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EN
2016

NO 11

Special Report

Strengthening
administrative capacity
in the former Yugoslav
Republic of Macedonia:
limited progress in
a difficult context

(pursuant to Article 287(4), second subparagraph, TFEU)

Audit team

The ECA’s special reports set out the results of its performance and compliance audits of specific budgetary areas or management topics. The ECA selects and designs these audit tasks to be of maximum impact by considering the risks to performance or compliance, the level of income or spending involved, forthcoming developments and political and public interest.

This performance audit was produced by Audit Chamber III — headed by ECA Member Karel Pinxten — which specialises in external actions spending areas. The audit was led by ECA Member Hans Gustaf Wessberg, supported by the Head of his private office, Peter Eklund; Emmanuel-Douglas Hellinakis, Attaché; Torielle Perreur-Lloyd, Head of Task; Stéphanie Girard, Ainhoa Perez Infante, Aurelia Petliza, auditors.

From left to right: A. Perez Infante, E.-D. Hellinakis, T. Perreur-Lloyd, H. G. Wessberg, A. Petliza, P. Eklund, S. Girard.

Contents

Abbreviations and acronyms

Executive summary

Introduction

The road to accession

The national context of reform

EU pre-accession financial assistance

Audit scope and approach

Observations

Part I — The effectiveness of pre-accession financial assistance in contributing towards strengthening administrative capacity

Pre-accession financial assistance did not successfully address some of the significant weaknesses in administrative capacity in key areas

Most planned outputs were delivered but they were not always exploited

The impacts of projects were often limited and not always sustainable

Obstacles to progress on strengthening administrative capacity

Part II — The use of decentralised management as a means of building capacity

The country was not ready for the volume and complexity of IPA funds for which management was decentralised

The Commission has taken action but further de-commitment is probable

Decentralising management could have been used more widely as a capacity-building tool for the public administration

Part III — The contribution of political dialogue to strengthening administrative capacity

Although well organised, political dialogue did not contribute significantly to an overall strengthening of administrative capacity

Other dialogue mechanisms addressed the need to strengthen administrative capacity but did not result in progress towards removing the underlying obstacles

Conclusions and recommendations

Annex I | — | Key dates in EU–former Yugoslav Republic of Macedonia relations
Annex II | — | Projects audited

Reply of the Commission

Abbreviations and acronyms

CSO: Civil Society Organisation

DG Neighbourhood and Enlargement Negotiations: Directorate-General for Neighbourhood and Enlargement Negotiations

DG Regional and Urban Policy: Directorate-General for Regional and Urban Policy

HLAD: High Level Accession Dialogue

IPA: Instrument for Pre-accession Assistance

ITSF: IPA Training and Support Facility

PAR: Public Administration Reform

PIFC: Public Internal Financial Control

PPB: Public Procurement Bureau

ReSPA: Regional School of Public Administration

SA: Stabilisation and Association

SAA: Stabilisation and Association Agreement

SAC: State Appeals Commission

SAP: Stabilisation and Association Process

SCPC: State Commission for Prevention of Corruption

SIGMA: Support for Improvement in Governance and Management

Executive summary

I

The former Yugoslav Republic of Macedonia has been a candidate for EU membership since 2005. Every year since 2009, the Commission has reported that the country meets the mandatory political criteria for moving to the next stage of the accession process. The Council has agreed that the country meets the political criteria but has not decided on a framework for opening negotiations. In November 2015 the Commission stated that it was prepared to extend its recommendation to open accession negotiations with the country. However, this was made conditional upon the resolution of the current political crisis in the country and the implementation of a number of urgent reform priorities.

II

During the 2007-2013 period the EU allocated 615 million euros under the Instrument for Pre-Accession Assistance (IPA I) to help the country prepare for accession. The country also received financial support under multilateral programmes covering the whole of the Western Balkans.

III

We audited projects financed from IPA I in three major sectors: public administration reform (12 % of the total allocation), transport (18 %) and environment (16 %). We found that, despite the priority assigned to capacity-building by the Commission, relatively limited progress was made in strengthening the country’s administrative capacity during the audited period. The projects we audited generally delivered the planned outputs but these were often not fully exploited. In some cases projects had limited impact and were not sustainable.

IV

All of the projects audited in the PAR sector included activities designed to strengthen administrative capacity but often did not effectively address many of the weaknesses. For some key areas in which strong legislation already existed (internal control, the development of a professional, independent civil service) there was little assistance under IPA during the period audited and there was not sufficient progress on implementing that legislation. In other key areas (such as the fight against corruption and public procurement) IPA projects had little impact in the absence of active support from the national authorities.

V

In the transport and environment sectors few of the audited projects addressed capacity-building to bring alignment with the EU acquis. While others aimed to strengthen administrative capacity through ‘learning by doing’, further examination revealed that the investments in infrastructure did not include activities clearly designed to directly support this objective.

VI

The audited projects did not always fit into a coherent, cohesive and coordinated approach towards strengthening administrative capacity. Some projects did not follow on from previous assistance in the same sector or were not adequately followed up with further support. There was often a gap of 4 years or more between establishing the need for assistance and the delivery of project results.

VII

The Commission decentralised the management of 76 % of the IPA I allocation of funds to the national administration and supported the setting up and operation of structures to manage these funds. This resulted in improved capacity in the parts of the public administration concerned. However, we found that the experience of decentralising management presented an opportunity for capacity-building in the rest of the public administration which the Commission did not take up during the audited period.

VIII

The mechanisms for political dialogue were well-suited to supporting reform in the country. The fact that overall administrative capacity did not improve significantly during the period audited was largely due to the insufficient political will of the national authorities to tackle some of the obstacles to strengthening administrative capacity. In addition, the leverage for the Commission to encourage reform, especially in sensitive areas, was greatly reduced during this period in the absence of the framework provided by accession negotiations.

IX

We make a number of recommendations in support of strengthening administrative capacity.

Introduction

The road to accession

01

The former Yugoslav Republic of Macedonia and the EU signed a Stabilisation and Association Agreement (SAA) in 2001, the first in the Western Balkans. At the Thessaloniki Summit in 2003, the European Union (EU) granted all countries of the Western Balkans¹ a clear prospect of EU membership, subject to their meeting the Copenhagen criteria² and the conditions of the Stabilisation and Association Process (SAP)³. In 2005 the country formally became a full candidate for EU membership.

02

By 2009 the country had successfully aligned many important parts of its national legislation with EU legislation. The Commission acknowledged this progress and recommended opening formal accession negotiations. However, membership negotiations cannot start until the governments of all EU Member States agree in the form of a unanimous decision by the EU Council. Despite agreeing that the country had met the political criteria for opening accession negotiations, the Council did not take such a decision following the Commission’s 2009 recommendation.

03

The Council continued to take no action despite positive recommendations delivered by the Commission in each of the next 5 years. Issues regarding the country’s official name⁴ and, more recently, relations with neighbours, have proven to be an impediment to reaching a decision. The country’s formal road towards accession has been blocked for more than 6 years. In the meantime, it has seen many of the other Western Balkan nations catch up and even overtake it⁵.

04

In 2013 the country entered a period of political crisis and there was a breakdown of domestic political dialogue⁶ which exposed serious shortcomings in democratic governance. In 2015, intercepted communications suggesting breaches of fundamental rights, politicisation and corruption were released into the public domain⁷. The Commission and some Members of the European Parliament have been closely involved in facilitating a political agreement to overcome this crisis.

05

In 2014 the Commission announced that there would be no new EU Member States before 2020⁸. This overall slow-down in the enlargement process was due both to the need for consolidation within the EU following the recent rounds of enlargement and to the challenges faced in integrating a region still emerging from violent conflict in the 1990s. See key dates shown at Annex I.

The national context of reform

06

The Commission assists the former Yugoslav Republic of Macedonia to enact reforms and prepare for membership of the EU. The reform process consists of introducing and implementing national legislation which is aligned with EU legislation. The Commission helps to draft new legislation and to strengthen the administrative capacity to implement it.

07

The Commission and other stakeholders have reported that, although the public administration of the former Yugoslav Republic of Macedonia is continuing to work towards integration with the EU, there is reduced commitment to reform from the national authorities at a higher level⁹. There is often a lack of will to engage in some of the significant financial investment which is necessary to make progress on reform, for example on environmental measures. There has also been inadequate political leadership to tackle sensitive areas such as the fight against corruption.

08

In the absence of formal accession negotiations, the Commission has used the chapters on which negotiations are usually based as a guide¹⁰ for assessing annual progress in the country¹¹. Although pointing to weaknesses in administrative capacity, up to 2012 the Commission concluded that the overall reform process was generally proceeding well in the country. In the 2013 report the Commission pointed to the failure to make progress in some areas and backsliding in others. The 2014 report made a more negative assessment and issued the following warning: ‘…The Commission urges the authorities to take decisive action to address concerns about increased politicisation and growing shortcomings with regard to the independence of the judiciary and freedom of expression so that its recommendation can be sustained in future years’¹².

09

In its 2015 Progress Report, published in November 2015, the Commission repeated its recommendation to open accession negotiations with the former Yugoslav Republic of Macedonia. However, this positive recommendation was conditional on the successful implementation of the Przino Agreement¹³ and substantial progress in the implementation of the urgent reform priorities¹⁴.

10

Table 1 shows our summary of weaknesses in administrative capacity in some key areas of reform which were highlighted in the Commission’s 2011-2015 progress reports.

Table 1

Assessments of administrative capacity in the annual progress reports (2011-2015) for the areas audited

| Chapter | Institutions | 2011 | 2012 | 2013 | 2014 | 2015
5 | Public procurement | Ministry of Economy, Concessions and Private–Public Partnerships Unit |  |  |  |  |
State Appeals Commission |  |  |  |  |
14 | Transport policy | Road/State Transport Inspectorate |  |  |  |  |
Rail Safety Authority |  |  |  |  |
Air/Civil Aviation Agency |  |  |  |  |
21 | Trans-European Networks | Institutions involved in construction |  |  |  |  |
22 | Regional policy and coordination of structural instruments | National Fund, Central Financing and Contracting Department and line ministries |  |  |  |  |
Programming |  |  |  |  |
Monitoring and evaluation |  |  |  |  |
Financial management, control and audit |  |  |  |  |
23 | Judiciary and fundamental rights | Institutions involved in implementing anti-corruption policy |  |  |  |  |
Courts dealing with high-level cases |  |  |  |  |
27 | Environment and climate change | Regulating bodies (horizontal legislation) |  |  |  |  |
Bodies involved in air quality |  |  |  |  |
Bodies involved in waste management |  |  |  |  |
Bodies involved in enforcing legislation |  |  |  |  |

| Administrative capacity still weak/limited and needs substantial/urgent improvement.
| Administrative capacity has increased but still needs further improvement.
| Administrative capacity has increased: no need for further improvement.

Source: ECA using European Commission progress reports.

EU pre-accession financial assistance

11

The EU provides financial and technical help for the enlargement countries (the Western Balkans and Turkey) by means of the Instrument for Pre-accession Assistance (IPA)¹⁵. IPA I covered the period 2007-2013 with a total allocation of 10 billion euros, of which 615 million (6 %) was for the former Yugoslav Republic of Macedonia. IPA II has followed this with a total indicative allocation of 11.7 billion euros over the period 2014-2020, including 664 million euros (6 %) for the former Yugoslav Republic of Macedonia.

12

Under IPA I financial assistance for the country can be presented in seven sectors of expenditure as shown in Table 2.

Table 2

IPA assistance to the former Yugoslav Republic of Macedonia 2007-2013 (million euro)

Sector/Funding area | Total allocation per sector | Percentage
Justice and home affairs | 64 | 10 %
Public administration reform | 71 | 12 %
Social development | 67 | 11 %
Private sector development | 45 | 7 %
Transport | 110 | 18 %
Environment | 99 | 16 %
Agriculture and rural development | 111 | 18 %
Other | 48 | 8 %
TOTAL 2007-2013 | 615 | 100 %

Source: European Commission.

13

When IPA I began in 2007, most funds were managed directly by the Commission. However, by 2010 the management of 76 % of the country’s IPA allocation had been decentralised. Under decentralised management the funds allocated are managed by dedicated structures within the public administration of the country. However, the Commission remains accountable for these funds so it carries out checks of the transactions.

1The countries at that time were Albania, Bosnia and Herzegovina, Croatia, the former Yugoslav Republic of Macedonia, and Serbia and Montenegro.

2The Copenhagen criteria set by the European Council in June 1993 consist of:
(a)political criteria;
(b)economic criteria;
(c)the ability to assume the obligations of membership.

3The SAP, the EU’s policy on the Western Balkans, was established with the aim of eventual EU membership. The western Balkan countries are involved in a progressive partnership with a view to stabilising the region and establishing a free-trade area.

4This has been addressed through United Nations mediation since 1994.

5Croatia is now an EU Member State. Montenegro, Serbia and Albania have become candidate countries for EU membership, and Montenegro and Serbia have opened accession negotiations.

6The main opposition party boycotted parliament.

7See the introduction to the 2015 Progress Report (SWD(2015) 212 final of 10 November 2015).

8Opening Statement by the President of the European Commission to the European Parliament Plenary Session, Strasbourg, 15 July 2014.

9See 2015 Progress Report: ‘Strong political will is necessary to guarantee the independence of administration.’ (section 2.2), The capacity to effectively address [the fight against corruption] is currently being undermined by a lack of political will and political interference in the work of the relevant bodies, which is hampering their ability to act proactively and non-selectively, especially in high-level cases (section 2.3) and on Chapter 23: ‘The current lack of political will to tackle the remaining challenges at the highest level is holding back the capable administration from reaching its full effectiveness’.

10The chapters of the acquis (currently 35) form the basis of the accession negotiations. They correspond to the different areas of the acquis in which reforms are needed in order to meet accession conditions.

11Without opening and closing them as it would if the accession process had already started.

122014 Progress Report on the former Yugoslav Republic of Macedonia, p. 1.

13The main four political parties signed the Przino Agreement in June 2015. This agreement consisted of conditions to be met including free and fair elections and the appointment of a special prosecutor to investigate the issues surrounding or arising from the interception of communications. See also paragraph 65 and Annex I.

14In June 2015 the Commission issued ‘Urgent reform priorities for the former Yugoslav Republic of Macedonia’ drawn up on the basis of the findings of the Senior Experts’ Group. It contains a list of urgent reform priorities to be fulfilled by the former Yugoslav Republic of Macedonia in the fields of rule of law and fundamental rights, de-politicisation of the public administration, freedom of expression and electoral reform.

15IPA I was established by Council Regulation (EC) No 1085/2006 of 17 July 2006 establishing an Instrument for Pre-Accession Assistance (IPA) (OJ L 210, 31.7.2006, p. 82) and Commission Regulation (EC) No 718/2007 of 12 June 2007 implementing Council Regulation (EC) No 1085/2006 establishing an Instrument for Pre-Accession Assistance (IPA) (OJ L 170, 29.6.2007, p. 1).

Audit scope and approach

14

The audit objective was to assess whether EU pre-accession assistance contributed effectively to strengthening administrative capacity to implement reform in the former Yugoslav Republic of Macedonia. We approached this by looking at both financial and non-financial assistance towards strengthening administrative capacity under IPA I¹⁶.

15

The audit addressed three main questions:

(a)Did the Commission ensure that IPA projects contribute effectively towards strengthening administrative capacity?

(b)Did the Commission use the decentralised management mode effectively to build capacity?

(c)Did the Commission’s non-financial assistance effectively support the strengthening of administrative capacity?

16

We chose three major sectors for our audit in which strong administrative capacity is central to successful implementation of reform and which covered 46 % of the total allocation: public administration reform (PAR), transport, and environment (see Table 2). The audit included analysis of documents and interviews with representatives of the Commission and the beneficiary country. We used the evidence provided in project and programme documents, evaluations and assessments of IPA I and the country, and the Commission’s annual progress reports.

17

To answer audit question (a), reported in part 1 of the observations, we examined a sample of 17 projects from the PAR, transport, and environment sectors. The projects selected in the PAR sector included activities in the key areas of procurement, anti-corruption, internal control, capacity-building for decentralised management and assistance for training of the public administration. Project activities aimed to strengthen administrative capacity, for example by supporting the development of strategies, programmes, curricula, manuals and procedures, providing advice on strengthening institutions and bodies in key areas of reform, and the provision of training courses.

18

Most projects in the transport and environment sectors did not include strengthening administrative capacity as a main objective. We audited those that did, and also projects which had the contributory objective of building up capacity through ‘learning by doing’.

19

Most of the projects we looked at were restricted to the country, but some, for example in procurement, were multi-beneficiary projects available to all of the countries of the Western Balkans. We also looked at the contribution of the Regional School of Public Administration (ReSPA), which is likewise financed by a multi-beneficiary programme. The 17 audited projects are shown in Annex II.

20

To answer audit question (b), reported in part 2 of the observations, we reviewed the procedures followed to assess the country’s readiness to manage a decentralised implementation system for IPA assistance and examined how the Commission used experience of this management mode to strengthen administrative capacity in the country.

21

To answer audit question (c), reported in part 3 of the observations, we looked at non-financial assistance and reviewed the mechanisms for political dialogue set up under the Stabilisation and Association Agreement as well as other structures for dialogue, such as the High Level Accession Dialogue.

16IPA II projects were not yet being implemented at the time of the audit.

Observations

Part I — The effectiveness of pre-accession financial assistance in contributing towards strengthening administrative capacity

22

We examined whether IPA projects successfully addressed the strengthening of administrative capacity in key areas of public administration reform (procurement, corruption and internal control) and in the sectors of transport, and environment. For the projects in the sample, we examined whether the planned outputs¹⁷ were delivered and then used by the national authorities, and whether impacts¹⁸ were sustainable. We also examined the obstacles to progress towards strengthening administrative capacity.

Pre-accession financial assistance did not successfully address some of the significant weaknesses in administrative capacity in key areas

Key areas of public administration reform

23

The Commission assessed the public procurement legislation in place in the country by 2007 to be moderately strong and relatively well-aligned with EU legislation¹⁹. However there has been backsliding on reform and the failure to implement the legislation in place²⁰. The 2015 Progress Report pointed to the need to ‘remove inconsistencies with the acquis including on blacklisting companies, conditions for using awarding criteria; ensuring harmonisation with EU procurement rules on defence and security as well as the 2014 EU procurement directives, especially on concessions’²¹.

24

During the period audited the Commission highlighted inadequate transparency in the public procurement system and the lack of reliable data on irregularities²². Although these are identified as high risk areas in progress reports from 2011 onwards²³, the audited projects (see Annex II) did not address these weaknesses.

25

The Commission also reported the need to improve the efficiency of the public procurement system. The projects audited provided training courses which mainly focused on public procurement legislation and did not address sufficiently the need to strengthen the capacity to carry out efficient public procurement. The first project in the audited sample (see Annex II) supported training by the Public Procurement Bureau (PPB), the body mainly responsible for strengthening the capacity of contracting authorities. However, the training by the PPB did not significantly improve their administrative capacity²⁴.

26

The PPB had already an electronic procurement system which was set up in 2008. With a view to improving the overall efficiency of public procurement, project 1 included a review of the system, but did not provide support to improve it.

27

The Commission and other stakeholders have consistently pointed to weaknesses in the fight against corruption which should be tackled as a matter of priority²⁵. The national authorities made political commitments to fight corruption, for example in the context of the SAA. The work programme of the government for the period 2011-2015 committed the country to an ‘uncompromising fight against corruption’. This led to the adoption of state programmes and associated action plans, but these have not been translated into effective action and concrete results. The Commission has used several methods to address the fight against corruption. However, in the absence of formal accession negotiations with the former Yugoslav Republic of Macedonia, the Commission has not been in a position to apply the more comprehensive approach normally set out for candidate countries in their respective negotiating frameworks²⁶. This also meant that during the period audited, the Commission’s approach towards supporting capacity-building in this key area was not sufficiently clear.

28

The Commission has used IPA I projects to address some isolated capacity-building needs. We audited two projects in the PAR sector which aimed to build capacity and which had been, or were being implemented at the time of the audit (see Annex II). Project 5 aimed to strengthen the work of the SCPC, which is the main body with responsibility for the prevention of corruption. However, the project did not address the fact that the SCPC was not in a position to exercise its mandate effectively in the face of inadequate commitment by the national authorities in this area. It lacked independence because, for example, clear criteria are not applied in the appointment and dismissal of its senior management²⁷. According to the Commission’s 2011 Progress Report it is also not adequately resourced with only half the staff needed to carry out its role effectively²⁸.

29

In the absence of an effective government strategy in the fight against corruption, the Commission has supported CSOs in the role they can play to bring suspicion of corruption to public attention. Project 6 provided support in helping to develop and disseminate best practice amongst CSOs in this role. However, we found that the Commission’s approach in this key area could be improved with regard to strengthening the potential contribution of CSOs which work towards increasing transparency and sharing knowledge.

30

Using pre-IPA assistance, the Commission helped the national authorities to put sound legislation on internal control in place. When IPA I began, the Public Internal Financial Control (PIFC) law was assessed as being a good basis to reform management financial and control structures and internal audit²⁹. During the audited period, IPA projects focussed on financial management and control capacity in the operating structures set up for decentralised management of IPA funds but not in the rest of the public administration.

31

The national authorities, for their part, made little progress on strengthening administrative capacity in this area and did not implement the PIFC law fully. For example, the Commission pointed out in its 2015 Progress Report that most internal audit units do not have a sufficient number of auditors and that while they conduct their audits based on strategic and annual plans, these are not based on operational and systematic risk. In addition to this, internal audit work focuses mainly on compliance and does not include analyses of systems weaknesses or look at value-for-money aspects and quality assurance needs to be better implemented.

32

The inadequate capacity of internal audit units has weakened internal control and reduced the attention paid by managers to the findings of internal auditors. Donors other than the Commission have provided support for strengthening the skills of internal auditors during the audited period. For example, the United States Agency for International Development financed training for internal auditors at the Chartered Institute of Public Finance and Accountancy (CIPFA) Centre of Excellence in Slovenia. However, internal audit capacity and internal control more generally remain weak.

33

The importance of strong internal control has increased under IPA II because the Commission is working with the country to prepare a programme of sector budget support for public finance management for 2016.

Transport and environment

34

The main objective of the IPA allocations for the transport and environment sectors (18 % and 16 % of the 2007-2013 allocations respectively — see Table 2) was to improve regional infrastructure. Some of these funds were earmarked for strengthening the capacity of the public administration to draft and implement legislation in line with the EU acquis. The percentage of funds used on capacity-building in the transport sector (1 %) was far lower than in the environment sector (15 %), despite the fact that both sectors suffered from similar weaknesses in capacity (see Graph 1).

Graph 1

IPA allocations per sector (2007-2013) (in million euro)

Source: European Commission.

35

While there was no specific IPA allocation for building the capacity of the operating structure for decentralised management³⁰ IPA funds for both transport and environment sectors included ‘learning by doing’ as a contributory objective. However, few activities in audited projects 12 to 17 (see Annex II) clearly provided support in this way. For example, the fact that the office provided to the consultants was at a different location from that of national staff involved in project 15 did not facilitate transfer of know-how. Project 17, on the other hand, provided an example of successful transfer of know-how because staff in the public administration were able to make good use of advice received through JASPERS technical assistance when preparing the terms of reference for the project³¹.

36

Under IPA II, the Commission reduced the country’s overall allocation by 4 million euros because the national authorities declined to receive support for technical assistance and capacity-building in the transport sector. While these funds are lost for the country, if it undertakes to address administrative capacity-building needs and carry out horizontal reforms, funds may be reallocated within the existing programme.

Most planned outputs were delivered but they were not always exploited

37

Before making final payments for IPA projects which have been completed, the Commission receives a final report from the claimant. For the 11 closed projects in the audited sample, our audit demonstrated that all or most of the outputs planned had been delivered. However, for 12 of the audited projects some of the outputs were only partially being used, or not at all. Box 1 gives examples of project outputs not being used by the national authorities.

Box 1

Outputs not used by the national authorities

Projects 8 and 9 funded ReSPA, a school established in 2006 in Montenegro to provide support for capacity-building for all of the countries of the Western Balkans. Every year the Commission pays 1.2 million euros to fund ReSPA’s activities. Each of the participating countries, of which the former Yugoslav Republic of Macedonia is one, contributes 150 000 euros annually towards the school’s running costs. Although a national representative sits on the ReSPA Governing Board, we found that the country made little use of the training courses, comparative assessments and networking provided by the school. This was because they were not seen as relevant to or valued by staff in the country’s public administration.

Project 12 aimed to strengthen the administrative and operational capacity of the State Transport Inspectorate to enforce road transport legislation. The project was closed in July 2014, but by the date of the audit, 9 months later, the Inspectorate had not yet exploited half of the project outputs, for example, the strategic development plan or action plan, or the Terms of Reference prepared to make calls for tenders.

Project 15 set up two regional waste management bodies and a public waste management information system. Although the project was completed in June 2012, the management information system was not being used by the time of the audit.

38

Sometimes the outputs were not used because further investment was required. See Box 2.

Box 2

Further investment required to make use of outputs

Project 7 aimed to improve the national system for training coordination and the implementation of the regulatory framework relating to management of the public administration. A major output of this project was that it carried out functional analyses to identify gaps in administrative capacity. This exercise has huge potential for informing a capacity-building strategy. However, the project was only a pilot and while it provided guidance for continuing the analyses, the country may not in fact complete the work and use it to address gaps in capacity without further financial assistance.

Project 7 also developed electronic learning tools as a flexible method of strengthening administrative capacity. However, to achieve its full potential this output needs to be made more widely available and to be integrated into an overall training strategy.

Project 11 provided technical assistance for strengthening the capacity of the operating structures set up to manage IPA funds under the decentralised management mode. The outputs delivered were qualified trainers, training curricula, modules and training kits, and a toolkit and resource library developed to strengthen capacity in monitoring and evaluation. After the project closed, the national authorities used the qualified trainers, but only for a limited period of time. Further use of these trainers would have required additional investment in national staff and more resources. The national authorities did not take up the monitoring and evaluation tools, which it will cost money to update and place online.

The impacts of projects were often limited and not always sustainable

39

Eleven of the audited projects achieved limited impact which often could not be sustained. Some of these projects did not include provision for their own sustainability. In other cases, the national authorities did not take action to ensure the sustainability of the impacts. See Box 3.

Box 3

Examples of limited and unsustainable impacts

Project 5 assisted the State Commission for the Prevention of Corruption (SCPC) to draft documents in support of a strategy to prevent corruption. This had little impact on the country’s fight against corruption because it was not embedded in a wider national anti-corruption strategy and because the SCPC did not have the independence and resources to monitor effectively the implementation of its own strategy in all institutions concerned. The potential impact of the project was further weakened because it took 3 years for the Commission to follow it up with another project.

Project 6 targeted the capacity of CSOs to tackle corruption and organised crime. The development of best practice and networking was positive. However, when EU funding ends the project is unlikely to be sustainable. This is because the only institution which has expressed an interest in providing ongoing support in this area lacks both the necessary authority and capacity to continue the work.

Project 10 assisted with the setting-up of a centralised IPA Training and Support Facility (ITSF). The ITSF has had relatively little impact in strengthening administrative capacity. One reason is that few of the trainers trained by the project actually gave courses as intended. This was either because they were not released from their other work or because they were not motivated to take on what is considered to be an additional and unrewarding task. After the original contracts with trainers expired, the national authorities did not facilitate new arrangements for providing the ITSF with trainers. Neither the national authorities nor the Commission have provided financial support to meet the shortfall in trainers. Another reason was that the national authorities did not formally centralise training on IPA in the ITSF, so much training continues to take place at the individual line ministries (see photo).

Project 16 delivered training for staff measuring air quality but did not address the main obstacle to a fully operational air quality monitoring system, which is the lack of capacity in terms of functioning equipment. In addition, the calibration laboratory assisted under the project has not yet been accredited or staffed.

Project 17 delivered a means of enforcing the ‘polluter pays’ principle and strengthening the capacity to do so, but this has not yet been implemented by the national authorities. The same project prepared for the introduction of tariffs to ensure the sustainability of waste treatment plants, but the country has still not set up a regulatory body to enforce tariffs. The project had not produced a sustainable impact by the time of the audit.

IPA Training and Support Facility premises, Skopje (project 10)

Source: European Court of Auditors.

40

Many of the audited projects did not achieve an impact because of obstacles that arose from inflexibilities in the structure and organisation of the public administration. For example, in some of projects involving contracting authorities, we found that there was not enough flexibility between ministries to allow exchanges of staff and experience. In addition, administrative staff trained by three of the audited projects to train other staff were frequently not released to run courses and the activity of training other staff was not compensated in any way. For over half of the audited projects we found that trained staff were not always encouraged or permitted to use the skills obtained and excessive rotation of staff and high turnover led to a lack of qualified staff.

Obstacles to progress on strengthening administrative capacity

41

The Commission did not have an overall strategy of support for strengthening administrative capacity in the country, and the audited projects did not always fit together as part of a coherent, cohesive and coordinated approach. Some projects did not follow on from previous assistance in the same sector and were not adequately followed up with further support. Often the reason for this was the fact that the Commission has to make choices about the limited resources available for a wide range of EU policies in the country. In addition, individual projects were often very ambitious and had numerous objectives.

42

The objectives of IPA assistance were also hampered by the fact that the assistance was not sufficiently responsive, flexible and targeted. For example, the impact of the audited projects was often weakened because the time taken between establishing the need for assistance and the delivery of results was 4 years or more. In some cases needs had changed before results were delivered. This was partly due to the lengthy process of mobilising IPA funds. It was also because when projects were selected they were not always sufficiently mature, which lowered the efficiency of implementation.

43

Under IPA I the Commission did not have at its disposal funds which it could mobilise quickly to address issues as they arose. An example of how funds can be used in this way emerged during the recent political crisis. The Commission successfully employed funds at short notice and in exceptional circumstances to provide flexible, targeted, fast-track expert input to support urgent and sensitive policy priorities.

44

The continued existence of obstacles to improving administrative capacity in the country meant that the objectives of pre-accession assistance were not always achieved. A major issue has been the lack of high-level political will and commitment by the national authorities to support for IPA projects. For example, at a political level, there is continued resistance to moves to develop a public administration that is independent, strong and representative (see Box 4).

Box 4

Resistance to developing a public administration that is independent, strong and representative

With the support of the Commission, in February 2015 the country put in place a new legal framework for a professional public service. The main thrust of the legislation was to ensure that recruitment of public employees is based on merit and equal treatment. While it still suffers from some gaps, the legislation represents a major step towards developing a strong, independent, professional civil service. Two days before the law entered into force, the parliament adopted a new law on transformation of temporary positions into permanent contracts. This law circumvents the principles of merit-based recruitment and has allowed thousands of temporary staff to become permanent civil servants or public employees without open competition.

Project 7 trained 600 administrative officers who were among 2 400 staff recruited by the national authorities from the non-majority communities³² following the Ohrid Framework Agreement³³ on equitable representation. Although salaried, the individuals concerned did not have active employment. The aim of providing this training was to increase the likelihood that the participants would be offered posts. At the time of the audit, the majority of the staff trained under the project were still being paid but not actively employed. The objective of achieving equitable representation in the public administration had not been met.

Part II — The use of decentralised management as a means of building capacity

45

We examined the introduction of decentralised management under IPA I and how the Commission resolved the issues which arose using this management mode. We also examined whether the Commission’s use of decentralised management strengthened administrative capacity.

The country was not ready for the volume and complexity of IPA funds for which management was decentralised

46

The former Yugoslav Republic of Macedonia asked the Commission to decentralise the management of IPA funds to the national authorities in 2008³⁴. By 2010, the country was responsible for contracting and implementing 470 million euros (76 %) of its total IPA I financial envelope, subject to either ex ante or ex post checks by the Commission. The national authorities were required to set up operating structures to manage the decentralised IPA funds.

47

The process of decentralisation was carried out in accordance with the regulations. However, the Commission was not required to assess whether the national authorities were ready to manage the volume and complexity of IPA funds to be decentralised. For the decentralised management mode to work effectively it is necessary for there to be sufficient capacity in the operating structures.

48

Soon after decentralisation began, the national authorities were unable to respect the deadlines for presenting contract dossiers for ex ante checks by the Commission. This was often because they submitted documents of insufficient quality which had to be returned. This was the case for one third of these documents in 2014. The rate of contracting slowed. By the end of 2014, the delays had led to the de-commitment³⁵ of 70 million euros of funds under IPA I (11 % of the IPA funds allocated to the country), and 244 million euros remained to be committed (about 40 % of the total). In many cases the de-commitments resulted in the loss of projects designed to fund key reforms. For example, 33 million euros was allocated for 2010, but the cancellation of 12 out of 31 projects presented for funding meant that 10 million euros (33 %) was effectively lost for funding reform in the country.

49

The Commission attributed the delays to a highly centralised decision-making process, which prevents timely decisions, as well as a lack of material resources and sufficient and sufficiently qualified staff, allegations of political interference in procurement and poor interinstitutional cooperation. Weaknesses of this type had already been highlighted by the Commission in the rest of the public administration before management had been decentralised. If the Commission had taken more account of weaknesses already identified in the public administration, it might have concluded that the decision to decentralise management should be delayed or that a smaller proportion of IPA funds should be decentralised within the constraints of the applicable regulations.

The Commission has taken action but further de-commitment is probable

50

Drawing on previous experience with other enlargement countries, the Commission expected the early years of decentralised management to be a period of learning and transfer of knowledge. It worked with the country to address the reasons for the delays in contracting and implementing IPA funds. However, significant further de-commitment of IPA I funds was expected in 2015, 2016 and 2017.

51

In 2015 the Commission took measures to improve the situation for IPA I funds, for example by re-centralising the management of some IPA projects and speeding up contracting procedures by reducing the number of ex ante checks. For IPA II, the Commission is currently assessing the optimum level of decentralisation and plans to be more selective regarding the kinds of project it will decentralise for management by the national authorities.

Decentralising management could have been used more widely as a capacity-building tool for the public administration

52

When management was decentralised in 2010, the main objective was to prepare the country for the future management of the EU’s structural and agricultural funds. The focus was therefore on setting up structures to operate decentralised management and strengthening the capacity of administrative staff to operate these structures.

53

Decentralising management required significant investment of resources by the country as well as the Commission. For example, the country assigned 436 administrative staff to work in the operating structures, at an annual salary cost of 4.7 million euros (2014 figures). Both the Commission and the country provided training in setting up operating structures and in programming, contracting and implementing IPA projects.

54

Decentralised management has strengthened capacity in the operating structures. Internal control is stronger and operational decisions are mostly taken at an appropriate level, with less political interference than in other parts of the public administration. Rigorous ex ante controls by the EU Delegation have provided further opportunity for ‘learning by doing’³⁶. The operating structures have become ‘centres of excellence’ in terms of administrative capacity.

55

While strengthening administrative capacity was not included as an objective of decentralising management, the Commission could have made more use of the experience gained to encourage the national authorities to transfer knowledge to the rest of the public administration, for example through ‘learning by doing’. The operating structures for decentralised management were seen as organisations that were parallel to and even separate from the rest of the public administration. For example, they were not included in the country’s 2010-2015 PAR strategy. In examining the sample of projects audited we noted little transfer of the operating structures’ cumulative knowledge and experience to the rest of the public administration. Thus the experience of decentralising management has not contributed significantly towards an overall improvement in administrative capacity in the country.

Part III — The contribution of political dialogue to strengthening administrative capacity

56

We examined how the main structures created under the SAA for political dialogue between the Commission and the former Yugoslav Republic of Macedonia were used to contribute towards strengthening administrative capacity. We also examined the contribution made by political dialogue outside these formal structures and through alternative structures set up during the audited period to compensate for the absence of the framework for dialogue that would be provided by accession negotiations.

Although well organised, political dialogue did not contribute significantly to an overall strengthening of administrative capacity

57

The main structures for political dialogue were set up under the SAA. They are the Stabilisation and Association (SA) Council, the SA Committee, seven SA sub-committees and the Special Group on PAR. The Commission and the country meet regularly in these fora to address the need for progress on reform and the country’s insufficient capacity.

58

At the highest level, dialogue takes place in the SA Council³⁷, both to assess progress towards meeting the political and economic criteria for accession (Copenhagen criteria) and on financial cooperation. During the audited period, discussion often centred on the need to tackle the continuing obstacles to strengthening administrative capacity. Some of the key areas addressed were:

(a)the need for policy improvements and better enforcement to obtain more concrete results in the fight against corruption;

(b)the need to respect and build up the independence of the public administration, and

(c)the need to apply the principles of transparency, merit and equitable representation at all levels in the country.

59

Representatives of the Commission and the country also discussed weaknesses in administrative capacity at the annual meetings of the SA sub-committees and PAR Special Group. Although the nature of discussions in all of the SAA structures for political dialogue intensified during the audited period, the issues remained the same.

60

While the political dialogue structures set up under the SAA were well-suited to the accession process while it stayed on track, during the audited period they did not contribute successfully towards strengthening administrative capacity. This was partly because the national authorities lacked the political will to make progress. It was also because the absence of formal progress towards accession reduced the Commission’s potential leverage to encourage the country to strengthen administrative capacity. For example, the framework provided by accession negotiations typically includes a screening exercise for each policy field (future negotiating chapter) to determine how well prepared the country is in that field. Based on this exercise, the Commission can recommend that certain conditions (‘opening, interim and closing benchmarks’) be met before each chapter can be opened for negotiation or closed. This structure does not currently exist in the country.

Other dialogue mechanisms addressed the need to strengthen administrative capacity but did not result in progress towards removing the underlying obstacles

61

The Commission has consistently engaged with the former Yugoslav Republic of Macedonia in bilateral dialogue on specific topics of interest to the country. Administrative staff from the ministries and the Commission have frequent exchanges on a broad range of issues. This has given the country the opportunity to learn about EU methods and to understand EU policy on enlargement, and progress has been made in some sensitive areas. For example, the Commission helped the country to prepare and maintain a ‘track record’ of corruption cases. This has had the positive effect of increasing the information available on corruption allegations which are followed up by the national authorities. However, the record does not provide information on allegations not followed up.

62

The Commission’s approach towards supporting enlargement countries changed in 2014, when dialogue was centralised in Directorate-General (DG) for Neighbourhood and Enlargement Negotiations. In most policy fields the country no longer engages in dialogue with the relevant Commission directorates-general, but with sector-specific centres of thematic expertise created as part of the 2015 reorganisation of DG for Neighbourhood and Enlargement Negotiations. Another change is that, under IPA II, decentralised management in the transport and environment sectors is no longer supported by theDG for Regional and Urban Policy³⁸. This is a matter of concern to those parts of the public administration concerned, which feel that they are now deprived of a major source of support for strengthening administrative capacity in the country.

63

In the absence of the framework provided by accession negotiations (see paragraph 60) the country lost momentum for reform in many important areas. To counter this, the Commission has explored alternative ways of taking political dialogue forward. In 2012, it set up the High Level Accession Dialogue (HLAD) as a bridge to opening negotiations. Dialogue centred on targets agreed between the Commissioner for European Neighbourhood Policy and Enlargement Negotiations and the Prime Minister³⁹. The HLAD covered similar issues to those raised in the SAA structures, including the need to strengthen administrative capacity and tackle obstacles to implementing reform. Dialogue took place at senior political level and at technical level. Following allegations of fraud in the 2012 legislative elections, the main opposition party boycotted parliament for more than two years. As a result, the HLAD was discontinued at political level from 2013 until September 2015, although some progress was made on technical issues.

64

Recognising the need to move forward despite the absence of a framework for dialogue, in 2013 the Commission stated that ‘upon invitation by the European Council’, it would be ready to begin preparatory work for ‘an analytical examination of the EU acquis beginning with the chapters on the judiciary and fundamental rights, and justice, freedom and security’⁴⁰. This was not acted upon by the Council.

65

Following the publication in 2015 of wiretapped recordings of official telephone conversations suggesting the involvement of government members in electoral fraud and other corrupt activities, the Commission promoted a return to the negotiating table to prevent further degeneration of the situation. During 2015 the Commission engaged in intensive dialogue with the country to find a way out of the current domestic crisis, which resulted in the EU-facilitated Przino Agreement between the main political parties. The Commission also presented the document ‘Urgent Reform Priorities’ to address systemic issues (see paragraph 9) in key areas such as rule of law and the judiciary, de-politicisation of the public administration and freedom of expression.

66

The engagement of the Commission in the current crisis provides it with the opportunity to obtain government commitments on tackling the long-standing obstacles to strengthening administrative capacity in the country.

17An output is what is produced or accomplished with the resources allocated to an intervention, for example capacity-building training courses delivered. See European Court of Auditors Special Report 21/2015 ‘Review of the risks related to a results-oriented approach for EU development and cooperation action’ (http://eca.europa.eu).

18Impacts are longer-term socioeconomic consequences that can be observed for a certain period after an intervention has been completed, for example, improvements in administrative capacity. Ibid.

19SEC(2007) 1432 final of 6 November 2007, 2007 Progress Report’, pp. 28-29.

20OECD ‘Peer assistance in public procurement, concessions and public-private partnerships, Final report’, October 2011 and 2015 Progress Reports and SWD (2015) 212 final, pp. 35-36.

21Ibid.

22SEC(2009) 1335 final ‘2009 Progress Report’, p. 35, SEC(2010) 1332 final ‘2010 Progress Report’, p. 14, SEC(2011) 1203 final ‘2011 Progress Report’, p. 14, SWD(2012) 332 final ‘2012 Progress Report’, p. 12, COM(2013) 700 final ‘2013 Progress Report’, p. 11 and 42, SWD(2014) 303 final ‘2014 Progress Report’, p. 25. See also Thematic evaluation on IPA support to the fight against corruption 2014/348-486/2, p. 74.

23Page 14 of 2011 Progress Report, p. 12 of 2012 Progress Report, p. 11 and 42 of 2013 Progress Report, p. 25 of 2014 Progress Report.

24OECD (2013), ‘The Former Yugoslav Republic of Macedonia Priorities Report 2013’, SIGMA Country Assessment Reports, 2013/09, OECD Publishing, p. 13.

25See, for example, L. Grozdanovska Dimishkovska, ‘Nations in Transition’, pp. 424-425 and Macedonia 2013 Human Rights Report from the US Department of State, p. 17 (http://www.state.gov/documents/organization/220516.pdf).

26Notably through screening reports and related action plans and the opening and closing benchmarks of the negotiating chapters.

27See the EU-funded report ‘Establishing Comparative Indicator-based Monitoring of Anti-corruption Progress in EU candidate, potential candidate countries and Kosovo’, p. 35. The Commission 2011 Progress Report states: ‘questions have been raised about the criteria used by parliament in the selection of the seven new members of the SCPC’ and the Commission 2013 Progress Report states: ‘the dismissal of the former president of the SCPC without clear legal basis raised concern’.

28See also the Thematic evaluation on IPA support to the fight against corruption 2014/348-486/2 ‘Efficient Prevention and Fight against Corruption’, p. 125 — ‘the effectiveness depends on government overcoming factors such as the lack of independence and budgetary constraints of the SCPC and overall lack of administrative capacity of project beneficiaries’.

29SEC(2008) 2695 final, '2008 Progress Report,' p. 59.

30The operating structure includes the contracting authority and the line ministries.

31JASPERS is a technical assistance partnership between DG Regional and Urban Policy, the EIB and the EBRD which provides independent advice to help beneficiary countries prepare high-quality major projects.

32Ethnic Albanians, Serbs, Turks, Roma, etc.

33The Ohrid Framework Agreement was a peace deal signed by the government and representatives of the ethnic Albanian community on 13 August 2001. The agreement ended the armed conflict between the ethnic Albanian National Liberation Army and the national security forces and set the groundwork for improving the rights of ethnic Albanians.

34See articles 11 and 14 of Regulation (EC) No 718/2007.

35The Commission de-commits funds committed for a project when they are not used by the deadline set. These funds are lost for the project concerned.

36Ex ante control is a necessary part of decentralised management at this stage to protect the EU’s financial interests.

37Meetings are attended by the High Representative of the Union for Foreign Affairs and Security Policy/Vice President of the Commission (or her representative), the Commissioner for European Neighbourhood Policy and Enlargement Negotiation and Ministers or State Secretaries from the country.

38The DG for Regional and Urban Policy will resume this role when the country is considered to have moved closer to accession.

39The targeted areas include those within the scope of the audit: rule of law (including corruption policy) and fundamental rights, electoral reform, inter-ethnic relations, public administration reform (including human resource management, administrative procedures and decentralisation) and economic governance (including public finance management).

40COM(2013) 700 final ’Enlargement Strategy and Main Challenges 2013-2014’.

Conclusions and recommendations

67

We conclude that there was relatively limited progress in strengthening administrative capacity in key areas during the audited period. Working in a difficult context, the Commission did not, for many of the projects examined, sufficiently ensure the effectiveness of their contribution towards strengthening administrative capacity.

68

All of the projects audited in the PAR sector included activities designed to strengthen administrative capacity but they did not succeed in addressing sufficiently many weaknesses. For some key areas in which strong legislation already existed (for example, internal control and the development of a professional, independent civil service) there was little assistance under IPA during the period audited and there was no significant progress on implementing that legislation. In other key areas (such as the fight against corruption and public procurement procedures) IPA projects had little impact in the absence of active support from the national authorities (see paragraphs 23 to 33).

Recommendation 1
Concrete assistance for ranked priorities

The Commission should concentrate its assistance for strengthening administrative capacity on ranked priorities that take account of significant weaknesses in key areas. Examples of areas in which we noted a need for improvement during our audit are:

(i)efficiency of the public procurement system, for example by further developing electronic procurement;

(ii)transparency of public spending, for example by improving the availability and quality of data on corruption cases reported in order to allow scrutiny by civil society and the wider public;

(iii)internal control, for example by improving the standing and professional skills of internal auditors.

69

In the environment and especially in the transport sectors few of the audited projects addressed capacity-building to improve alignment with the EU acquis. Others aimed to strengthen administrative capacity through ‘learning by doing’ but did not include activities clearly designed to support this objective (see paragraphs 34 to 36).

Recommendation 2
Intensified efforts to strengthen capacity

In the transport and environment sectors, the Commission should:

(i)intensify efforts to strengthen administrative capacity to contract, implement and manage projects, for example by providing tailored training for contracting authorities, better promoting ‘learning by doing’ activities and providing wider access to JASPERS;

(ii)secure strong commitment from the national authorities to bring national legislation into line with EU legislation and strengthen the link between capacity-building and EU support.

70

The projects we audited were generally sound and well-managed, but results were often only partially achieved or not adequately followed up. Most projects delivered the planned outputs, but these were often not fully exploited. Frequently the projects achieved only limited impacts and were not always sustainable. Impact was also weakened because the projects were ambitious and spread across a wide range of priorities (see paragraphs 37 to 40).

Recommendation 3
Improved follow-up of outputs and sustainability of impacts

The Commission should make better use of policy instruments to reinforce the commitment by the national authorities to the reform process, including a prolonged and active follow-up of outputs and impacts. This should be closely followed up in the IPA monitoring committees.

71

The audited projects did not always fit into a coherent, cohesive and coordinated approach towards strengthening administrative capacity. Some projects did not follow on from previous assistance in the same sector and were not adequately followed up with further support. There was often a gap of 4 years or more between establishing the need for assistance and the delivery of project results (see paragraphs 41 to 44).

Recommendation 4
Better targeted assistance

IPA projects should be sequenced and part of a coherent approach. When planning projects, the Commission should:

(i)better rank priorities in sequential steps and reflect this when programming and implementing IPA funds;

(ii)use a larger part of the IPA allocation to provide fast-track, flexible and targeted support on urgent and sensitive issues of policy and acquis.

72

Decentralised management of IPA funds has allowed for a valuable transfer of knowledge. However, there would have been fewer delays and de-commitments if decentralisation had been implemented more gradually. While strengthening administrative capacity was not included as an objective of decentralising management, the experience gained could have been used more effectively by the national authorities to contribute towards an overall improvement in administrative capacity in the public administration (see paragraphs 46 to 55).

Recommendation 5
More use of decentralised management to strengthen capacity

The Commission should use the decentralised management mode more selectively with regard to the volume of funds and the complexity and sensitivity of projects to decentralise. Once examples of good practice have been established in the operating structures set up for decentralised management, the Commission should encourage the national authorities to extend these practices to other parts of the administration, for example, to encourage the delegation of decision-making to the appropriate level and to strengthen internal control systems.

73

The mechanisms for political dialogue were well-suited to support reform in the country, but did not contribute significantly towards strengthening overall administrative capacity during the audited period. This is because of the lack of political will in the country to tackle some of the obstacles to reform, and reduced leverage for the Commission to encourage reform in sensitive areas in the absence of the framework for dialogue provided by accession negotiations. The Commission continued to be closely involved during 2015 in the facilitation of a political agreement to overcome the political crisis in the country. This has given the Commission an opportunity to rekindle momentum for reform (see paragraphs 57 to 66).

Recommendation 6
Use of political dialogue to secure commitment to strengthening administrative capacity

In the context of the renewed opportunity for strengthening administrative capacity to better implement reform, the Commission should use political dialogue to:

(i)secure a firm commitment to strengthening the capacity to tackle corruption and improve transparency;

(ii)require the country to further build on its ‘track record’ of corruption cases so that it becomes a meaningful tool for assessing progress in the fight against corruption;

(iii)increase the focus on monitoring results in reversing the backsliding on public administration reform, including the implementation of legislation in areas such as public procurement and PIFC;

(iv)agree targets and deadlines, for a structured approach to tackle obstacles to strengthening administrative capacity to implement key areas of the acquis.

This report was adopted by Chamber III, headed by Mr Karel PINXTEN, Member of the Court of Auditors, in Luxembourg at its meeting of 1 March 2016.

For the Court of Auditors

Vítor Manuel da SILVA CALDEIRA
President

Annexes

Annex I

Key dates in EU–the former Yugoslav Republic of Macedonia relations

1999

•26 May - Stabilisation and Association Process for countries of Southeast Europe.

2000

•24 January - The Council adopts negotiating directives for a Stabilisation and Association Agreement (SAA).

2001

•9 April - Signature of the SAA, the first in the region.

2003

•21 June - At the EU–Western Balkans Summit in Thessaloniki the EU reiterates its support for the European future of the Western Balkan countries.

2004

•22 March - The country applies for EU membership.

•1 April - The SAA enters into force.

2005

•16 December - Acting on the Commission´s recommendation, the Council grants the country candidate status.

2007

•30 October - IPA framework agreement and financing agreement for 2007 IPA national programme signed.

2008

•1 January - Visa facilitation and readmission agreements enter into force.

2009

•7 October - The Commission recommends progressing to stage 2 of the SAA.

•14 October - The Commission recommends the opening of accession negotiations

•8 December - General Affairs Council (GAC) Conclusions. No decision on the Commission´s first recommendation to open accession negotiations.

•19 December - Visa-free travel to the Schengen area granted.

2010

•9 November - The Commission recommends the opening of accession negotiations.

•14 December - GAC Conclusions. No decision on the Commission´s recommendation to open negotiations.

2011

•12 October - The Commission recommends the opening of accession negotiations.

•5 December - GAC Conclusions. No decision on the Commission´s recommendation to open negotiations.

2012

•15 March - Commissioner Füle launches the High Level Accession Dialogue (HLAD) with the Commission.

•7 May and 17 September - Commissioner Füle attends HLAD plenary meetings.

•10 October - The Commission recommends the opening of accession negotiations.

•11 December - GAC Conclusions. No decision on the Commission´s recommendation to open negotiations.

•24 December - During a heated debate on the 2014 budget, the Speaker orders the removal from the national parliament of opposition MPs and all journalists. Main opposition party begins a boycott of parliamentary sessions.

2013

•16 October - The Commission recommends the opening of accession negotiations.

•17 December - GAC Conclusions. No decision on the Commission´s positive recommendation.

2014

•8 October - The Commission states that the country ‘continues to sufficiently meet’ the criteria for EU membership and, for the 6th consecutive year, recommends opening negotiations.

•16 December - GAC Conclusions. No decision on the Commission´s 6th recommendation to open accession negotiations.

2015

•31 January - Prosecutor brings charges of ‘conspiring with a foreign intelligence service to topple the government’ against the main opposition leader. The EU voices concerns about the deterioration in political dialogue in the country and calls for an independent and transparent investigation.

•10 February - Opposition leader begins releasing wiretaps, claiming the government conducted illegal surveillance of up to 20 000 citizens.

•18 February - Commissioner Hahn visits Skopje and also expresses deep concern at the reported surveillance of thousands of citizens, calling for the matter to be investigated thoroughly.

•21 April - GAC voices its grave concern over the deteriorating situation in the country, and urges political leaders to rapidly address concerns.

•9-10 May - Clashes in the northern town of Kumanovo leave 8 police and 14 alleged members of an ethnic Albanian armed group dead.

•2 June - Commissioner Hahn meets with leaders from the 4 main political parties and they sign the Przino Agreement.

•22 and 23 June - EU Foreign and General Affairs Council calls upon all parties to honour their 2 June agreement and implement all Commission recommendations.

•15 July - Agreement on a protocol to implement the Przino Agreement. Main elements include the return of the opposition party to parliament on 1 September, a technocratic government from 15 January and parliamentary elections on 24 April 2016.

•15 September - Appointment of a special prosecutor to investigate the issues arising from the interception of communications.

•18 September - Commissioner Hahn visits Skopje for a plenary meeting of the HLAD.

•2 October - Prime Minister Gruevski reaffirms that the country’s priorities are membership of the EU and NATO and resolution of the long-standing naming dispute.

•5 November - The Commission states that it is prepared to extend its recommendations to open accession negotiations. This shall, however be conditional on the continued implementation of the June/July political agreement and substantial progress in the implementation of the urgent reform priorities.

Source: European Commission.

Annex II

Projects audited

Project No (in text)
Project name
Contract No
Contracted amount
(euro)

Procurement

1.
Support to the Public Procurement System
260-590
986 442

2.
Support for Improvement in Governance and Management
253-091 + 296-874
10 204 081
3 061 225

3.
Programme for the support for improvement in Governance and management (SIGMA), Sub programme for strengthening institutional capacity in the IPA region.
319-423
10 000 000

4.
Training in Public Procurement in the Western Balkans and Turkey
248-580
3 962 000

Corruption

5.
Support for the drafting of the follow up strategic documents and corresponding action plans for the prevention and repression of corruption and conflict of interest
252-831
165 968

6.
Exchange of EU best practices in the area of anticorruption monitoring on local level
10-39880
138 500

Capacity-building initiative

7.
Technical Assistance to the Ministry of Information Society and Administration and Strengthening the implementation of the National System for Training Coordination
10-14592
1 095 000

8.
Running of ReSPA and organisation of ReSPA activities
256-128
2 400 000

9.
Running of ReSPA and organisation of ReSPA activities
331-241
3 500 000

10.
Technical assistance for the IPA training and support facility for the former Yugoslav Republic of Macedonia in the frame of the IPA 2007 regulation
240-984
969 000

11.
Strengthening the capacity of the institutions to manage and implement the operational programmes
260-772
1 599 710

Transport

12.
Strengthening the administrative and operational capacity of the State transport Inspectorate
09-42802
732 750

13.
Supervision of the remaining link along Corridor X to the level of motorway section Demir Kapija-Smokvica
09-24859/1
8 977 500

14.
Preparation of detailed design and tender documentation for construction of new Railway Section Kichevo-Border with Republic of Albania as part of Corridor VIII and tender documentation for supervision of construction works done in Beneficiary Country
11-28412/1
7 752 425

Environment

15.
Strengthening the central and local level administrative capacities for implementation and enforcement of waste management legislation
244-793
1 297 150

16.
Strengthening the central and local level capacities for environmental management in the area of air quality
245-323
1 000 000

17.
Technical assistance for Development of National Water Tariff Study
10-10139/1
785 000

Source: Extracted from European Commission database.

Reply of the Commission

Executive summary

V

The objective of the IPA I investments in infrastructure in environment and transport was to strengthen administrative capacity through learning-by-doing type of projects. That means the country indirectly develops procurement know-how in these sectors in line with the Structural Funds legal framework.

VI

While acknowledging that the Decentralised Implementation System (DIS) could slow down the process of establishing needs and delivery of results, the Commission would like to point out that the process of programming the financial assistance and implementing these programmes and measuring results is a sequenced and complex exercise which takes several years in general regardless the type of projects or management mode.

VII

The objective of the DIS was to set up a functioning system for the decentralised management of EU funds. The national authorities could be encouraged to use it as a good practice for the entire public administration. The former Yugoslav Republic of Macedonia is currently preparing a comprehensive public finance management (PFM) reform programme, which will be based on a comprehensive diagnostic of the PFM subsystems and is expected to increase the capacity of the whole public administration in this area.

Introduction

12

The Commission agrees with this presentation of sectors of expenditure. The Commission would like to provide the following additional information. According to IPA I regulation, assistance shall be programmed and implemented according to the following components:

1.Transition Assistance and Institution Building — the component covers all sectors;

2.Cross-Border Cooperation — the component covers the sector of territorial cooperation;

3.Regional Development — the component covers the sectors of environment and transport;

4.Human Resources Development — the component covers the sector of education, employment and social policies;

5.Rural Development — the component covers the sector of agriculture.

The last three components provided for Structural Funds type of projects and were accessible only for candidate countries accredited to manage funds in a decentralised manner.

13

The IPA I support to Structural Funds type of projects, e.g. investments in environment and transport was legally possible only under DIS for the country. Under decentralised management the funds allocated are managed by dedicated structures within the public administration of the country specifically accredited for that purpose.

Observations

27

In the absence of a negotiating framework the Commission is using the available tools to support capacity-building in this area. The country has adopted an action plan in 2015 that foresees concrete measures with deadlines and has assigned responsibilities in a number of priority areas, including the fight against corruption. The Commission is regularly monitoring progress in the implementation of this action plan and is following it up at the highest level. The Commission is addressing this area in its progress report and in the Urgent Reform Priorities. Moreover, under the Urgent Reform Priorities action plan prepared by the country, a special place is dedicated to the fight against corruption where clear targets and deadlines are stated. The fight against corruption is also addressed through the High Level Accession Dialogue (HLAD) where again targets and deadlines are set to deal with the issue. The successful achievement of all targets set ultimately depends on the national authorities which need to demonstrate the necessary political will in this respect.

29

The Commission has a clear approach on how to support CSOs as outlined in the communication from the Commission (COM (2012)492 of 12 September 2012) and in the ‘Guidelines for EU support to civil society in enlargement countries, 2014-2020’ and has an intensive dialogue with them in all key sectors including the fight against corruption. The Commission constantly explores new innovative ways of supporting CSOs.

Box 2 — First indent

With regard to project 7 the country adopted legislation on 14 February 2014 that makes it compulsory to carry out functional analysis before each change to the organisation chart. It will be important that the national authorities ensure proper implementation of the law.

Box 2 — Third indent

The current legal framework in the country does not allow the public administration to pay additional funds for those that are conducting these trainings.

Box 3 — Fourth indent

While the Commission agrees with the observation to project 16, it is necessary to point out that substantial technical support is provided by the EU in terms of capacity building and in terms of equipment in this area. However, the air quality is a very complex problem which requires investment of substantial financial and human resources to establish a credible system, but also requires regular maintenance and the renewal of the equipment by the national authorities.

The EU has supplied 13 out of 17 air quality monitoring stations (AQMS) which constitute the backbone of the national air quality monitoring network. Currently, the ongoing twinning project in air quality area (under IPA 2012) is assisting the Ministry in preparation of documents for the accreditation of the calibration laboratory.

Box 3 — Fifth indent

With regard to project 17, on 15 January 2016 the ‘Law on setting prices on water service’ was adopted by the national Parliament (Official Gazette n.07/16 published on 18.01.2016) and the regulatory body is about to be set up. This is a process which needs longer to complete.

The implementation deadline of the law will be September 2016, while the adoption of a new water tariff methodology is planned for the end of October 2016. The application of the new water tariff methodology shall start on 1 January 2018 and on 1 January 2019 respectively for the municipalities above and below 10 000 people.

41

To further strengthen and improve the coherence and coordination, under the new IPA II financial perspective, the Commission introduced a sector based approach. This would provide for more thorough addressing of the sectors. This would also ensure coherence of assistance and coordination of stakeholders and donors.

42

Indeed, IPA assistance is programme based where the process of establishing the needs, preparing the financial assistance programmes and implementing these programmes and respectively delivering results is a sequenced and complex exercise which takes several years. Under IPA II the Commission programmes its assistance based on the maturity of the projects in order to shorten this period. In addition, the Structural Funds type of assistance under IPA I underwent an accreditation process which was done in the period when the programmes were already adopted, which also affected the procurement/implementation and absorption of those funds.

47

The Commission would like to provide the following additional information. The 2005-2006 CARDS programmes were used to support the newly employed staff in the operating structures and provide the training necessary to ensure that staff had the required knowledge to operate under the DIS. In the following years, the Operating Structures’ capacity was weakened due to high staff turnover. The Commission always underlined the need for a proper staff retention policy, even making it part of the 2013 DIS Action Plan. The government needs to be fully committed to ensure sufficient capacity in the operating structures.

49

The Commission would like to provide the following additional information. According to the applicable Regulations 1085/2006 and 718/2007, the Structural Funds type of assistance is not available to the country in any mode other than decentralised. Under IPA II the Commission has become more selective in decentralising management of funds to the country.

50

Along with the reduction of the number of the ex ante checks and the more selective decentralisation of funds under IPA II, the Commission is closely monitoring the procurement plans prepared by the national authorities and has also advised of the country to prioritise projects in order to mitigate the risk of further de-commitments. The Commission is monitoring the implementation of the DIS action plan prepared by the national authorities to address the issues related to the IPA implementation.

Conclusions and recommendations

67

While the Commission agrees in general with the Court’s overall conclusion, many of the outputs were delivered, and the assistance provided to the country in some cases contributed to strengthening administrative capacity. As an example, in the area of public procurement, IPA assistance was the cornerstone for setting up the State Appeals Commission.

Recommendation 1

The Commission accepts the recommendation. The Public Expenditure and Financial Accountability assessment confirms that these areas need to be strengthened to ensure that the Public Financial Management (PFM) system functions well. Further EU assistance should be in line with measures to be defined in the PFM reform programme, currently under preparation.

69

The objective of IPA I investments in environment and transport infrastructure was to strengthen administrative capacity through learning-by-doing type of projects. This means the country indirectly develops procurement know-how in these sectors in line with the Structural Funds legal framework.

Recommendation 2

The Commission accepts the recommendation. In addition, the Commission will continue providing trainings and JASPERS support to the country.

Recommendation 3

The Commission accepts the recommendation. The Commission is currently following up on outputs and sustainability at the IPA Sectoral and Joint Monitoring committees. This will be further enhanced with the set-up of the performance framework under IPA II where indicators with targets and baselines are introduced at project and programme level. Additionally the Commission is reviewing the implementation of each programme upon its closure and reserves the right to recover funds if there are deviations between the expected results and funds used.

71

The process of programming the financial assistance and implementing these programmes and measuring results is a sequenced and complex exercise. Under IPA II, the Commission introduced a sector-based approach which would provide for sectors to be more thoroughly addressed. It would also ensure coherence of assistance and proper stakeholder and donor coordination. The Commission pays much more attention to the maturity of the projects in order to mitigate the risk of having gaps between programming and implementation of the projects. To this end the single project pipeline was introduced under IPA II.

Recommendation 4

The Commission accepts the recommendation. Under IPA II, the Commission introduced a sector-based approach which provides for sectors to be more thoroughly addressed. It also ensures coherence of assistance and proper stakeholder and donor coordination.

Recommendation 5

The Commission accepts the recommendation. Under IPA II the Commission has become more selective regarding the volume of funds and the complexity of projects. The decentralisation is based on the assessment on the capacity of the relevant national structures to implement projects.

Recommendation 6

The Commission accepts the recommendation.

Recommendation 6(i)

The national authorities should not just strengthen the administrative capacity but demonstrate firm political commitment to tackling corruption and improving transparency which can be measured through the existing tools such as the Progress Report, HLAD and the Urgent Reform Priorities.

Recommendation 6(ii)

The Commission worked in the past decade to help the country prepare a ‘track record’ of corruption cases and will continue to provide support to further build on the country’s ‘track record’.

Recommendation 6(iv)

In the absence of a negotiating framework, the Commission will continue to use existing tools, such as the progress report, HLAD and the Urgent Reform Priorities to measure the capacity of the national authorities to implement key areas of the acquis. For instance the action plan prepared by national authorities in relation to the Urgent Reform Priorities contains targets and deadlines for the implementation of the priorities in key areas. Moreover, the new approach on the form of the progress report allows for better setting of targets for some pilot chapters. However, concrete and lasting results will only be achieved if the national authorities demonstrate the necessary political commitment to implement these activities.

QJ-AB-16-012-EN-E    ISSN 1977-5679

In this report the Court examines whether the Commission’s support to the former Yugoslav Republic of Macedonia has contributed effectively towards building up the administrative capacity of the country to prepare it for membership of the EU. The Court concludes that there was relatively limited progress during the period audited (2007-2013). This was largely due to insufficient political will in the country to tackle some of the obstacles to strengthening administrative capacity and to reduced leverage in key areas for the Commission in the absence of a framework for accession negotiations. At the same time, the Court points to shortcomings in the Commission’s management of the audited projects.