Legal base	—
Document originated	(a) 5 November 2008 (b) 17 December 2008
Document deposited	(a) 17 November 2008 (b) 9 January 2009
Department	International Development
Basis of consideration	EM of 27 January 2009
Previous Committee Report	None; but see (29154) 14862/07: HC 16-xvi (2007-08), chapter 9 (19 March 2008) and HC 16-viii (2007-08), chapter 18 (16 January 2008); also see (28022) 15122/07: HC 41-ii (2006-07), chapter 16 (29 November 2006) and (27653-55) HC 34-xxxvii (2005-06), chapter 52 (11 October 2006)
Discussed in Council	(a) 16 December 2008 (b) 9 November 2008
Committee's assessment	Politically important
Committee's decision	Not cleared; for debate in European Committee B

Background

1.1 From 1 January 2007, all pre-accession assistance is now delivered by the Instrument for Pre-accession Assistance (IPA) — one of a small number of new Instruments for EU External Assistance (the other relevant ones being the European Neighbourhood and Partnership Instrument, the Development Cooperation Instrument and the Instrument for Stability) which replaced a plethora of instruments and budget lines. The IPA replaces PHARE (implementing the acquis communautaire, economic restructuring and political capacity-building), ISPA (environmental and transport projects) and SAPARD (agriculture and rural development). All involve a staged, quality-assured process, which, over time, ensures that candidate countries are prepared for and finally enabled to access post-accession funding effectively and efficiently on their own. This is called EDIS — Extended Decentralised Management System. Successive Court of Auditors' Reports have shown that this process works.

1.2 The purpose of IPA is to provide financial support for countries seeking EU membership. It is available to candidates (Turkey, Croatia and Macedonia) and to pre-candidates (Albania, Bosnia and Herzegovina, Montenegro, Serbia and Kosovo under United Nations Security Council Resolution 1244). IPA assistance helps to strengthen democratic institutions and the rule of law, reform public administration, carry out economic reforms, promote respect for human, as well as minority rights and gender equality, support the development of civil society and advance regional cooperation, and contribute to sustainable development and poverty reduction. The IPA includes a number of different components, specifically:

I. Transition Assistance and Institution Building, aimed at financing institution- building measures and associated investment;

II. Cross-Border Co-operation, to support cross-border cooperation at borders between candidate/potential candidate countries and between them and the EU countries. It may also fund participation of beneficiary countries in Structural Funds' trans-national co-operation programmes and the European Neighbourhood and Partnership Instrument Sea Basins programmes, as appropriate;

III. Regional Development, which finances investments and associated technical assistance in areas such as transport, environment and regional competitiveness;

IV. Human Resources Development, designed to strengthen human capital and help combat exclusion; and

V. Rural Development, which emulates post-accession Rural Development programmes by financing rural development-type measures, similar in nature to these programmes, though smaller in scale.

Component I and II are open to all beneficiary countries. Components III, IV and V are open to candidate countries only, and are designed to mirror Structural, Cohesion and Rural Development funds in preparation for managing such funds upon accession, through a learning-by-doing process. This requires that the country has the administrative capacities and structures to take responsibility for the management of assistance. For potential candidate countries, regional, human resources and rural development-type measures will be implemented through the Transition Assistance and Institution Building component.

1.3 Components I and II are overseen by the IPA Management Committee (made up of Member State representatives), components III and IV by the Structural Actions Management Committee (COCOF), component IV by the European Social Fund Committee, and component V by the Rural Development committee.

1.4 The overall political priorities for pre-accession are set out in the Accession and European Partnerships, the annual progress reports and the enlargement strategy paper contained in the enlargement package presented to the Council and European Parliament each year.

1.5 The Multi-Annual Indicative Financial Framework (MIFF), which is established and presented annually to the Council and the European Parliament, in accordance with Article 5 of IPA Regulation (EC) No 1085/2006, is a breakdown of the overall IPA envelope — €11.5 billion (£10.92 billion) over the financial perspective 2007-2013 — by country and by component, for a three year rolling period.

1.6 In determining the allocations between components, the Commission says that due account is taken of the readiness of the decentralised management systems necessary for the implementation of components III, IV and V in the current candidate countries.

1.7 The figures are subject to change, according to how countries move through the enlargement process towards accession. For example, as and when Croatia accedes to the EU, it would then receive Structural Funds rather than IPA, and Croatia's allocation would be shared among the remaining IPA recipients.

Previous consideration

1.8 On 16 January 2008, we considered the second MIFF for the IPA, with funding allocations for 2009-2011 (details of allocations for 2007 and 2008 were included in the MIFF for reference). Allocations were set out for each country (in current prices and in euros) under each component, as well as allocations to regional programmes and to administrative costs. The main criteria used included:

—  the Commission's commitment to ensure that no country would receive less funding under IPA in 2007 than they did under previous instruments in 2006.

—  for pre-candidate countries in the Western Balkans (in 2004 prices), the MIFF sets out to reach €23 (£16) per capita by 2010. As candidate countries, Croatia and Macedonia will receive at least €30 (£21) per capita by 2008.

—  a gradual increase in per capita levels for Turkey over 2007-2011, taking into account the size of the country and the ability of its institutions to make good and timely use of IPA funding.

1.9 The MIFF also commented briefly on the allocations between different components. In particular, the document noted that allocations for components III-V had been determined taking account of countries' progress towards implementing the necessary systems for managing these funds.

1.10 In his Explanatory Memorandum of 6 December 2007, the then Parliamentary Under-Secretary at the Department for International Development (Mr Gareth Thomas) welcomed the IPA's objectives and the support provided to candidate and pre-candidate countries, and was content with the approach taken by the Commission on the basis for the allocations between countries and components.

1.11 He also noted, as "a key challenge in the region", that many of the beneficiary governments were still in the process of developing the necessary systems to programme, spend and monitor IPA assistance. This, he said, had been taken into consideration by the Commission in preparing the MIFF; the IPA also provided support to governments to develop these systems and make effective use of IPA funding; he would continue to work with the Commission to ensure that IPA assistance was allocated and spent in order to achieve maximum impact.

1.12 For our part, we noted, as elsewhere in that same Report of 16 January 2008 (and several earlier ones), a theme common to a variety of development-related topics that we considered was the effectiveness of the assistance provided, which in turn depended not just on developing the necessary systems, but also on:

—   a determination and capacity to make changes where experience showed this to be necessary; and

—  ensuring that this overall process was subject to regular parliamentary scrutiny, since it is British and other European taxpayers' money, as well as their expectations, that are at stake.

1.13 We looked forward to hearing from the Minister in due course on how this requirement would be met in the case of the IPA (and the other new financial instruments), and in the meantime cleared the document.

In line with our thoughts on other related documents in this Report, we also drew this Communication to the attention of the International Development Committee.[1]

The Minister's letter of 12 March 2008

1.14 The Minister provided information on "the specific issues of effectiveness, evaluation and future scrutiny", as follows:

EFFECTIVENESS

Changes had been made to the IPA that built on the lessons learnt from previous instruments and addressed the concerns raised by the Court of Auditors, which should result in a significant improvement in the effectiveness of the instrument. Significant changes include:

• Better project design, monitoring, evaluation and lesson learning, to be scrutinised by an internal Quality Support Group;
• Increased recognition of the role of beneficiary governments; through greater involvement in the development of projects and supporting projects aimed at improving the policy and planning capacity of beneficiary governments, to ensure that they can make good use of assistance from the EU and other donors; and
• Increased emphasis on ensuring that IPA assistance complements rather than duplicates the work of other donors.

In response to EM 10984/06,[2] where the Committee had sought assurance that lessons had been learned on specific issues raised by the Court of Auditors — 'ensuring sustainability'; 'supporting co-financing'; 'improving contracting rates' and 'promoting additionality and catalytic effects': the design of the new instrument incorporated strengthened procedures on all these issues.

The UK would continue to work closely with the Commission to extend good practice and maximise the effectiveness of IPA assistance. The Commission's commitment to improve donor coordination in-country and across the region was particularly welcome.

EVALUATING THE EFFECTIVENESS OF IPA

The IPA Implementing Regulation included a number of measures to promote monitoring, evaluation and lesson learning. Each year, the Commission would formally monitor their programmes and carry out audits and evaluations. For 2007, €5 million (£3.7 million) had been allocated to monitoring, audit and evaluation work. These programmes should promote effective implementation and evaluation of projects, as well as ensure appropriate external scrutiny. The evaluation reports would also be a vital basis for ensuring that lessons are learned for future projects.

The 2007 evaluation programme would include an evaluation of the IPA with a focus on the three year forward plans known as Multi-Annual Indicative Planning Documents. There would also be evaluations of a selection of projects funded under previous instruments in Albania, Bosnia and Herzegovina and in the wider region.

FUTURE REPORTING TO PARLIAMENT

The UK would continue to work hard to support the Commission to improve the delivery of the IPA. This would include strengthening our presence in Brussels. The Commission would prepare annual reports on IPA, and the Minister's accompanying Explanatory Memoranda would provide the Committee with "regular reports on the progress that has been made on the IPA, including the outcome of evaluations as these become available."

1.15 In reporting the Minister's letter to the House, the Committee observed that the challenges facing the IPA were in many ways more daunting than those handled by its predecessor financial instruments, in that those who were to be assisted included the first prospective Muslim member country and the war-torn and ethnically-riven countries of the western Balkans. The Committee also noted that there was much in the Minister's letter that sounded encouraging, particularly the fact that €5 million had been allocated to monitoring, audit and evaluation (though it was not clear if that is for the IPA alone, or all the Commission's technical assistance work) and that the UK presence in Brussels was to be strengthened in order to support the Commission in the delivery of the IPA. We looked forward to receiving the annual reports to which the Minister refers, and in the meantime drew his letter to the attention of the International Development Committee, as we had done on 16 January 2008 in relation to the Commission's Communication.[3]

The Commission Communications

1.16 Commission Communication 17210/08 updates the IPA Multi-Annual Indicative Financial Framework (MIFF) to include the period 2010-2012. It includes a tabular breakdown of allocations for the whole of 2007-12 by country and component.

1.17 The Commission's IPA Annual Report for 2007 (15620/08) outlines how the money allocated to IPA 2007 will be spent in the beneficiary countries (with technical data in the addendum). It also describes the main developments in the December 2007 General Affairs and External Relations and European Council Conclusions concerning, the enlargement process, which provides the IPA with its strategic framework.

1.18 The Communication also sets out the mechanisms for monitoring and evaluation. It notes that no monitoring of IPA projects was carried out during 2007, as the IPA 2007 programmes were generally only adopted at the end of the year and the actual implementation only started in 2008. There was correspondingly limited evaluation.

1.19 Finally, it looks at donor coordination with Member States bilateral programmes, the European Investment Bank and other International Financial Institutions, and notes that the main conclusions of a donor coordination meeting were:

—  enhanced donor coordination is a priority on the agenda of the donor community: in particular, that coordination between the Commission, EU Member States and non-EU donors, to be effective, must be a two-way process, where stakeholders discuss their respective programmes and priorities;

—  substantial progress on donor coordination had been achieved both in the beneficiary countries and on the European level, and the consultation process in the context of IPA, in particular at local level in the beneficiary countries, which was put in place in the course of 2007, was working increasingly better;

—  ownership of assistance by beneficiary countries is vital in order to maximise the impact; and

—  the capacities of the beneficiary countries to assume ownership needs to be strengthened.

The Government's view

1.20 In his Explanatory Memorandum of 29 January, the Parliamentary Under-Secretary at the Department for International Development (Mr Michael Foster) says that the fact that the pre-accession region now has a single coherent instrument that provides funding is "a huge step forward." He continues as follows:

"However, as IPA was only launched in 2007 and encountered some delays in project development, the 2007 Annual Report was produced too early to judge the performance of IPA and remains therefore largely descriptive.

"The UK is working closely with the Commission and the recipient countries to ensure that the funds are put to the best possible use. DFID currently has four offices in the Western Balkans, all of whom work closely with the Commission delegations. DFID has also created a new post based in UKREP Brussels devoted to monitoring IPA.

"We have encouraged the Commission to reduce the number of projects in each successive annual programme, as we expect that concentration on fewer larger projects will have more transformative impact. The trend has been positive in 2008 and looks set to continue in 2009.

"The prospective allocation of IPA funds shows a steady rise across all countries. The figures are calculated on the basis of per capita allocations, with all countries to receive €23 (£21.9) per head by 2010. This makes the EC by far the biggest donor to the region. The size of the EC budget makes it more important than ever for DFID country offices to engage actively with the Commission and for the UK to play an active role on the IPA Management Committee."

Conclusion

1.21 There should be sufficient evidence regarding performance of the IPA by the time the next Annual Report is prepared for it to be analytical as well as descriptive. We shall then expect a somewhat more substantial Explanatory Memorandum, with a full assessment of how the outcomes compare with the template — what is going well and less well, and why; and what steps are being taken to address any failings.

1.22 The mechanisms are seemingly in place. The importance of ensuring that they work as intended is highlighted by the experience in Romania and, particularly, Bulgaria, which has been the subject of several Committee Reports and 3 European Committee debates in the past year.

1.23 In the meantime, in view of the experience hitherto, the degree of interest in the next stage of the enlargement process, the sums involved and the present economic challenges and budgetary pressures facing the Union, we feel that a debate in the European Committee would be appropriate.

1.24 We are also, as before, drawing this chapter of our Report and the documents to the attention of the International Development Committee.

2   European Court of Auditors' Special Report on the PHARE programme in Bulgaria and Romania: (27641) 10984/06: see HC 34-xxxvi (2005-06), chapter 16 (19 July 2006). Back

3   See headnote: (29154) 14862/07: HC 16-xvi (2007-08), chapter 9 (19 March 2008). Back