As pre-accession aid ends, are Czechs ready for EU structural funds?

The Czech Republic is getting ready for billions of euros from EU structural funds after enlargement on May 1. However, things do not seem so bright due to reportedly insufficient financial control at the regional and municipal level.

This Monday, the Czech Finance Ministry and the Delegation of the European Commission in the Czech Republic announced that the European Union had allocated another 88 million euros for five large environmental projects. This brings the financial support from the ISPA pre-accession programme to over 500 million euros since 2000, and the total of EU funding approved for the Czech Republic to some 1.8 billion euros, combining the ISPA, PHARE and SAPARD programmes. The ISPA programme has also played a major role in preparing the new Member States for a smooth transition to the Cohesion Fund and other EU Structural instruments.

According to some reports, the Czech Republic has had problems presenting viable projects in the appropriate form and therefore has not made full use of the available funds. I spoke to the head of the Delegation of the European Commission to the Czech Republic, Ralf Dreyer:

"In the pre-accession period, the Czech Republic has made a good use [of the funds]. In terms of contracting for the year 2002, I think 97 percent were fulfilled, which is an important amount. On the other hand, as concerns the structural and cohesion funds, the legislation is in place, the institutions are in place, the programmes are in place. What remains in this area - at least partially - to be done, is to increase the absorption capacity, the absorption capacity in particular in terms of appropriate recruiting of qualified staff and of training staff. And then I think the Czech Republic via the structures it has put in place will be able to exploit the structural funds to a very large extent."

Finance minister Bohuslav Sobotka,  photo: CTK
The Cohesion and structural funds will make available twice the amount in the ISPA programme for the period 2004 - 2006. However, the business daily Hospodarske Noviny recently reported that the European commission is losing patience with inadequate financial controls and audits in the Czech Republic. According to the paper, only one in four crowns in municipal budgets is subject to efficient financial control that can find out whether the money was spent in line with the regulations. The EU has been warning the Czech Republic for years that it may stop providing money to such an environment, possibly as of May 1, 2004, which is the accession date.

The delegation's press officer Katharina von Schnurbein told Hospodarske Noviny that the Commission was worried by delays in the implementation of the law on public tenders and financial management and control. Mr. Dreyer confirmed that there was room for improvement:

"You know that it has been of the greatest concern to the European Union and we have made some experience within the Union that the funds are run in an impeccable way and this goes for the Czech Republic as well. For a long time, appropriate structures were not yet in place. They appear to us at present so that they can be improved. Some emphasis should be put on severe implementation of the rules."

Are there inadequacies in that respect or is the situation acceptable?

"Until now, we have not seen any misappropriation of funds or so, what we have seen were only minor things. But it is about important amounts of money and where is money, there is the danger that it will not be used in the right way. And therefore this sector has to be strengthened to avoid it in the future."

The problem with the current Czech law is that independent supervisory bodies, such as the Supreme Audit Authority and revenue offices, at the municipal level, can check only transactions with money coming from the central state budget. However, two thirds of municipal budgets come from local sources. For that part of the budgets, the local authorities hire auditors of their choice, but the EU does not allow audits in the public administration when the choice of auditor is at the discretion of the audited body.

In an effort to improve the situation, a twinning project aimed at strengthening public internal financial control at the regional level was launched in November 2003 and will run until April 2005.

A candidate for the post of the head of the Czech Supreme Audit Authority Bohdan Dvorak has warned that after accession, the Czech Republic will face tough conditions for which the current Czech laws are inadequate. In his opinion, it will result in a number of unfinished projects because the Union will stop funding them.