in the procedure for acquiring accreditation, adopted the Strategy for Preparing the Accreditation for Decentralized Implemention System (DIS) of EU Funds in Serbia (hereinafter: The Strategy) on April 24th 2008. The Strategy recommends overall access to DIS accreditation preparation process, in order to prepare the basis for necessary legal, institutional and administrative changes. It explains the process of DIS accreditation within the IPA and criteria for accreditation that Serbia should fulfill in order to achieve the transfer of authorizations for management of EU funds. The Strategy further

6 Project “Support to Preparation of Implementation System for EU Funds’ Decentralization in the Republic of Serbia” is financed under the development assistance of the Kingdom of Norway.

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represents different models to fulfille those requirements and underlines financial and other resources required for implementing the accreditation preparation process.

The Strategy describes all relevant phases of this process and determines dynamics for establishing DIS. In that sense, institutions in charge may envisage their future roles in this process and start on time with necessary preparation while informing public and ensuring political and expert support. Above all, it is crucial to educate the public servants with the basic criteria defined in the The Strategy and also to build their capacity, skills and knowledge to enable them to fulfill those requirements.

In the following period, the Government will work on preparation of the Action Plan for Establishing Decentralized Implemenation System of EU Funds (hereinafter: The Action Plan). After being adopted, the Action Plan will become an integral part of the planned activities and will represent a basis for implementing and monitoring activities concerning establishment of DIS. Hence it is the main source of reporting to the Government.

Implementation of planned activities and adequate Action Plan will set the conditions for establishment of DIS and access to funds from remaining three IPA components.

Introducing DIS also requires analysis and changes of the existing legislations in some fields, estimate of costs for DIS introduction, support to capacity building of the institutions that should be established, development of different instructions and manuals, implementation of the training plan, translation of relevant documents, etc. In this respect,, at the beginning of 2007 Working Group for introduction of DIS was formed. However, this Group was not functional due to the new Government formation, . In order to continue activities on introducing DIS the Ministry of Finance formed Project Group for Introducing Decentralized System for Managing EU Funds in December 2007.. The task of this Project Group is to work on preparation of the planned activities and Action Plan for introducing DIS, and to lead negotiations with Commission and prepare relevant legal and strategic framework for DIS.

The Project Group is directly responsible to the Joint Body for introducing DIS, formed on 26th December 2007 (Agreement on Establishing Joint Body for Introducing DIS of EU Funds). The Joint Body consists of representatives from Deputy Prime Minister Cabinet, Ministry of Public Administration and Local Self Government, European Integration Office and the Ministry of Finance. The task of the Joint Body is to give suggestions, recommendations and to provide support to activities under responsibility of the Project Group during process of DIS introduction.

In order to raise awearness about the necessity of DIS introduction, The Ministry of Finance organized a conference in December 10th 2007 on the topic «Introducing decentralized system for managing EU funds in the Republic of Serbia», where besides all line ministries, representatives of EC Delegation.also participated. The aim of the conference was to present ,future institutional framework reforms within the administration of the Republic of Serbia, to present the future steps necessary for successful establishment of DIS, to introduce current situation and experience of the Republic of Macedonia, who is facing with different challenges regarding candidate status for EU membership and establishment and functioning of DIS. .

It is important to underline that the technical assistance, in the process of introducing DIS in the Republic of Serbia, has been continued through Project for « Support to Effective functioning of DIS in the Republic of Serbia »7, which represents a logical

7 The project has been financed from the development assistance funds of the Kingdom of Norway.

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continuation of the previous project for support to establishing DIS and aims to implementation of the planned activities and Action Plan for DIS.

Project «Support to Management of EU Funds Using Decentralized Implemention System in the Republic of Serbia», proposed within IPA 2007 aims to provide support to continuation of the process of establishing DIS system in the Republic of Serbia. The Project envisages support to future newly-formed structures within DIS, according to Framework Agreement (like: Cometent Accrediting Officer - CAO, National Fund - NF, National Autorizing Officer - NAO). It is necessary also in the further programming of IPA fund, using projects for strengthening future institutions necessary for establishing DIS, introducing information system for managment IPA and identifying and removing possible shortcomings in the process of DIS introduction, to support state administration in taking over the leading role in the process of programming and management of EU funds.

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2. Principles and Basis for Programming EU Funds

Programming cycle for IPA consists of five different phases: (1) Programming, (2) Identification, (3) Formulation, (4) Implementation and (5) Evaluation and Audit. Programming is a phase in the project cycle management aiming at determining priority programs/projects financed from the EU funds (IPA).

Besides introduction of new pre-accession financial instrument, European Commision has also decided that the mandate of European Agency for Reconstruction (EAR), responsible for management of CARDS, should be extended until December 31st 2008. The extension has been caused by the need to finalize all activities from CARDS program, and pass all authorizations from the centralized managment of pre-accession instrument to the EC Delegation.8

Centralized management of the IPA fund means that the Republic of Serbia is involved only in the phase of IPA programming, while the EC Delegation has a responsibility over other phases of the project cycle.

For the sake of efficient and smooth transfer of mandates in programming and implementation of IPA between the EC Delegation and the EAR, and taking over the leading role in the process of IPA programming, the Government of the Republic of Serbia started with IPA programming process for 2008 (IPA 2008) in April 2007. The Process of programming of IPA 2008 is the first step towards introduction of the DIS, which refers to taking over the leading role in the process of EU funds programming by the Ministry of Finance, as well as particiapation of line ministries in deciding on sectoral priorities and projects.

Starting from the need to enhance state administration capacities, to clearly define the roles and responsibilities during the process of IPA programming and to gradually prepare the Republic of Serbia for acquiring role in management of EU funds, the Government of the Republic of Serbia has on the session held on April 26th 2007 adopted Action Plan for Programming IPA 2008. The objective of this document is to enhance administrative capacities and to increase efficiency and effectiveness of IPA by enhancing inter-ministerial coordination and cooperation, as well as supporting introduction of DIS.

The Action Plan transparently defines unique procedures in programming process. It determinets principles of programming, participants, their roles and responsibilities, in defining priorities and project proposals in line with the basic programming documents. Also, tasks and responsibilities have been defined between the relevant institutions involved in the process of IPA programming. Special focus is on importance of quality project preparation, evaluation and selection of projects within the component of transition assistance and institution building. According to the the Action Plan institutions who can directly propose the projects for IPA are respective line ministries, special organizations formed by the Law on ministries, Governmental Agencies, National Assembly, National Bank of Serbia) whereas those institutions who can indirectly candidate project proposals, meaning that they need to obtain written consent ny the relevant line ministries are public agencies, the Commission for Financing Local Self Government, etc.

8 Enactment of the European Communities’ Council no.: 1756/2006 dated 28th November 2006.

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Besides the Action Plan for IPA Programming, Sector for Programming and management of EU Funds and Development Assistance has also prepared Action Plan for Programming International Assistance in 2009, which clearly defines a calendar for programming, including procedures for submitting the project proposals in accordinace with the format and instruction for enterying the project ideas in ISDACON Information System.

2.1 Basic programming documents The basic documents for the programming of IPA are:

- European Partnership adopted by the Government of the Republic of Serbia on February 16th 2007. European Partnership, defining short term (1-2 years) and medium term (3-4 years) priorities in preparations for EU integration. This instrument determines relations between the EU and our country by the signing of the Stabilization and Association Agreement.

- Multi-Annual Indicative Planning Document9 - The document defines priorities per axes, including financial allocations for implementing determined priorities during three budget years. Multi-Annual Indicative Program Document identifies European Union priorities within the European Partnership priorities determined for the Republic of Serbia, the main fields of intervention, as well as financial funds for their implementation.

- Needs Assesment of the Republic of Serbia for international assistance adopted by the Government of the Republic of Serbia on January 11th 2007.

Besides above mentioned documents in the process of the programming of IPA it is absolutely necessary to take into consideration all recommendations stipulated in the Annual EC Reports on Progress of Republic of Serbia including Financial Rules for Implementation of the Projects Financed by the EU, national strategic documents, Budget Memorandum of the Republic of Serbia, etc.

2.2 Steps in programming The Action Plan envisages the following basic steps during IPA 2008 programming process:

Informing institutions on the budget defined in MIPD regarding the main fields of support, and deadlines for submitting draft project proposals within the programming process

Defining the format for submitting project ideas, project proposals, determined deadlines, determining conditions under which the project ideas and project proposals are submitted and enterted in the ISDACON IS- www.evropa.sr.gov.yu

Providing technical assistance to respective institutions during process of identifying priorities and formulation of project ideas..

Submitting draft project proposal by the line ministries

9 Consultations are under way regarding MIPD revision for the period 2008-2010. It is expected to place bigger accent on priority axis – political requirements and European standards, as well as on support to civil society.

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Technical evaluation of the draft project proposal in line with the pre-determined criteria and modification of the draft project proposal in case of formal weaknesses

Evaluation of the draft project proposal and defining wider list of project proposals, not exceeding 150% of the available budget envisaged by IPA Program for adequate year.

Presentining of draft project proposals summaries defined in the wider list, to EC Delegation for opinion

Defining project proposals in line with IPA format (oriject fiche) and modification of project proposals in case of weaknesses, with support of NIPAC technical assistance

Evaluation of the proposed projects in line with the format for evaluation and determining the list of project proposals, not exceeding 120% of available IPA budget for adequate year

Determining the final list of project proposals, completely harmonized with the annual IPA budget and allocation defined according to the main fields of support within the Multi-Annual Indicative Planning Document.

Submiting Annual IPA Program to the European Commission in Brussels. The Annual IPA Program consists of project proposals. Responsible Directoriat Generals- DGs deliver comments on Annual IPA Program. IPA Committee approves Annual IPA Program. Finally, EC and the Government sign Financial Agreement representing a legal basis for implementation.of projects.

Having in mind that EU funds in Serbia is managed under centralized deconcentrated system, meaning that the EC is responsible for giving final decision on projects to be financed through IPA funds.

Signing Financial Agreement between the Government of the Republic of Serbia and the European Commission gives legal basis for implementation of projects, defined in the National IPA Program, and signals beginng of process for concluding individual contracts on implementation of the projects with relevant beneficiaries.10

Contracts for implementation of all projects must be signed at least within three years from the date of signing Financial Agreement. Within two years from the date of signature, the contracts have to be executed, while the payment of funds for their implementation must be completed at least a year from the last day determined for contract execution. Project implementation is performed according to the EU financial rules (Practical Guide to Contract Procedures for EC External Actions – PRAG).

10 The Financial Agreement between the Government of the Republic of Serbia and the European Communities’ Commission regarding the National Program for Serbia, pertaining to the first IPA component - Assistance to Transition and Institutions Building for 2007, has been signed in Belgrade on April 4th 2008.

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3.Оverview of activities implemented in the IPA 2008 programming process

3.1 Phases of IPA 2008 programming process Programming EU funds is a long term process, requiring inter-ministerial consultations, coordination between institutions and adequate state administration capacities, in order to successfully fulfill to all requirements of the programming process.

Based on all activities implemented, in order to complete final versions of project proposals and finaliazing National IPA 2008 Program in line with the Action Plan for IPA 2008 Programming, the programming process of IPA 2008 is divided into several phases, as follows.

Sector for Programming and Management EU Funds and Development Assistance on April 26th 2007 presented to the line ministries Instruction for Programming International Assistance in 2007 and started the process of programming IPA 2008, that is initiating consultations and providing support to line ministries in identification of priorities, formulation and modification of proposed projects in line with the strategic documents for IPA programming.

During phases of identifying draft project proposals, sectoral consultations were held between NIPAC representatives and representatives of line ministries regarding defining priorities for IPA financing and familirasing with the rules of the new IPA financial instrument.

However, the identification phase was prolonged due to several reasons. Namely, long term negotiations regarding formation of the Government of the Republic of Serbia in the first half of 2007, as well as increasement of the number of line ministries additionally complicated the programming process in this phase. In accordiance with the Law on Ministries, number of ministries from 15 to 22, causing significant changes in the internal organization, not only of the Government, but also within the line ministries. Taking over competencies aditionaly complicted and hidered the programming process. It was necessary to include the new institutions in the programming that did not have sufficient number of employees trained for complex procedures on project document preparation. Also, the number of persons engaged in the Sector for Programming and Management EU funds and Development Assistance, which in the new Government reorganization became the part of the Ministry of Finance was not sufficient to respond in short term to increased scope of work, and to much more complex programming rules established by the European Commission for projects financed from the pre-accession instrument, IPA. Preparation of the projet fiches was solo responsibility of the Government of the Republic of Serbia11. In a very short time, without sufficient experience and knowledge of the rules and EU procedures, all line ministries, had to prepare project proposals in order to fulfill determined deadlines. Additional difficulty was staff fluctuations, who either left or were appointed to other body within the public adminisatsrtion. Most of the line ministries remained without experienced and educated people who were engaged in the programming process. This also refers to the European Integration Office, which, due to cessation of employment of the persons engaged directly on the IPA 2007 programming, 11 Project Fiche or standard format of Project Proposal, prepared in the clearly defined form for a certain financial instrument or program, containing clearly defined additions that are necessary. The Project Fiche clearly defines priority areas, envisaged activities and selected implementation methods.

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did not take an active role in the IPA programming process in line with the Action Plan. Participation of the European Integration Office in the previous programming cycle had very positive influence on the overall process.

The Ministry of Finance undertook additional measures of support to the line ministries in the phases of identifying and formulation of project proposals, in order to overcome problems underlined during IPA 2007 programming. For that reason, the Sector engaged pool of local consultants in the following areas: infrastructure, economic development and employment, public administration reform and EU integration; rule of law and regional and local development12. The main role of the local consultants in the IPA 2008 programming process was to support to the line ministries in identifying and formulation of the project ideas, in line with NIPAC Secretariat instructions, through practical work with the line ministries. According to the planned activities and envisaged Action Plan for IPA 2008 Programming, the local consultants have in cooperation with the line ministries and the other interested parties worked on preparation of the draft project proposals and preparation of logical frameworks- LFA.

After identifying and formulating the project ideas, line ministriues were responsible to enter those draft project proposals into the ISDACON IS, in accordinance to the Instruction for Entering Project Proposals, prepared by the Sector. Donor harmonization meetings took place during September13 with an aim to present all identified projects for international assistance. There were two groups of project proposals identified by line ministries: projects adequate for financing from intrnational bilateral funds and proposals adequate for funding from the pre-accession assistance funds- IPA.

Those projects identified for the IPA financing were evaluated by the external, independent consultant engaged by the NIPAK Secreatraiat. After conducting evaluation of all proposed projects for IPA wider list has been formulated containing 67 draft projects with total value of 223 mil. EUR (representing an increase in relation to IPA 2007, when in the first phase of proposal identification 47 project proposals have been identified)14. The wider list of project proposals also included ten proposals envisaged by the MIPD but not proposed by any relevant line ministries. These projects are developed in the consultation process with the European Commisision based on the EC Enlargement Report and overwiev of projects that are currently implemnting. NIPAC accepted proposals deriving from those consultations and prepared adequate project proposals with the institutions in charge in accordiance with the rules.

NIPAC delivered to the EC Delegation and to the EAR, summary of the draft project proposals defined in the wider list by beginning of December 2007. In the period from 12th to 21st December 2007 consultative meetings were organized with the EC and EAR delegation representatives and including all relevant line ministries and institutions whose project proposals are contained in the wider list. The objective of the meetings was to set aside those proposals that would be further developed in the form of Project Fiche and officially proposed for financing from IPA funds for 2008. That process was

12 Engaging local experts is supported through SIDA/Dfid project «Joint Program for Supporting the Ministry of Finance in order to enhance coordination, planning, programming and effective omplementation of development assistance», . 13 Besides representatives of all donors-development partners, the meetings were also attended by the EC Delegation representatives and representatives from the European Agency for Reconstruction. 14 According to the IPA programming rules, the first, wider list of project proposals proposed to the European Commission should have projects with the total value of 150% of the proposed annual budget allocation of funds for the country in question.

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based on several criteria: harmonization with the strategic documents for IPA programming, existence of adequate capacities and necessary legal framework for project implementation, level of project development for implementation (for instance, existence of necessary project documentatio for infrastructural projects), including continuity with the previous projects implemented within CARDS and IPA 2007. From participants’ view better imput is expected from the Commission side in terms of the project quality and profiling of project proposals for fianancing. However, at that time Delegation was in the process of establishment and due to insufficient administrative capacities was not capable to clearly define its comments in this phase on proposed projects, from the standpoint of adequacy for financing from IPA 2008.

Although we expect from the representatives of the participating EU institutions, and primarily from EC Delegation, to actively cooperate by giving guidelines and suggestions about the level of acceptability of the suggested projects and possibilities for their financing from IPA funds, due to insufficient administrative capacities, the EC Delegation could not clearly offer that kind of feedback. Taking into account that it is expected from the Serbian administration to deliver to the European Commission IPA Action Plan for 2008 by the end of February 2008, it is of extraordinary importance to receive the feedback on proposed projects delivered to the Delegation in the shortest possible term, in order to timely prepare project fiches for supported projects. It is necessary to stress that such type of consultations provides for efficient and successful process of defining quality projects.

The Sector for Programming and Management EU Funds and Development Assistance has in this phase requested additional technical assistance for preparation of project fiches from the EAR in order to faster and complete this stage of programming. The engaged experts have during three months worked together with the line ministries in preparing project fiches and in that way, besides preparation of project proposals, on-work training has been provided for all line ministries.

In order to accelerate the process of consultations and formulation of the final list of project proposals, IPA 2008 national program, the first project fiches’ drafts have been sent on February 10th 2008 to EC Delegation and respective General Directorates (DGs) of the European Commission for technical comments. Final consultations regarding the final list of projects for IPA 2008 started in March.

It is necessary to stress that the comments on project proposals by the EC Delegation and the relevant DGs arrived at the very last stage of project fiche preparation which represented difficult, and additional job for the ministries primrially because of the strict deadline set for correction of the fiches, lack of the trained people to perform the type of tasks requested and limited practical experience for such work. The process was additionally hindered by the request from the Sector for Programming and Management EU Funds and Development Assistance, to perform activiites for which it has not been previously informed by the European Commission that they would be under the competence of the national institutions in this phase of IPA programming.- the Project Fiche format for 2008 was changed in March 2008, which caused additional work for already prepared projects. The employees were not adequatly trained for new complex tasks - budget preparation, identification of type and number of contracts deriving from the project proposal, assesment of national co-financing in the moment where there was no domestic legal regulation concerning this matter, nor forms of institutional cooperation have been established with institutions in charge of budget preparation and evaluation of the country capacity for indebtment for implementation of certain projects. Although

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Serbia is for the first time developing very complex Project Fiche –the European Commission set very high requirements and during the programming process itself additionally tightened them.

The final list of project proposals was sent to EC Delegation on May 16th 2008. The package contains 38 projects in the total amount of 179.4 million EUR including reserve list of projects, in case that some of the proposed projects are rejected, they. (Annex I).

Specialized working body of the European Commission - Quality Support Group15 had a session on June 5th 2008, while session of IPA Committee16 is scheduled, in September 2008 for approving Annual IPA 2008 Program. The following is signing of the Financial Agreement for IPA 2008 National Program.

3.2 Characteristics of IPA 2008 programming process During IPA 2007 programming the leading role in preparation of project fiches was on the Ministry of International Economic Relations, as NIPAC with EAR support. Even though the quality of project proposals and programming process has been successfully finalized, still the insufficient participation of the line ministries in the programming of IPA 2007 was stressed as a main weakness of the process..

In this regard, , the main prerequisite for IPA 2008 Programming was securing stronger initiatives and more active participation of the line ministries in preparing project proposals. Clear message was deliverd to the line ministries: they are responsible for strategic planning and proposing project activities in order to implement adequate projects in the IPA programming process. Participation and involvement of institutions is necessary in the respect of structural funds rules that requires timely prpepartion of strategic development programs covering the period of at least 6 years, establishment of operative programs and structures for project implementation, monitoring structures and adequate reporting to European Commission.17. Also, it is expected that such directing of programming and project preparations will contribute to better concentration of EU funds on the national priorities of the Government.

After conducting analysis of the draft project proposals it has been noted that in relation to the IPA 2007 programming period (including the CARDS program), type of projects changed focusing on priorities of strengthening the institutional capacities, while certain decreasment of investment projects has been observed, especially in the sector of energy and transport18.

15 This group evaluates the quality of compiled project fiches, but also importance of their contribution for implementation of European integrations process. 16 The IPA Committee consists of all EU member countries. In preparing the decision of the IPA Committee through its diplomatic missions in the beneficiary country, EU member countries perform direct consultations with NIPAC and Sector for programming and management EU funds and Development Assistance of the MF. 17 Generally speaking, the rules for preparing, implementation and reporting on projects financed by the funds from the EU budget, have been made stricter also for EU member countries. 18 In the consultations for MIPD preparation for 2008 the European Commission General Directorates in charge pointed out that the EU assistance must concentrate on development of institutions and capacities, and that certain industries, for their own development, must be more oriented towards financial markets and specialized South Eastern Europe Fund, financing the business entities under conditions more beneficial than the market ones, but through the banking system. The EU has set aside assistance funds for this Fund in the amount of 80 million euros, and the other development institutions of the member countries have increased the Fund capital by their contributions to 250 million euros.

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However, EC Delegation strongly reccommends to decrease the number of projects for IPA 2008 in total and the number of contracts envisaged for their implementation, as to simplify and smooth implementation procedure. This request has been explained by the fact that the implementation of the IPA 2007 AND ipa 2008 will at certain point of time overlap which will be additional burden for Delegation,, which has less employees then EAR. In addition, it was pointed out to develop larger projects, meaning involving more beneficiaries instead of having one line ministries proposing its own project. Namely, with that type of larger projects more ministries involved will be addressing the problems stated in the MIPD, European Partnership or in the national strategic documents.

This request is contradictory- on the one hand EC Delagation recommended that there should be more projects related to the strengthening institutions and capacity building (projects by nature relatively small), and on the other hand, there is request of the EC Delegation that IPA 2008 National Program should contain a limited number of infrastructural projects, which are always of bigger value. Thus, it was necessary to merge several project proposals into one Project Fiche, in order to decrease the total number of proposed projects and ease future implementation (under the competance of the EC Delegation in Belgrade)19.

Based on the Fianl Report of the Technical Assistance for IPA 2008 Programming, majority of proposed projects are in line with the MIPD priorities and EP. The only comment is that areas of education and public administration reform are not sufficiently covered by IPA 2008 package. In the area of public administration reform the proposed projects inadequately reflect reform priorities in this field (for instance, there is a lack of identified projects relating to strengthening internal financial control, strengthening democratic institutions, etc.). The same applies to education sector. General evaluation of those projects is that they are poorly prepared and not addressing reforms or contributing to increase employment and productivity in Serbia.

However, it is important is to stress that in IPA 2008 programming special focus was placed on social inclusion which was not covered in IPA 2007 project package. Ministry of Labor and Social Policy proposed project that directly address social inclusion, while this field is indirectly supported also through the projects in education (project concerning to Roma population) and regional development (support to social infrastructure development).

3.3. Co-financing In line with the Law on Confirming Framework Agreement between the Government of the Republic of Serbia and The Commission of European Communities’on the Rules for Co-operation Concerning EC-financial assistance to the Republic of Serbia in the Framework of the Implementation of the Assistance under the Instrument for Pre-Accession Assistance (IPA)20, for approving and implementation of proposed projects it is necessary to secure adequate co-financing rate.

19 General experience of the countries in which the Delegation is implementing programs shows problems in implementation occurring due to smaller number of employees and trying to perform a large number of jobs by domestic administration without adequate experience. Project implementation requires numerous complex activities related to public procurements, preparation of project and tender documents, negotiating, physical and financial supervision over the project implementation, etc. Special concern exists that if problems in the project implementation occur, there might also occur a loss of part of the funds. Several warnings have been given for such a possibility by the countries with such an experience. 20 ''Official Gazette of the RS'' 123-07 dated 26th December 2007.

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Co-financing of projects can be secured from budget funds, approved credits or donations from international institutions, development institutions of other countries, etc. The EC rules envisage that co-financing of the projects for potential candidate countries for EU membership, including the Republic of Serbia, should be performed according to the parallel implementation model and according to the main fields of support (axes) defined within Multi-Annual Indicative Planning Document.

The parallel co-financing model means that activities wil be implemented separately, according to the procedures, depending on the source of financing. In practice that means that activities defined in the project, financed from IPA funds will, applly the EU (so-called PRAG rules),regarding contracting and procurement rules while for the activities financed from national funds, contracting and procurement rules will follow national rules and procedutres.

Besides that, IPA Implementing Regulation determined that within each of the support fields (political requirements, social-economic development and reaching European standards) it is necessary to secure minimum co-financing, amounting to 10% of the total value of projects’ budget for technical assistance, that is, 25% for investments (infrastructural works and equipment procurement).

Implementation of the projects financed from IPA funds is multi-annual. In that sense it is necessary to secure national funds for co-financing. Besides according to the IPA Implementing Regulation rules on eligibility of costs that can be paid from IPA funds also pertain to national funds. It is important to mention that projects’ implementation within IPA 2008 program is expected by the end of 2009, or beginning of 2010. In this sense, institutions in charge would have to timely plane determined funds, in order to reach implementation of the projects.

After analyzing the objectives and activities formulated in the project proposals for IPA 2008, number of projects have been identified in priority support fields, that would have element of co-financing and development21 (we have tried to use the existing programs/projects financing from public funds in the greatest possible measure, in order not to exceed budgetary funds framework). According to the budgets of proposed projects for financing from IPA funds for 2008 it is necessary to secure 37.55 million EUR for co-financing of projects within IPA 200822 program.

3.4. Sectoral analysis In IPA 2008 programming process, the line ministries have shown different level of readiness to respond to programming challenges, that is, for preparing project proposals in line with the EU procedures. The following analysis, completed on the basis of local consultants’ reports and experts engaged by the EAR for preparation of project fiches, gives certain evaluation and cross-section of the situation in line ministries, speaking about their capacities in IPA programming:

21 In preparation of Budget Memorandum for 2007, 2008 and 2009, Sector for Programming and Management of EU Funds and Development Assistance pointed to the need to secure at least the minim level of co-financing and it has completed evaluation of potential obligations of the Republic of Serbia, that is, of the pre-accession assistance end users. 22 Conclusion has been prepared, and Information about the Need to Co-Finance Projects within IPA 2008 Program, which represents the basis for determining projects that would be co-financed and simultaneously a prerequisite for successful completion of programming process within IPA 2008 program.

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Ministry of Finance – taking into consideration that the Ministry of Finance covers large number of sectors, specific administrations, agencies and services, the overall conclusion is that the capacities in the sense of programming are significantly non-harmonized. Most of the proposed projects reflect current needs of certain sectors and do not reflect reform priorities in adequate field and priorities defined in the strategic documents for IPA Programming. The recommendation is that the Ministry of Finance should work on a precise strategic framework and defining the list of priorities on the level of the whole ministry. A special attention should be paid to strengthening capacity of the employees in the sense of DIS introduction. On the other hand, such organizational structure of the ministry could be observed in the perspective also as an advantage, because by coordination in formulating project ideas, one could come to joint reform projects, that could absorb significant funds from pre-accession funds, according to the EU recommendations. It is therefore more important to earmark special capacities for programming in all services, and to use and exchange good experiences from close institutions – especially the National Bank of Serbia.

The Ministry of Justice is one of the most important line ministries covering numerous priorities identified in basic strategic documents, as well as carrying the biggest burden of reforms in the field of its competence. When the Secretariat for Implementation for Judiciary Strategy Implementation (SJSI) which was in charge of identification and preparation of the project proposals for IPA ceazed to exist additional problems related to the insuufficient number of staff working on IPA programming in the Ministry of Justice were coused. The most frequent problem in identifying a proposal is lack of legal framework as a basis for project implementation. Also, one of the observed shortcomings is also weak absorption capacity for implementing identified projects which influenced on approval of proposed project. In order to enhance programming in this sector, it is recommended to engage a certain number of adequately trained state servants who shall work on preparation of the proposal for the next period.

Ministry of Internal Affairs Due to impossibility to answer to EAR’s request to implement a twinning project through CARDS program related to development and impovenment of strategic planning process in the Ministry of Internal Affairs further cooperation in implementing new projects financed by the EU was brought into question. The fact that most of the projects are related to procurement of certain equipment and vehicles for the needs of the ministries, and not to essential reform of this sector by developing and modernization of regulations and the method of work, which is stressed as a priority. EU support in this sector should be focused in the field of viza liberalization process. On the other hand, there are a big number of bilateral donors working in this sector on supporting projects to enhance the capacities of this ministry in line with the EU standards, which should be more stressed in communication with representatives of the EC. In respect to IPA 2008 programming, lack of capacity also appears as one of the basic obstacles in preparing adequate project proposals. Due to weak coordination between different departments within the ministry certain level of overlapping among proposed projects was observed. However, in order to overcome the noticed problem, it is important to mention engagement and dedication of individuals who worked in preparing project proposals. Numerous consultative meetings have been organized with NIPAC Secretariat and consultants engaged in IPA programming.

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Ministry of Education has formed Working Group for IPA Programming, but the Working Group did not become functional and operative, and therefore the communication and cooperation with this ministry in the programming process was difficult. The Ministry of Education is the only ministry that did not attend trainings for preparation of logical framework, organized in the Ministry of Finance. Having in mind the importance of modernization of educational sector as one of the MIPD priorities, this creates a very wide spectrum of opportunities for identifying projects in this field. The proposed projects did not fully utilize the given opportunities, and they did not match the needs necessary for implementing reforms in this sector, or for future use of the other EU funds, primarily of the Community Program23. Therefore the NIPAC Secretariat has, based on strategic documents for IPA programming and previous experiences, suggested to the Ministry of Education certain number of project ideas that could be supported by the IPA fund, so that the Ministry of Education has mostly worked on enhancing project proposals that were not financed by IPA 2007 cycle, as well as in developing the aforementioned suggested project ideas. It is recommended that ministry should work on precise strategic framework and defining the order of priorities at the level of the whole instituion. It is also recommended to have more intensive cooperation with high education institutions and universities, as well as with the national employment service and private sector, in order to secure adequate coordination in the process of preparation of project proposals, especially in the field of linking education with the labor market requirements.

Ministry of Environmental Protection - Ministry that have a clear picture about all necessary changes that have to be implemented during accession process, and significantly developed capacities for defining the project ideas. The proposed projects are of satisfactory quality and have been accepted for IPA 2008. According to the existing systematization, the jobs of IPA programming in the Ministry of Environmental Protection are performed by the Department for Environmental Protection Project Management, with currently three employees. Unit for Managing of projects financed from EU funds in the environmental protection area will be established after the Government approval of the Decree for internal organization That Unit should have four employees more within the current department. Besides that, representatives of different/adequate ministry sectors are regularly involved in the preparation of project proposals. Constant participation of ministries’ representatives on trainings and successful organization of consultative meetings is an indicator of high interest in this ministry for using EU funds.

Good cooperation is achieved with the Ministry of Agriculture, Water Management and Forestry. The Ministry formed a Working Group with significant experience in preparation of projects and professional approach regarding IPA 2008. However, although the proposed projects are of good quality, the general evaluation is that the number of projects is small bearing in mind the size and importance of this sector. There is a continuity within the ministry in the sense that at least one person from each sector in charge of IPA programming regularly attends trainings and works in

23 That was temporarily possible to compensate for, by directing a large amount of money through TEMPUS program supported by the EC, and the money can be also used from IPA National Funds for its activities, because the purpose of that is to support educational reforms in cooperation with the ministry in charge. Also, a part of money intended for raising the quality of education has been directed towards financing youth education in EU countries (ERASMUS, ERASMUS+; etc.). One part of funds for accelerating education reforms is also used regionally.

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preparation of the project proposals for the relevant areas.. Systematization plan for 2008 also envisages formation of the Group for Programming and Coordination of Projects within the International Cooperation Sector. However, because this is a sector that within IPA occupies an important place (especially having in mind that IPA component no. 5 pertains to rural development), it is especially important to strengthen capacities in this field.

Ministry of Economy and Regional Development – although formed in the moment when process of identifying project proposal was initiated, this Ministry largely succeeded in responding to the requests of IPA programming. A large number of projects has been suggested, that needed to be prioritized. Evaluation shows that proposed projects were partial and that the activities in certain projects have overlapped in a certain measure mostly due to complex internal organization of the ministriy and insufficient initial internal coordination. In that regards several projects were integrated into one Project Fiche. Minstry was ready to cooperate with the consultatnts engaged in the Ministry of Finance as a technical assistance for support in the Project Fiche preparation (for instance only in the field of employment there were initially 18 project proposals). Intensification of activities in the process of preparation of project fiches by the end of 2007 has caused that due to short terms and small number of employees who have monitored the whole training process in the project cycle, work on development of a significant number of project proposals should be somehow difficult. However, advantages regarding programming capacities should be primarily observed in qualitative cooperation between close sectors in the field of economy within МЕRD, as well as in engaging the other stakeholders, that is, special services and agencies. This primarily pertains to SIEPA, which has showed strong initiative, as well as experience in writing projects and understanding IPA programming process.

Ministry of Trade and Services did not forme Working Group for IPA Programming, thus the cooperation in preparation of project proposals was implemented through the Sector for international relations. Part of the Ministry dealing in commodity reserves (Commodity Reserves Directorate) shown initiative after finalization the phase of project identification, which reflected the quality of project proposal. General evaluation is that the quality of project ideas is weak, especially having in mind the challenges for the Republic of Serbia in the field of foreign trade and CEFTA agreement’s implementation, and standard for products’ quality that are exported to EU market, as well as reform of certain services, of the Commodity Reserves Directorate. (Especially in agriculture because agriculture is one of the common EU policies, where serious control of subsidies is necessary).

Ministry of Labor and Social Policy did not form Working Group for IPA Programming. The previous experience and assistance of external consultants engaged in the ministry itself (ETF- European Training Foundation) has contributed that the Ministry already in the identification phase should have clearly defined priorities. Although the Ministry submitted too much project proposals, quality of submitted project proposals was on a high level, mostly due to engagement of external technical assistance and their close cooperation with staff working on IPA programming, who have regularly attended trainings, especially those focused to preparation of logical framework

In the Ministry of Infrastructure the process of identifying and formulation of project ideas has been significantly enhanced in relation to the previous cycle of IPA programming. This is one of the rare ministries where Working Group for IPA

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Programming has been formed, operative and functional. The group worked on identifying priorities and preparation of the draft project proposals, as well as on developing already prepared projects that were candidates for IPA 2007. In cooperation with the public companies’ representatives, the directorates and with verification by Assistant Ministers from the diferent departments of Ministry of Infrastructure, as first preliminary list of project proposals has been compiled (18 project proposals from the transportation field) and delivered to the Ministry of Finance, as well as logical framework, for the listed projects. After consultations with the local and foreign consultants engaged by the Ministry of Finance, EAR and European Commission Delegation representatives, a list of 8 priority projects has been formulated for which Project Fiches have been developed, and that have been sent to EC Delegation for discussing. Representatives of the Ministry of Infrastructure were regularly attending trainings and consultative meetings on IPA programming.

Ministry of Mining and Energy - participation of stakeholders (EPS, NIS, Serbia-Gas) as indirect authorized project movers was on satisfactory level. This has, together with the existence of the Working Group on the level of the Ministry, contributed to enhance the process of ranking priorities in the field of operations, as well as to bring down an initially large number of project proposals to an acceptable scope. It is also recommended to better use the possibilities of cooperation with the other ministries on preparation of joint projects per similar priorities (for instance, regarding environmental protection). It is important to also stress the fact that a large number of projects in the energy field have been supported by the donor community, that are complementary to the projects candidates for IPA fund, and that has achieved a high level of harmonization of donors in this sector. Representatives of the Ministry of Mining and Energy have regularly attended trainings and consultative meetings on IPA programming.

Ministry of Telecommunications and Information Society - organizational structure of the ministry has been established after forming of the Government, so that in those circumstances special roles and competencies of employees regarding IPA programming haven’t been defined. Lack of capacities of this ministry to respond to numerous requests and challenges in IPA programming process and late participation in the phase of identification and formulation of project proposals, have resulted in a few number of projects of poor quality. Also, due to widely defined competencies and insufficient coordination with the other line ministries and interested parties, certain project proposals have been left out (as for instance E-Government Project).

Ministry of Health – within the axis of social-economic requirements, the Health Sector is one of the most important priorities in the MIPD. Although separate working group for the IPA was not formed in the Ministry, this did not lesses the quality of the work of the employees and level of the enaggment of the stuff. In that sense, the existing project units has been used for the preparation of project proposals. Those units are already incharge for cooperation with foreign donors. In the phase of enhancing project ideas, suggestions were fully respected. Good cooperation continued also in the phase of logframe preparation, which resulted in having the significant quality of projects acceptable for IPA pre-accession instrument.

Ministry of Science – The Republic of Serbia signed on June 13th 2007 a Memorandum of Understanding with European Commission, opening direct availability to the Seventh Framework Programme of the European Community for

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Research, Technological Development (FP 7). Projects financed by this program have been directed towards promotion and stimulation of publishing activity and practically completely cover the field of science, so that the Ministry didn’t propose projects for funding by IPA 2008. From the IPA funds, around 1.6 million euros shall be used annually for co-financing Serbian participation in FP 7 (until 2013).

Ministry of Culture - priorities of this ministry, as well as the project proposals themselves have been mostly defined in the field of media. The Ministry of Culture signed on February 6th 2008 Memorandum on Understanding for participation in the European Community program „Culture 2007”. By participation in this program, beneficiaries, that is, responsible institutions from the Republic of Serbia shall become equal partners with the EU member countries during the process of applying for projects and funds allocated by this program. Participation of Serbia in Community Program CULTURE shall be co-financed from the IPA funds until 2013.

Ministry of Public Administration and Local Self-Government – this ministry work in IPA programming was primarily focused on inter-sectoral cooperation with the other line ministries, on preparation of project proposals, Municipal Infrastructure Support Program - MISP. Ministry for Public Administration and Local Self-Government is the leader of the project and shall be simultaneously responsible for this program’s implementation.

Ministry for Kosovo and Metohija and Commissariat for Refugees – proposed for IPA 2008 a project pertaining to enhancing the position of refugees and internally displaced persons - resolving housing issues and improving the system of free legal assistance. Both institutions showed readiness for cooperation and high level of capacities, bearing in mind that they have participated different trainings focused to the project cycle and writing of project fiche, organized by the International Organization for Migrations.

Ministry of Foreign Affairs - showed extraordinary effort and enthusiasm in IPA 2008 programming process. The Ministry proposed a Project related to the introducing of system for issuing visas of the Republic of Serbia in consular offices as well as check and verification of visas on border crossings of the Republic, and a project concerning to consular package of the Ministry of Foreign Affairs - concept of sustainable DCRO. However, due to lack of adequate legal framework and difficult project implementation that in certain segments hasn’t been harmonized with the rules for contracting of projects financed by the EU, and so the projects haven’t been supported by the EC.

Ministry for Youth and Sport – did not propose projects for IPA. They usually have relatively small projects, and due to that fact it mostly uses funds from bilateral donors. It is important to stress that the role of this ministry is necessary in cooperation with the other ministries, on potential projects, for instance, life-long learning agencies, agencies for fight against drugs, etc.

Ministry of Defense - according to the MIPD, projects from this area do not belong to IPA priorities. It is necessary to resolve certain problems over the other ministries (for instance, prequalification and employment of professional soldiers).

Ministry of Diaspora and Ministry of Religions – not a part of MIPD and SAA, so accordingly, the projects haven’t been formulated within IPA.

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4. Advantages in the IPA 2008 programming process Even though IPA 2008 programming process was processed under very difficult circumstances due to long term negotiations on formation of the Government of the Republic of Serbia, as well as due to increase of the number of line ministries, and the delay of the EC in adopting the basic programming documents for programming and insufficient EC administrative capacities to take over tasks from the European Agency for Reconstruction in IPA 2008 programming, still it is assessed that the process of IPA 2008 programming has been improved in comparison to previous year, in the sense of the enhanced engagement of line ministries and institutions in preparation of project proposals, passing of the Action Plan for IPA 2008 Programming, Guidelines for Programming International Assistance, which has clearly defined programming process calendar and the role of individual institutions in that process.

Coordination of work and programs of the line ministries and bodies related to them, as well as of other institutions, is of essential importance for the national institutions when taking over the leading role in programming EU funds and identifying implementation priorities. Development of consultative method of work and coordination, and linking several projects into program wholes, is the most significant step in advancing with programming of EU.

As main positive results in the IPA 2007 programming process, the following should be underlined:

• Appointment of National IPA Coordinator by the Government of the Republic of Serbia,

• Establishment of Commission for Programming and Management of European Union Funds and Development Assistance,

• Increased engagement and strengthened enthusiasm of line ministries during programming process. European Commission Delegation has supported projects formulated in line with the national strategies and priorities of the Government of the Republic of Serbia.

• Preparation of the Manual for improving the process of programming and management of EU Funds and Development Assistance by the Sector for Programming and Management of EU Funds, and its inclusion into regular training of civil servants.

• Continuous technical assistance to line ministries in all phases of the programming process (training by local experts and timely provision of financial funds for engaging foreign experts in fields in which we still lack sufficient capacities)

• Adoption of Framework Agreement24 • Consultative inter-ministerial meetings in order to coordinate programs in several

institutions, clearly showing that all projects have derived from the national policies and that different line ministries are ready to cooperate in the long term

24 In original: Framework Agreement between the Government of the Republic of Srbia and the Commission of European Commnities on the Rules for co-operation concerning the EC-financial assistanceto the Republic of Serbia in the framework of the implementation of the assistance under the instrument for pre-accession assistance (IPA)The Framework Agreement has been ratified on December 26th 2007.

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• Proposal of the method for regulating project financing from the national and pre-accession funds in the Draft Budget System Law 25 and proposal of the Public Procurement Law, stipulating that under special conditions public procurement could be performed according to the EU regulations

• Preparation of document: Needs of the Republic of Serbia for the international assistance in the Period 2007 – 2009.

Appointment of the National IPA Coordinator Appointment of Deputy Prime Minister for European Integrations for the National IPA Coordinator (NIPAC) and Sector for Programming and Management of EU Funds and Development Assistance of the Ministry of Finance for the NIPAC Secretariat, has significantly contributed to enhanced, sustained and directed cooperation among the line ministries.

Establishment of the Commission for Programming and Management European Union Funds and Development Assistance Follow-up of the implementation of priorities envisaged in Multi-Annual Indicative Planning Document as well as in national strategic documents, tuning of these priorities, as well as revising Multi-Annual Indicative Planning Document, require cooperation of the Governmental institutions in charge. IPA Framework Regulation envisages annual revision of Multi-Annual Indicative Planning Document. In relation to that, on the Government Session held on December 6th 2007 a Decision has been passed on establishing Commission for Programming and Management of European Union Funds and Development Assistance. Deputy Prime Minister, who simultaneously performs the role of the NIPAC, presides this Commission, while the other members of the Commission are Minister of Finance, Minister in charge of NIP implementation, Minister of Public Administration and Local Self-Government, Minister of Economy and of Regional Development, Minister of Trade, Minister of Infrastructure and the Director of Serbian European Integration Office..

The First meeting of the Commission for Programming and Management of European Union Funds and Development Assistance was held on December 20th 2007. It has been pointed out that Serbia should actively work on building capacities for using EU funds, in order avoid the situation where, due to weak absorption capacities, it would mark low percentage of using funds, which was the case in many neighboring countries. It has also been stressed that a proactive role also implies dialogue with the European Commission on defining conditions for implementing projects financed from the pre-accession instrument (IPA), which should lead to increased participation of domestic institutions, companies and experts, and therefore should also enhance positive effects and monetary inflow into the country.

Role of the Commission in the programming process is to discuss daft documents that shall be presented to donors, to suggest priorities to be addressed by international development assistance, especially by European Union pre-accession funds, to discuss and give proposals to the Government on other important issues pertaining to programming and management of European Union funds and development assistance26.

25 Proposal of the Budget System Act and Proposal of the Public Procurements Act have been delivered to the National Assembly in December 2007 for adoption, but the adoption has been postponed. 26 At the 13th meeting of the IPA Committee held in June 2007, proactive role of the Republic of Serbia was reflected in participation in drafting of the MIPD for the next three year period.

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Increased engagement and strengthened enthusiasm of line ministries during programming process In comparison to previous year, greater engagement of the ministries and of other stakeholders was noted, as well as increased enthusiasm in writing projects for EU funds. Also, high level of technical knowledge is evaluated in relation to specific topics in certain fields, as well as enhanced capacities in project development and knowledge of EU procedures. This mostly pertains to institutions that have already participated in EU projects (National Employment Service, SIEPA27). IPA 2008 programming has contributed to raising awareness about the significance of the efficient use of EU funds, as it has also improved programming and planning coordination between institutions, and has enhanced capacities of these institutions. Process of IPA 2008 programming is a step forward towards creating conditions for the public administration of the Republic of Serbia to take the leading role in the process of programming EU funds and it is a confirmation of the key role of line ministries in this process.

Despite numerous challenges, especially those expected during implementation, it is important to stress that the European Commission Delegation has supported exactly those projects that were formulated according to the national strategies and priorities of the Government of the Republic of Serbia, and proposed by line ministries.

Preparation of the Manual for improving the process of programming and management of EU Funds and Development Assistance by the Ministry of Finance The necessity to enhance public administration capacities and to prepare line ministries for challenges in programming of the pre-accession instrument IPA, and to successfully perform programming, led the Sector for Programming and Managing EU Funds together with Serbian European Integration Office towards elaboration of a series of useful manuals. This was performed within the scope of the Project for the support to the Ministry of Finance, financed by DFID and SIDA, and it has resulted in publishing of following manuals: Manual for Implementing Pre-Accession Assistance Instrument Programming – IPA; Manual for Logical Matrix Approach – Key Instrument for Project Cycle Management - PCM and Manual for Terms of Reference – Drafting ToR at different stages of the project cycle management28 It is particularly important to stress the good cooperation of the Sector for Programming and Management of EU Funds with the Human Resources Management Agency, that is reflected in the organization of trainings for the whole state administration, in line with needs and challenges of IPA Programming.

Continuous technical assistance to line ministries in all phases of the programming process Sector for Programming and Management of EU Funds and Development Assistance has, firstly through the engagment of local consultants (supported by SIDA/DFID), and secondly through the Project for technical assistance for Project preparation (EAR CARDS 2006), provided for a continual support to line ministries in the process of IPA 2008 programming, and thus, through practical work followed by trainings, secured strengthening capacities in the ministries for project fiche preparation.

27 Report of Technical Assistance engaged by the EAR (CARDS 2006) in IPA 2008 programming. 28 Documents can be found at web-site www.evropa.sr.gov.yu

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In order to raise capacities of the line ministries in the IPA programming process, local consultants have, in line with the Manual for Logical Framework Approach (LFA), held two-day workshops on drafting of logframes, where they have specifically worked on improving of logical matrices that the line ministries have proposed in the phase of identifying project ideas. Workshops on LFA were massively attended, whereas some of the line ministries didn’t show interest for practical work in modifying logframes. The ministries consider the engagement of local consultants to be of significant importance and benefit during preparation of project concept notes and logframes, and estimate that for the future it would be imperative to provide for an even more intensive type of assistance and training, in order to achieve requested quality of project proposals29 and to meet the set deadlines.

Technical assistance engaged by the EAR for project fiches preparation was operational up to the end of the programming phase with the task to assist line ministries and NIPAC Secretariat to successfully complete the project fiches preparation for 200830.

Adoption of Framework Agreement By signing of the Framework Agreement, the Republic of Serbia undertook the obligation to establish legal and administrative framework for using EU assistance based on introducing decentralized management system. With this Agreement, the Republic of Serbia obliges itself that in a certain scope of time, it would establish institutions, that is, adequate bodies that would enable its own Government and also the respective institutions of the European Commission to successfully and legally use IPA funds. Establishment of organizational units in the line ministries that would solely deal with programming EU funds, and engagement of a certain number of civil servants only for the posts of IPA programming, shall in great measure enhance effectiveness and efficiency of using IPA funds.

Consultative meetings for coordination of programs from several institutions Bearing in mind the request that a project proposal should cover activities that would contribute to implementation of priorities pertaining to fields of competence of several line ministries, it is of crucial importance to provide for a good, coordination of various institutions and stakeholders. In order to determine priorities in each particular sector in the programming process, it was necessary to include all parties interested in the work of the beneficiary institution - by, using its services, participating in its work, directly or indirectly colaborating with the institution. For those reasons, Ministry of Finance has organized consultative inter-ministerial meetings between the interested parties. During programming process, the agencies were willing to cooperate with the relevant ministry (National Employment Service, SIEPA with the Ministry of Economy and Regional Development, Refugee Commissioner’s Office and Ministry of Kosovo and Metohija31).

In IPA programming, horizontal cooperation of line ministries is of key importance for the efficient usage of IPA resources.

29 Evaluation from the trainings on logical matrix compilation organized in November 2007 for the line ministries. 30 It would be necessary to provide for financial resources in the annual budgets for covering of such ad-hoc services in line ministries, given that the benefit is much greater than the costs. 31 Report on technical assistance engaged by the EAR (CARDS 2006) in IPA 2008 programming.

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Proposal of the Budget System Law and the Proposal of the Public Procurement Law A significant question related to implementation of IPA, is the issue of co-financing of projects. According to the Article 67 of the IPA Implementing Regulation, the implementation of EU assistance allocated by annual financial agreements, will require the adequate level of national co-financing. It has been determined that within each of the priority axes it is necessary to secure co-financing amounting to at least 10% of the total budget value of the projects pertaining to technical assistance, and 25% of the total budget value of the projects pertaining to investments (infrastructural works and equipment procurement). As an exception, for projects within IPA 2007 Serbia shall not have co-financing obligation from the national funds. However, co-financing obligation shall be established for projects financed from the assistance funds starting from IPA program for 2008 and it is necessary to timely define mechanism of co-financing, in order to efficiently implement the IPA projects..

National co-financing can be secured from budgetary resources, approved credits or donations of international institutions. EC rules envisage that co-financing for projects in potential candidate states, including the Republic of Serbia, shall be performed according to the parallel implementation model and will correlate with priority axes as defined within Multi-Annual Indicative Planning Document. The parallel co-financing model means that within one project that shall be co-financed, activities shall be implemented separately, and will follow different procedures, depending on the source of financing. In practice that means that for activities in the project which are to be financed from the IPA funds, the relevant rules of contracting and procurement are those normally applied in the EU (so-called PRAG rules), whereas for the activities that shall be financed from the national funds, contracting and procurement rules valid in the Republic of Serbia shall be relevant.

Sector for Programming and Management of EU Funds and development assistance set up, with proposed changes in the proposal of the Budget System Act, legal basis for co-financing mechanism for successive IPA annual programs. In that way, funds for national co-financing of projects supported by EU funds shall be earmarked in advance, and co-financing of multi-annual projects shall be ensured. Moreover, in the proposal of the Public Procurement Law changes have been introduced envisaging that under special conditions public procurement can be performed according to the EU rules, which is a necessary precondition for the project implementation after introducing decentralized system for management of EU funds.

Preparation of the Needs Assessment Document for the Republic of Serbia in the Period 2007 – 2009 The Ministry of Finance has initiated elaboration of an inter-sectoral program document “The Needs of the Republic of Serbia for international assistance in the Period 2007 – 2009”, which defines priority activity programs within the sector, as well as inter-sectoral priorities, as a basis for programming of international assistance and with the view of enhancing effectiveness of that assistance. The document is based on the existing strategic framework and defined medium-term objectives, and shall determine operational program of priority activities and projects for achieving these objectives.. Purpose of the document is to contribute to implementation of reforms and strategic goals of the Government, by creating three-year program framework and providing for the necessary level and structure of international assistance. The document defines

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priority objectives and plans/programs for achieving those goals per sectors, identifies intersectoral priorities for international support in the next three-year period and gives financial estimate of the necessary financial assistance on annual level, having in mind macroeconomic projections for three-years period.

Work on the Needs Assessment Document Evaluations of the Republic of Serbia in the Period 2007 – 2009 has started in April 2006, and the Document has been adopted by the Government in January 2007. During 2007 activities have started related to annual revision of this Document. The revised document has been adopted by the Government on April 17th 2008, and we expect it to be presented to the donors in September 2008. Together with the Multi-Annual Indicative Program Document, “The Needs of the Republic of Serbia for International Assistance in the Period 2008-2010” shall represent one of the key supports in the IPA programming process.

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5. Challenges in the IPA 2008 programming process

IPA 2008 programming took place under very difficult conditions. Primarily due to the fact that EC Delegation was in the process of establishing its capacities, internal reorganization in order to become trained for performing jobs of the European Agency for Reconstruction in managing new pre-accession instrument. Based on lessons learnt from IPA 2007 programming, Serbian administration has for its part initiated and led the process of IPA 2008 programming, which is already a significant advance in comparison to previous period and makes additional step towards decentralization in management of EU funds.

However, certain shortcomings have been observed as well during IPA 2008 programming process, primarily pertaining to:

• Insufficient capacity of state institutions to define strategic plans and priority projects, (the absence of a document defining national strategic development directions - the National Development Plan);

• Digressions, made by project participants from a clearly determined calendar of the programming process and procedures defined in the Action Plan for IPA 2008 Programming;

• Lack of capacities of line ministries from the aspect of programming EU funds

• Unsatisfying quality of proposed projects, requiring much additional work in improving very good project ideas and projects of outstanding importance for Serbia;

• Lack of structures in line ministries dealing with programming of EU funds, and still insufficient horizontal cooperation both within and between the ministries;

• Insufficient number of employees in NIPAC Secretariat

• Insufficient participation and provision of technical assistance from the Serbian European Integration Office to line ministries in the programming process, due to internal organizational problems;

• Underdeveloped system and instruments for evaluating project proposals32;

• Lack of multi-annual and program budget also influences problems in harmonizing domestic projects with the projects financed from the assistance during several years (insecurity in assuring domestic financial component, underdeveloped reporting about effects and the impact of the project for the status in sectors, measuring efficiency of funds, responsibility for the overall execution of projects, etc.)

• Lengthy process of establishing of the EC Delegation’s administration that shall take over the jobs from IPA programming, and its limited participation in the programming process, especially at the beginning of the process;

32 Project evaluation system does not exist even for use of domestic public funds – budget, etc. That system is also under construction.

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• Delay of the EC with regulations, primarily with Multi-Annual Indicative Planning Document 2008-2010, as well as with defining the model for national co-financing and precise explanations regarding the functioning of the model;

Insufficient ability of state institutions to define strategic plans and priority projects Not withstanding a large number of proposed projects, out of which majority aligns with the strategic framework for IPA programming, it is evident that strategic projects proposals are missing, thus reflecting the lack of genuine reforms in various fields. That is partially consequence of the lack of knowledge in the field of strategic planning and also of insufficient knowledge of strategic documents for IPA programming and of national and sectoral strategies and plans. Technical quality of the proposal is very low; the projects are mostly small and partial, with activities, results and project objectives not adequately harmonized, and without wider problem analysis and clear determining of final beneficiaries (target group). Linkages of certain projects with the other sectoral policies and general requirements for implementing joint EU policies have been very poorly explained. Weak argumentation on the importance of the projects for obtaining reform objectives and European integrations has also noted. Furthermore, it is obvious that background information, illustrating the state of play in a particular sector is not being sufficiently exploited, and that the choice of measurable indicators for the project results is generally weak.

Also, lack of the National Development Plan, and lack of clear national priorities are particular ballast for the programming process, limiting it to the level of line ministries where more than 30 sectoral strategies are being referred to.

Digressions from clearly determined programming process calendar and procedures defined in the Action Plan for IPA 2008 Programming; Institutional and staff changes that occurred in the line ministries have caused certain delays in relation to pre-determined calendar for programming. Although the programming process started in April 2007, in line with the Action Plan, preparation phase of project concepts, their modification and entry into ISDACON information system has been prolonged until October, although according to the Calendar for Programming International Assistance, identification of project ideas should have ended until June 2007. NIPAC has only in December 2007 delivered to EC Delegation and to the EAR summary of draft project proposal defined in the wider list for discussion, and simultaneously initiated consultative meetings that have been held in the period from 12th until 21st December 2007. The final list of project proposals was sent to EC Delegation on May 16th 2008.

Lack of capacities of line ministries from the aspect of programming EU funds Regardless of the fact that IPA 2008 programming process was aggravated, certain progress of public administration in programming performance is noticeable, in relation to the previous year. Awareness on the IPA fund is increased and as well on procedures and rules governing IPA programming and preparing project proposals.

Still, the most of the line ministries do not have sufficient number of employees that would exclusivly dedicate their work to the programming process. On the contrary, programming is only one of their everyday activities. Besides the insufficient number of civil servants, due to low salaries there is high fluctuation and low motivation of

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employees. Such a working concept makes it difficult for the persons in charge of the programming process to timely answer to all set requirements from this particular domain, in parallel with performing their current obligation from the scope of line ministries. Due to absence or late establishment of Working Groups in the ministries for IPA 2008, the programming process relied in great measure on the individual, on whose abilities and job dedication depended the whole IPA programming process.

Complexity of preparation of IPA Project Fiches and vaguely defined competences of national administration in the implementation process influence the ability of employees to respond to all their assignments – regular post, jobs of IPA programming, preparing projects for bilateral donors.

During November and December 2007, within Project for Support to the Introduction of DIS3, workload analysis has been completed in line ministries and other IPA beneficiaries, measured to the scope of work necessary for efficient IPA programming, based on project proposals prepared by line ministries for IPA 2007 program. The purpose of the analysis was to show the status in the existing units dealing in EU projects and to identify necessary number of civil servants who shall work on jobs of programming EU funds. Training needs analyses was elaborated as well, and trainings will be organized for the whole public administration throughout 2008 in cooperation with the Human Resources Management Agency.

Although NIPAC has provided for continuous technical support to line ministries, lack of training and seminars dedicated to strategic planning, programming of EU,funds, project cycle management, project fiche drafting and preparation of tender documentation for EU funded projects, etc., is noticeable in order to enhance capacities and experience of state administration in this field is noticeable.

Dissatisfying quality of the proposed projects, implying much additional work on improving very good project ideas In spite of continuous technical support provided by NIPAC to line ministries, dissatisfying quality of certain project fiches is obvious, and this fact became particularly evident when after formal consultations with EU General Directorates some of the proposals required essential modifications. Deadlines for adapting those project fiches in line with recommendations and comments are normally very short, so that administration does not have the capacity to adequately respond in due time, which can finally result in losing the project.

Poorly justified and unprepared project, regardless of the importance and the influence on fulfillment of political and socio-economic objectives or European standards, shall be recognized as important, but nevertheless discarded, because it does not offer a solid bases for the implementation. Related to this are also possible complications due to very short terms for project implementation (2 years), and if the project has not been prepared well, time is being wasted for preparation, instead of implementation. The project then gets to be cancelled, and the financial resources reallocated to other projects, less important but suitable for the implementation in a shorter notice. Otherwise the non-disbursed money must be returned to the European Commission budget.

Lack of structures in line ministries dealing with EU funds programming, and insufficient horizontal cooperation both within and between the ministries Efficient programming and proper IPA exploitation require establishing of permanent institutional solutions. Legal basis for institutionalizing of the programming process and

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of management of EU funds has been laid down by ratification of the Framework Agreement, in December 2007. Institutionalization of EU funds programming, practically means introducing of project management units in the organizational scheme of line ministries, staffed with sufficient number of employees capable to successfully perform those jobs. Lack of institutionalization made it very difficult to mobilize all relevant stakeholders in the programming process, and more specifically, it caused insufficient involvement of institutions in charge of planning of national funds expenditure (budget, National Investment Plan), with programming process and spending pre-accession funds.

This difficulty was partially bridged by adopting Action Plan for IPA Programming that envisaged formation of Working Groups for IPA Programming in line ministries. However, the fact is that in many ministries this has not been performed. Also, even in cases when they have been established, due to above-mentioned staff changes in line ministries, the consequent replacement of members of the working groups followed, thus slowing or interrupting their functioning.

The Republic Secretariat for Legislation has, in cooperation with the Ministry of Finance (Sector for Programming and Management of EU Funds and Development Assistance), Serbian European Integration Office and Human Resources Management Agency prepared Draft Decree on Amendments of the Decree on Principles of Internal Organization and Job Classification in the Ministries, Special Organizations and Governmental Departments, enabling line ministries to establish organizational units adjusted by their scope and competences to respective obligations related to European integrations and EU funds programming. This is to be performed on the bases of the results of the current state analyses.

The task of these organizational unites would be to organize and manage: the process of strategic (multi-annual) programming within the overall sector development; preparations of project fiches within the annual assistance program; preparations of tender documents; implementation control and evaluation. This approach to jobs and tasks description of those units would contribute to easier identifying of different priorities and to a better coordination both within one and with several ministries.

In certain cases, Project Implementation Unites established in some line ministries for the implementation of Projects financed by bilateral donors, prepared project fiches for IPA. Nevertheless, Project Implementation Units are established separately by each donor and solely for the project duration term. When the project ends, these units stop working. That means that drafting of quality project fiches is possible only in the short term, that is, while Project Implementation Units still exist.

It is noted that in IPA programming, horizontal cooperation of line ministries is of essential importance when it comes to more complex and bigger projects involving various beneficiaries. Necessity of intersectoral cooperation, resulting in more effective use of IPA funds, is especially evident in the field of environmental protection and local socio-economic development.

Insufficient number of employees in NIPAC Secretariat Complex programming process also requires adequate number of employees within the institution performing the role of NIPAC Secretariat, in order to successfully answer to all the prescribed activities and to provide for the sufficient absorption capacity for future projects of strengthening capacities for programming and management of EU funds. However, number of employees in the Sector for Programming and Management of EU

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Funds is not sufficient to cope with all tasks and challenges within programming. Capacities and specific know-how of persons engaged in the Sector for Programming and Management of EU Funds pertain to strategic planning, planning of priorities in individual sectors, planning and managing external funds, EU regulations, financial rules for EU funds implementation, preparation of project fiche and tender documents, as well as specific knowledge and operational skills necessary for sector management, etc33.

Insufficient participation and provision of technical assistance from the Serbian European Integration Office to line ministries in the programming process Basic role and responsibility of the Serbian European Integration Office during IPA programming process, according to the Action Plan for IPA 2008 Programming, was to control harmonization of the project concepts and project fiches with the Action Plan for the Implementation of European Partnership Priorities; to inform NIPAC about the needs and the course of the implementation of the Stabilization and Association Process; to inform NIPAC about the implementation of the Plan for the Adoption of Aquis Communutaire and about the needs in implementation of the Action Plan for Strengthening Institutional Capacities in the European Integrations Process. However, due to staff changes, the SEIO could not in that particular moment adequately respond to the set requirements, and thus it participated less in the IPA 2008 programming than in the previous year.

Lack of clear mechanisms for evaluating project proposals Preparation of project fiches makes a very complex procedure implying a project prepared in consultations with all stakeholders and which adequately defines the method of achieving priorities stipulated in the Multi-Annual Indicative Planning Document and national strategic documents, as well as specific activities and a budget for the implementation of that priority, but also other conditions for the preparation of a project fiche in line with the EC criteria.

The Action Plan for IPA 2008 Programming envisaged formation of the Joint Body for the evaluation of projects, with the aim of evaluating priority project proposals and of formulating the list of project fiches. Members of the Joint Body should be representatives from the Prime Minister’s Cabinet, NIPAC, Ministry of Finance, SEIO and the EC Delegation.

However, given that this Joint Body has not been established, NIPAC has, with the assistance of an external consultant engaged by SIDA/DFID project, drafted criteria and evaluation grids for evaluating project fiches.

33 In this moment preparations are under way for implementation of year 2007 – approval of tender documents, conditions for project implementation; approval of projects from IPA 2008 package is under way, it is necessary to prepare more detailed answers and explanations for enquiries from different sectoral General Directorates, to introduce changes requested by the DG Enlargement; to perform trainings, evaluations of project ideas for IPA 2009; to complete document about the RS’ needs for international assistance; to prepare enclosure for the third donors’ summit, to execute preparations with the line ministries for presentation of the project for 2009; to prepare analysis and reports, proposals for improvement of the method of work, etc.

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Lengthy process of establishing formation of EC Delegation administration that shall take over the jobs of IPA programming, and their limited participation in the programming process, especially at the beginning of the process Insufficient administrative capacities of EC Delegation for IPA 2007 Programming and Implementation, and their late involvement in the programming process, have slowed down the course of programming, especially when it comes to prioritization of the proposed projects and passing of the decision on future financing. In the later programming phase, after arrival of a certain number of staff in charge of specific sectors, the EC Delegation has, with its enhanced capacities, provided support to the Sector to define, in cooperation with the line ministries and other institutions of the Government of the Republic of Serbia project proposals in line with the national policies and priorities.

Due to the course of establishing of adequate structures within EC Delegation for negotiating and implementing projects financed from the IPA, the programming was additionally aggravated by the fact that we were striving towards decreasing the number of tender procedures and contracts, as well as giving advantages to those projects that can be quickly implemented34.

It is especially important to mention that in the later programming phase, EC Delegation (in consultation with General Directorates) has set extremely short deadlines for modifying project fiches, which was very demanding for the line ministries, especially having in mind the complexity of the project fiches, lack of capacities in state administration and lack of adequate knowledge and experience in management of EU funds.

Delay of EC with regulations, primarily with Multi-annual Indicative Planning Document 2008-2010, as well as with the national co-financing model IPA 2008 programming has been implemented based on priorities defined in MIPD for 2007-2009 periods. The reason for that is in the fact that the EC was late with preparation of the program document for the period 2008-2010. Revised MIPD has been sent to NIPAC only in March 2008, when the programming was already in the final phase.

Speaking about the co-financing model to be applied during IPA implementation, the EC has delivered co-financing instructions that were not sufficiently precise when it comes to percentages of co-financing for different types of projects, and with a great delay. This has negatively influenced budget defining within projects during project fiches preparation.

In the implementation of IPA projects, the so-called parallel co-financing shall be applied. Co-financing shall be calculated according to the main fields of intervention as envisaged in MIPD, that is, according to the priority axes: political requirements, socio-economic development and European standards. Parallel co-financing is a model in which each side performs payments according to its own financial rules and procedures.

34 Although projects from the IPA 2007 package have been approved by the IPA Committee already in April 2007, due to underdeveloped regulations pertaining to implementation of the projects, the Financial Agreement had to be signed just after ratification of the Framework Agreement for IPA Implementation, which was done in April 2008. From that moment it is possible to negotiate project implementation from the IPA 2007 package. For these reasons it is expected that by the end of the year between 35 -37 billion euros or approximately 20% of approved assistance shall be negotiated.

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Certain activities would be paid by the European Commission from the EU budget according to its procedures, while other project activities, determined in advance, would be financed by the Republic of Serbia according to the national public procurement rules..

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6. Recommendations aimed at improving IPA managment

Positive elements of Serbian reform achievements can not be maintained without further adaption and continuing state administration reform. In this respect, in the following period it is absolutely necessary to enhance IPA programming, to clearly define roles, methods of joint work and responsibilities. Having this in mind, following issues stand out as recommendations for enhancing IPA 2008 programming:

Institutionalization of IPA programming and commitment in introducing DIS (appointing of NAO, PAO, CAO) – enhancing horizontal intersectoral coordination

Adopting mechanisms for evaluating proposed projects and creating structures for evaluating project proposals

Strengthening Sector for Programming and Management of EU Funds and Development Assistance

Enhancing capacities of line ministries Programming IPA in line with the needs of the National Integrations Program

(cooperation with the European Integration Office) Introducing national Programing budget Enhancing cooperation with EC Delegation Enhancing consultative process and cooperation with non-governmental sector,

local self-government and private sector (raising awearness) Coordination of Multi-Beneficary IPA programme Improvement of document: Needs of the Republic of Serbia for International

Assistance.

Institutionalization of IPA programming and ommitmment to introduction of DIS (appointing of NAO, PAO, CAO) – enhancing horizontal intersectoral coordination During the period of technical Government, conditions for institutionalizing IPA programming process were not set up., IPA 2009 programming cycle started with the adoption of Action Plan for Programming IPA 2009, defining the roles and responsibilities for this program cycle. The following project groups have been formed:

- Project Group for Economy and Human Resources Development;

- Project Group for Local, Regional and Rural Development;

- Project Group for Infrastructure Development;

- Project Group for PublicAdministration Reform

- Project Group for the Rule of Law Tasks of inter-sectoral project groups in IPA Programming include::

1. providing recommendations about priorities for annual IPA Programming; 2. identification of project proposals during IPA programming; 3. evaluation of project proposal and assessment of the objectives of the projects in

line with the priorities defined in the National Plan for Integration (NPI) and other national strategic documents and priorities defined in the European Partnership and MIPD, including assessment of conditions and capacity for implementation process of proposed projects. ;

4. identifying weaknesses and problems during IPA programming process and proposing measures to the institutions in charge, for their elimination;

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5. analysis of priorities for implementation, and if necessary, proposing new project priorities during annual revision of Multi-Annual Indicative Planning Document, Needs Assesment Document, having in mind aims and tasks deriving from NPI and other national strategic documents;

6. discussing possibilities for national co-financing 7. analyzing projects in the process of implementation and their connection with

previously approved projects and projects proposed for future implementation; 8. implementation of measures suggested by the Commission for Programming and

Management of EU Funds and Development Assistance and directly reporting about undertaken measures and activities;

9. regular reporting to the Commission for Programming and Managment of EU Funds and Development Assistance about implementation of activities and current situation in respective sector;

10. Mutual cooperation in order to coordinate, exchange of experiences, preparation and recommendations and providing opinions about improving work of the project groups.

Formation of Intersectoral Project Groups for IPA Programming aims to improve IPA programming process, enhance coordination between the institutions in charge of different sectors and ensure more effective and efficient mamangment of assistance. at the same time, forming of Project groupsis a step forward in preparation of forming adequate operating bodies, which is obligation under DIS defined in Articles 58, 59 and 83 of IPA Implementing Rules. With introduction of DIS , Commission for Programming and Management of EU Funds and Development Assistance and Intersectoral Project Groups for IPA Programming should grow into adequate commissions as defined in IPA Implementing Rules. Information about the need to form units for managing projects financed through EU funds within the lne ministries, passed by the Government at the meeting held on 15th November 2007, determinated that the Project Management Units within ministries should be established, in order to fulfill conditions for preparing institutional framework for introduction of DIS. In the following period it is necessary to organize consultations with the Deputy Prime Minister for European Integrations (NIPAC), Sector for Programming and Managing EU Funds (NIPAC Secretariat) and line ministries and Office for European Integrations, in order to determine recommendations and guidelines for forming adequate organizational units for programming and implementation of projects financed through EU funds. Based on this, the respective ministries will, in line with the Enactment on Principles for Internal Regulation and Jobs’ Systematization in the Ministries, Special Organizations and Governmental Services, form adequate organizational units for programming and implementation of projects financed from the EU funds. Implementation of the planned activities for preparing accreditation for DIS in the Republic of Serbia and adopting and implementation of the Action plan for Introducing DIS should be one of the tasks of the new Government.

Adopting mechanisms for evaluating proposed projects and creating structures for evaluating project proposals Enhancing programming process is inseparably related to formation of adequate working bodies, which will be responsible for monitioring the the programming cycle. Hence,, it is necessary to form adequate working group that will deal with issues related to evaluation

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of projects and which will assess priorities of project proposals in line with the set criteria and procedures for evaluating project proposals (evaluation grid)

Existence of adequate project group for evaluation of proposed projects would secure prioritization and selection of projects in line with clear rules and defined criteria, which is a basic principle of quality decision making system and good management, and also good programming and managment of available funds. Thus, the system of previously developed evaluation grids and introduction of project group for evaluation of project proposals will secure better transparency of the project proposals evaluation process. Evaluation of project proposals will be done electronically, and evaluation grids are available in ISDACON IS www.evropa.sr.gov.yu .

Strengthening Sector for Programming and Managing EU Funds and Developmental Assistance Role of NIPAC Secretariat is coordination with the line ministries and European Commission Delegation in the process of programming EU funds, as well as constant reporting to the European Commission in line with the EU regulations. Having in mind the fact that the Sector for Programming and Managing EU Funds and Development Assistance in the Ministry of Finance performs very demanding work- coordination of 22 line ministries, it is necessary to increase the number of employees, in order to provide adequate support to line ministries during programming cycle. It is also necessary to continue strengthening capacities of the Sector, in order to secure absorption capacities of future projects within the scope of the project prepration facility PPF.

In order to prevent big fluctuation of staff trained for jobs of programming and management of EU funds, it is necessary to develop policy of stimulating employment of adequate profiles of civil servants, and in relation to that to determine personal income which is competitive under existing labour market conditions.

Improving capacities of line ministries Fulfillment of all necessary conditions for taking over the leading role in the process of programming and implementing EU assistance requires existence of adequate capacities in the institutions in charge. Challenges and requirements in the European integrations process shall increase in the next the period, which also requires establishing adequate capacities within state institutions. Exactly one of the main short-term European Partnership priorities is also strengthening of the structures dealing in European integrations on all levels.

In order to achieve full contribution of state institutions in the integration process of the Republic of Serbia into European Union, further support is necessary to strengthen capacities of state institutions. In this respect, improving IPA programming requires increased number of employed persons, established structures for programming EU funds, organization of adequate and planned trainings for employees. It is also recommended to secure additional financial stimulation (in line with experiences of other states in the process of European integrations), for employees working on the jobs of programming and management of EU funds, having in mind that working on these functions requires specific knowledge and skills. This will alos help to prevent fluctuation of quality civil ervants with specific knowledge and thus ensure sustainability of institutions dealing with the EU funds management within the public administasrtion.

Increase of the number of employees, training, improvement and motivation have for their goal to bridge differences between the existing and desired status of professional

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qualifications of state servants, and at the same time eliminate number of shortcomings in management of EU funds. Enhancing capacities should be continuous process, in order to contribute to permanently improvement the level of funds management, ensuring the continuity of reforms and implementing requirements stemming from the stabilization and accession process.

In order to implement tasks, it is necessary that the Agency for Human Resources in cooperation with the Ministry of Finance organize adequate number of required trainings. Special attention should be given to the training programmes that are important for l programming and implementation of EU funds:

Project identification – including SWOT analysis Project Cycle Management Logical framework approach, mandatory methodology for preparation of EU

project Budget preparation Financial mechanisms and programming process Preparation of tender and project documents – Terms of Reference, technical

specification, feasibility study, environmental impact study EU rules and public procurement procedures Monitoring and evaluation of projects.

However, one should stress that capacity building for effective managment of EU funds requires qualified and adequate technical assistance and expertise on the one side and, adequate and sufficient number of stuff in beneficiary institutions on the other.

Organization of the trainings is just one of the methods that can contribute to enhancing capacities of the public administarstion. Besides these oftenly used method, , programming process can me improved throiug the technical support provide within the instrument of Project Preparation Facility, PPF- intended for preparing feasibility studies, project fiche development and preparation of project documents, tender documents, etc. Public administration employees working on preparation of project proposals should participate in technical assistance provided through PPF and thus improve their knowledge of the matter in question through practical work (leraning by doing). Based on the other countries’ experiences in the European integrations process, it has been identified that the EU assistance is efficiently used if a system for medium-term and annual planning is developed, and all preparatory activities , for specific project implementation completed (feasibility study developed, project documentation ready and units for monitoring of project implementation set up).

Programming of IPA in line with the National Plan for Integration (cooperation with the European Integrations Office improved) Having in mind the fact that in the previous program cycle active participation of the European Integrations Office has been left out, it is necessary to establish cooperation mechanisms between the line ministries and the Office. Namely, European Integrations Office coordinates the process of preparation and implementation of the National Plan for Integration, meaning harmonization of legislative framework of the Republic of Serbia with the European Union laws (acquis communautaire). In relation to that, European Integrations Office should give suggestions to the line ministries when initiating amandmends of the existing legisaltions and passing new laws, especially in the field of international assistance. This primarily refers to so-called Twinning Instrument, special

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type of contracts for the EU projects that is, to the projects that aim to improve legislative framework or contribute to harmonization and impelmenation of the laws through exchange of experience and improved cooperation with public administrations of the EU member states countries. 35

Introducing National Programming Budget One of the key reform objectives is to increase efficiency of foreign assistance in executing Governmental priorities, envisaged in strategic documents, including the National Plan for Integartion, Needs Assesmenr Document, Povert Reduction Strategy and Strategy of Public Administration Reform, as well as other strategies of the line ministries. For promoting efficient implementation of the reforms, it is important to secure that the budget and programming of international assistance should be completely harmonized with priorities defined in stated strategic documents. In this respect, it is necessary to further strengthen capacities of line ministries in order to enhance planning of priorities by developing comprehensive and realistic plans of activities in the line ministries, in order to enable successful harmonization of budget programming and EU funds. Namely, from the IPA 2008 programming cycle it is necessary to secure national resources for co-financing of approved projects. Thus, institutions must have in mind during project preparation for each programming cycle, according to its value and type, to secure an adequate amount in their budget for cofinancing. Exactly harmonization of budget programming and of international funds shall contribute to efficiency of using available financial resources. Having in mind that the process of taking the leading role by the Government of the Republic of Serbia in programming EU funds, as well as process of adopting budgetary program are in the initial phase, it is necessary in the following period, to undertake all necessary activities that will contribute to harmonization of those two processes and at the same time contribute to effective and realistic approach in planning budget revenues and expenses.

Enhanced cooperation with the EC Delegation by establishing adequate structures Having in mind continuity of EU assistance, as well as transitory period from CARDS to IPA, introduction and increased role of the states beneficiaries of funds in the programming process and transfer of competencies from the EAR to EC Delegation, there is a need to establish adequate structures between the EAR, EC Delegation and NIPAC. Namely, the established structures would lead to formalized and continuous cooperation process during IPA programming process between the EC Delegation, EAR and NIPAC through NIPAC Secretariat (Sector for Programming and Management of EU Funds and Developmentl Assistance) with all stakeholders from the side of beneficiary. At the same time, effective monitoring would be enabled of already existing projects financed from the EU funds, which would enhance monitoring, reporting, evaluation of projects and enhance programming, leading to efficient and effective use of EU funds.

Enhancing consultations with civil society and private sector (raising consciousness)

35 European Integrations Office is a National Coordinator for Twinning Instrument in the Republic of Serbia.

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Cooperation between the non-governmental sector and the Government of the Republic of Serbia regarding European integrations, with focus on regular exchange of information on activites related to adoption implementation of the laws and politics in the field of European integration are regulated in the Memorandum of Understanding between the EU Integration Office and a certain number of non-governmental organizations.

Having in mind thet the role of non-governmental organizations so far, in building democratic, civil society in Serbia and their contribution to expansion of European ideas and values, as well as necessity of regular and objective informing of citizens about the European Union accession process, involvement of the NGOs and civil society in revision of the strategic documents- MIPD and IPA programming is important in that regards, it is necessary to establish mechanism for exchange of information, primarily between the non-governmental organizations themselves, and then between the Government of the Republic of Serbia and non-governmental sector, in order to gain better insight of the current situation in the sectors of proposed projects. In that sense it is necessary to organize consultative meetings at which opinions would be exchanged and possibly agreements could be made regarding priorities of Serbia, in line with the priorities envisaged by strategic documents.

Although private sector can not use funds earmarked in the first IPA component, it is necessary to constantly raise awearness about importance of EU funds, rules and procedures for implementing projects according to the EU rules. This is important for inducing domestic companies to participate in tenders as potential sub-contractors. Therefore it is necessary, in cooperation with the Chamber of Commerce of Serbia, to organize educative workshops for private sector, primarily dealing with:

rules and procedures of the new financial instrument IPA preparation of tender documents in line with the EU procedures PRAG (EU procurement rules) financial management of the projects (including PPP models) monitoring and evaluation of projects Reporting.

Speaking about cross-border programs- CBC covered by the second IPA component, Ministry of Finance organizes, after, each call for proposals, for each of the programs:

preparation of program documents for cross-border and territorial cooperation (8) with EU member countries and countries candidates for EU membership; approval of call for proposals;

preparation of program package (implementation instruction) of documents, in cooperation with the neighboring state representatives on one side, and line ministries, Executive Council of Vojvodina, Standing Conference of Towns and Municipalities and other partnership institutions in Serbia

info-days, meaning informing local self-governments and the civil society

Workshops, seminars, trainings about topics – program contents, completing application form, LFA, project budget, etc.

organizing project fairs – beneficiaries present their project ideas, acquaint themselves with potential project partners from the other side of the border and jointly work on application

training of candidates who received donation – training for reporting, EU public procurement rules, planning and implementation of promotional activities

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Financial and physical control of project implementation – approval of tender documents, monitoring public procurement, collection of quarterly financial statements, approval of costs, etc.

Project evaluation

Work in joint program managing bodies for approving project and implementation of program objectives

Assesment of the effectivness of project/

Coordination of Multi Beneficiary IPA Multi-Beneficiary IPA (MB IPA) is a regional programme under centralized management by Brussels- meaning that the programming and implemnetion process are under direct responsibility of the bEuropean Commission in Brussels. In this respect, it is crucial to improve the monitoring of the activities financed by the by the MB IPA. In particular, it is essential to establish efficient coordination system between the European Commission Delegation, line ministries and NIPAC. In that way one could get better overview of what projects are being financed from the funds intended for all potential candidates or candidate countires from the resources intended for each state individually. As a result such mechanisms will complementarity and avoid overlapping with IPA national program. Improving document: Needs of the Republic of Serbia for International Assistance Medium-term priority of the Government of the Republic of Serbia should be preparation and implementation of the National Development Plan. in this sense, it is necessary to improve the existing document: Needs Assesment of the Republic of Serbia, in order to develop the most important development document that will embrace all priorities of different sectoral.policies. This document will harmonize all partial strategies and provide best solutions for effectively using both- national budget resources and international funds which in long term will contribute to development of the Republic of Serbia. In the next period the priority in improving Needs Assesment document should focus on modification of defined short term objectives, programs and project activities on annual level, for achieving short-term objectives per sectors.

European Commission recommendations for IPA 2009 programming European Commission delivered recommendations on IPA 2009 program36, IPA 2009 programming should be based on priorities identified in the European Partnership, on the findings of annual progress report and staretgy paper contained in annual Enlarngemnt package of Commission that will be published in November, on the National Plan for Integration and the SAA, on the national strategies as much as they are compatible with pre-accession goals and framework set in IPA regulation. These priorities are incorporated into new Multi-Annual Indicative Planning Document (MIPD) for 2009-2011 for the Republic of Serbia, which is expected to be adopted at IPA Committee in March 2009. EC recommendation stresses that IPA 2009 program should contain smaller number of projects in total comparing with IPA 2007 and IPA 2008 programs, with «biggerr» projects in terms of project budgets. in terms of content, IPA 2009 :

- should aim at enhancing European perspective of the Republic of Serbia;

36 Total annual budget for IPA 2009 is 194.8 mil. Euros ( I component «Assistance Transition and Institution Building» - 182.6 mil. euros and II component «Cross-border cooperation» 12.2 mil. euros)

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- include projects enjoying higher visibility of EU pre-accession funds and contributing to raising awearness of European Union and EU integration process for Serbia;

- focus on projects with direct influence relevance to people’s lives (judiciary reform, market environment, development of SMEs , education and employment, inclusion of minorities, etc.);

- building on the some of the ongoing projects but adding new elements and added value ;

- gretarer importance to the fight against corruption because of its importance in fulfilling the political criteria and cross-cutting implications on all sectors. This should be seen as a cross-cutting issue and not just stand-alone projects. it is for this reason that anti-corruption measures should be wherever possible, forseen in the project

- for infrastructural projects include cooperation with international financial institutions (IFIs) .

In addition, it is necessary to evaluate influence on projects that are currently implemented, projects that will be implemented, as well as evaluation of absorption capacity of the project beneficiary and «maturity» of new project proposals in relation to timeframe. It is necessary to perform informal consultations of all participants in this process as early as possible, as well as the fact that it is necessary to prepare inter-sectoral projects with several beneficiaries. Bearing in mind the recommendation to decrease the number of projects, it is not realistic to expect that each ministry shall individually have a project. Emphasis should be on creating larger projects where several ministries would resolve problems observed in MIPD, the European Partnership or national strategies.

ANNEX I – List of projects for IPA 2008

Priority Axis 1: Political criteria Project 01: Strengthening the institutional capacities of the National Bank of Serbia (NBS) Project 02: Support to the Development of Public Internal Financial Control (PIFC) Phase 3 Project 03: Support to Refugees and IDPs Project 04: Support to media capacities in the area of European Integration Project 05: Development of the Information System for Border Crossing Control Project 06: Fight Against Corruption Project 07: Harmonization of Serbian Customs Enforcement Division with Standards, Organization and Operational Methodology of the EU Enforcement Agencies Project 08: Scholarship for European Integration Project 09: Improvement of transparency and efficiency (prosecutors and penal system) Project 10: Education for all - increasing the availability and quality of education for children from marginalized groups Project 11:Systemic development of elementary, practice based adult education in Serbia (Second chance) Project 12: Social inclusion Project 13: Support for civil society Priority Axis 2 - Socio-Economic criteria Project 14:Treatment of healthcare waste management Project 15: Implementation of HIS Project 16: Support to establishment of quality assurance within examination system in primary and secondary education at natioanal level Project 17: Environmental protection at the Electric Power of Serbia (EPS) company Project 18: Improved Serbian SME Competitiveness and Innovation Project 19: National Employment Service (NES) forecasting and data management Project 20: Municipal Infrastructure Support Program

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Priority Axis 3 - European standards Project 21: Facilitating Intermodal Transport in Serbia Project 22: Continuation of Twinning project – alignment with acquis Project 23: Conformity assessment Project 24: TA to support implementation of infrastructure projects in the Republic of Serbia- PIUs Project 25: State Aid Control Project 26: Assistance to Serbian Environment Protection Agency as national focal point institution for cooperation with European Environment Agency in strengthening the EIONET Project 27: Hazardous Waste (twinning) Project 28: Chemicals Management (twinning) Project 29: Harmonization of national legislation with EU legislation for placing on the market and control of Plant Protection Products (PPP) and implementation of new legal provisions (twinning) Project 30: Support to Participation in Community Programs Project 31: Support for the control/eradication of classical swine fever and rabies in Serbia Project 32: Capacity building and technical support for the renewal of viticulture zoning and control of production of wine with Designation of Origin Project 33: System for the Analysis of Track Condition Project 34: Project Preparation Facility Project 35: Establishment of the first level control and support to the implementation of the CBC programmes Project 36: Further support to implementation of DIS

Multi-Beneficiary IPA Project 37: Nuclear safety - VIND Project 38: TEMPUS