Cohesion Fund (the continuation of the ISPA Programme)
Definitions and objectives
The establishment of the Fund is defined in the Maastricht Treaty. In accordance with the Treaty, "the Council shall before 31 December1993 set up a Cohesion Fund to provide a financial contribution to projects in the fields of environment and trans-European networks in the area of transport infrastructure."
According to its objective, it is necessary to support the convergence of the real sphere of the economy of the poorest member states of the Community during the period of preparation for joining the monetary union. It is necessary to strengthen economic and social cohesion, reduce regional disparities and differences prevailing in the case of the level of development. Maastrcht convergence criteria exclusively set out the performance of financial preconditions, the performance of which primarily relates to budgetary deficit, encouraging the delay of projects with long returns on investment. The objective of the Cohesion Fund explicitly relates to finding solutions to these dilemmas without having to increase budgetary deficit, however also preventing the further deterioration of the environment. As regards the two target areas, the average period of return on investments of projects is longest in the case of transport and environmental protection projects.
The Cohesion Fund is available for member states in which the GNP per capita calculated on the basis of Purchasing Power Parity does not reach a rate of 90% of the average of the Community.
Similarly to ISPA, it is necessary to create a balance between environmental protection and transport infrastructure investments.
The Managing Authority compiles the Cohesion Fund Framework Strategy defining target system use and listing projects anticipated to receive funding on the basis of the environmental protection and transport sector strategies developed by the competent ministries, and sends the Strategy to the European Commission. Regardless of the strategy, each individual project proposals must be individually submitted to the European Commission for approval.
There are three versions of the tendering documentation used for project approval, namely:
One for environmental protection projects;
One for transport projects, and the
Document for applying for technical assistance.
The Commission puts all project proposals deemed acceptable through a sound project evaluation process, and examines the extent to which the measures comply with the detailed criteria. In the course of circulating the application amongst Commission bodies in the first round, the concerned bodies of the Commission have the opportunity to make basic comment on the proposal. This leads to further analysis and negotiations with all of the competent authorities of beneficiary countries, the objective of which is to clarify certain points of the project, and formulate the finalised concept of the project. The objective of the second round of reconciliation amongst Commission bodies is for all bodies of the Commission to reach consensus.
The following basic criteria is used for project evaluation:
Economic and social benefits
Efficient management
Contribution to the application of Community environmental policy
Contribution to the Tran-European Networks and Community transport policy
Appropriate balance between environmental protection and transport
Taking account of potential alternative financing resources
Payment schedule
Following the approval of the decision authorising Community support, the Commission transfers 20% of the rate of assistance in the form of advance payment following the signing of the first construction contract. If project progress is satisfactory, it is possible to apply for interim payments for the reimbursement of certified and effectively paid expenditures, the total amount of which – including advance payments – must not exceed 80% of the total rate of funding authorised (which amount may be increased to 90% in justified cases). The remaining final balance shall be paid following the successful implementation of the project and the submission of the final report.
Eligibility
It is necessary to note that the Regulation on ISPA does not set out a precondition regarding the macro-economic indicators of the given country vis-à-vis candidate countries eligible for ISPA support. Transfer of pre-accession facilities is only limited according to the maximum rate of approved funding, whilst the total annual rate of support received from the Cohesion Fund and funding granted within the framework of the Structural Funds must not exceed 4% of the GDP of the country.
Similarly to ISPA, the indicative allocation of the total amount of funding of the Fund takes the following into account:
The population of the given country,
GNP per capita data,
National welfare development taking place in the given area,
Social-economic factors.
Penalties
If a member state is no longer eligible to receive assistance, Cohesion Fund resources are decreased accordingly. Therefore, this is also a more rigorous criteria, since in the case of ISPA, if a candidate country is no longer eligible for funding - i.e. has become a member state – the funding allocated for the given country is subdivided amongst the other eligible countries.
A further restriction in relation to ISPA is that - in accordance with the Regulation - the Cohesion Fund is not authorised to finance any new project or sub-project if the project has failed to satisfy preconditions urging the prevention of exceeding the ceiling limit of government budgetary deficit.
Similarly to ISPA, Council Regulation (EC) No. 1265/1999 sets out that funding granted for the project, project group or project phase must be withdrawn – with the exception of duly justified cases – if implementation is not launched within a period of two years of the starting date specified in the decision on support, or within a period of two years from the date of approval, if the project is launched at a later date.
Rate of funding
The rate of assistance is 80-85% of state, or similar types of expenditures. This rate of assistance is higher than in the case of ISPA projects. However. The rate of funding may be decreased – similarly to ISPA – in view of the revenue generated by the project and the application of the "pollutant pays" principle.
Similarly to ISPA, one project is currently only authorised to receive funding from one fund. Therefore, Cohesion Fund projects cannot concurrently be the beneficiaries of the Structural Funds.
Project specifications
Whilst in the case of ISPA – as a general rule – the minimum project size is 5 million Euros; the minimum project size in the case of the Cohesion Fund is 10 million Euros.
Similarly to ISPA, when determining the size of the project, one particular requirement relates to how the project is required to have a significant impact in the area of environmental protection, or the development of the Trans-European infrastructure networks.
Main objective of the EU transport policy since the 1990s:
Shifting the centre of gravity of long distance transport and freight transport from road to rail transport,
Shifting the centre of gravity of local transport from automobiles to public transport;
Developing airports;
Increasing the efficiency and speed of transport networks.
EU environmental policy in compliance with the above:
Air pollution reduction;
Solid waste treatment;
Water quality improvement;
Development of drinking water supplies.
Reporting
The Commission compiles a report on both ISPA and the Cohesion Fund every year for the European Parliament, the Council, the Economic and Social Committee and the Committee of the Regions. The European Parliament drafts the official position in connection with the report.
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1. The rate of budgetary deficit must not exceed 3% of GDP
2. The rate of public debts must not exceed 60% of GDP
3. The inflation rate must not be more than 1.5 percentage points higher than, at most, the average in the three best performing member countries in terms of price stability
4. Exchange rate fluctuation must remain within the brackets set by the European Monetary System at least during the two years preceding examination
5. The nominal long-term interest rate not exceed by more than 2 percentage points that of, at most, than three best performing member countries in terms of price stability one year preceding the examination.