This is a presentation by Juraj Zamkovsky, Executive Director of the Center for Environmental Public Advocacy, a member of CEE Bankwatch and Friends of the Earth Slovakia at the Conference BILLIONS FOR SUSTAINABILITY? HOW CAN WE DO IT BETTER – LESSONS LEARNED FROM THE USE OF PRE-ACCESSION FUNDS. The conference took place at the European Parliament, Brussels in 25-26th November 2002.
Ladies and Gentlemen, I was asked to give a presentation on our experiences regarding last year’s scandal which significantly shook the reputation of both the Slovak Government and the relevant EC institutions. Since the scandal itself was just the tip of the iceberg reflecting a much deeper and more complex systemic background, I would like to offer you our view concerning the institutional and legal aspects of this issue. Let me start first with the broader political context: Pre-accession assistance was intended to be a learning exercise for candidate countries such as Slovakia, on effective and transparent utilization of public finances, before the significantly larger structural and cohesion funds become available upon accession to the EU. Candidate countries were expected to build legal and institutional frameworks which would, on one hand best reflect the long-term public interests of their societies and, on the other hand, meet the standard requirements and conditions for the administration of public funds as used in the EU. However, Slovakia’s experiences suggest that instead of being a learning process, the investments themselves became the most important aspect of pre-accession assistance. On the part of both the Government administration and the EU, we have noticed that the actual measures to ensure effectiveness, the rule of law, transparency and effective informed public participation in decision-making did not become their fundamental priority; on the contrary, public officials on both sides often regarded such measures as factors which could endanger the fluency and speed of allocated EU fund distribution, and thus their career and salaries. The corruption scandal in Slovakia which erupted in March 2001, however, also revealed a much worse aspect of the pre-accession assistance. The EU-taxpayers money and domestic co-financing funds, for quite a long period of time, were used to construct institutions which were essentially undemocratic and non-transparent, directing public finances arbitrarily by a limited group of people in power. Subsequent investigations of the Slovak authorities, unpublished EC reports and documents of non-governmental organizations (NGOs) repeatedly signalized a poor administrative structure which was chaotic in regard to competencies, enabled the interconnection of competencies that were mutually incompatible, or which allowed overlapping authorities covering both the programming and the implementation of the pre-accession funds. This created a fertile ground for irregularities, fraud, and corruption especially given the state of professional capabilities at the institutions administering the funds, the poor monitoring and almost complete lack of supervision. Now, let me give a few examples: In order to effectively implement the targets of the PHARE program and to strengthen the institutional capacity of the Slovak Government, the Central Finance and Contracting Unit (CFCU) was established in 1998. For a couple of years, the CFCU budget was almost completely covered by PHARE funds. It was expected that the CFCU would prepare the conditions for the transfer of its competencies to other governmental institutions when EU resources for this unit would not be available. However, this never happened. The CFCU turned into an isolated and untransparent institution. Additionally, this unit was responsible for implementation, was subordinated to the Department of Foreign Assistance of the Office of Government which was responsible for programming. This resulted in an unacceptable concentration of power in the head of the department. Until the scandal fully burst ,Slovakia lacked clear and binding rules for regulating both the programming and implementation of EU funds, and almost no legal framework was established for the duties and responsibilities of key officials in these processes. At the same time, Slovak legislation did not provide enforceable tools for preventing the misuse of state officials authority, conflict of interests (with the exception of high-level state officials), or the manipulation of public funds. A part of the problem was undoubtedly the absence of an Act on Civil Service (which entered into force in April 2002) and the lack of effective regulation regarding the financial control of the public institutions, including pre-accession funds. This opened doors for the selective directing of information to and from Brussels giving rise to what we call organized chaos and, subsequently, for the manipulation of funds by those who controlled the system. A lack of rules badly affected the preparation process of the key programming documents for pre-accession assistance (e.g. the Sectoral Operational Plans and the National Regional Development Plan) and in fact, almost completely prevented the partnership principle from being properly implemented. Also, none of the documents implemented a strategic environmental assessment. Thus, it is not suprising that, for example, a portfolio of ISPA-funded environmental projects consists entirely of simple, end of the pipe solutions for environmental problems, rather than projects focusing on the prevention of such problems. In addition, some projects mostly serve the needs of major regional private polluters, or will enable private corporations to make unreasonable profits, e.g. transnationals involved in privatization of the water sector. This might represent not only a violation of the ´poluter pays´ principle, one of the key elements of EU´s environmental policy, but also a by-passing of the EU´s legislation on state aid and competition. Thus, the priorities and measures being funded by EU-funds were identified in the programming documents which were adopted without public discussion and without comprehensive environmental asessment and quite likely do not correspond with the public interests and sustainability criteria. The system of aid management lacked quality-level monitoring and was limited to the quantitative evaluation of individual projects. Cohesion and structural funds, however, require a system which is incomparably more sophisticated with monitoring targeted at quality control. Instead of building a durable monitoring system compatible with Slovakia´s future needs from the very beginning, the EC invested money into a system which will soon be unusable. Now, a new monitoring system for future structural funds is being planned. However, the whole process lags behind the planned schedule and there is a risk that the system will not be fully operational by the expected date of accession. In Slovakia, there is no available standard mechanism for assessing the quality of work of the staff involved in pre-accession assistance and a consistent, long-term strategy for building professional capacities, including proper financial incentives for high-quality work is also lacking. This seriously affects the stability of institutions and undermines the very purpose of the whole pre-accession exercise. There is a risk that dismissed officials trained from EU funds or those who will most likely leave due to gradually decreasing salaries, used their public service to build private monopolies which will provide services for public agencies in the future, once again using EU funds. In addition, those who failed to fulfil their duties or were forced to leave their posts due to irregularities or even abuses were often immediately employed at another public agency involved in pre-accession assistance. This strikes us environmentalists, as a sort of sustainable recycling mechanism within the public administration. You can see it working very well in both the EU and Slovakia, thus representing one of the relevant factors that effectively blocks reforms and eliminates personal responsibility. The above mentioned case uncovered the inability of the official institutions to adopt precautionary as well as timely and satisfactory ex-post corrective measures related to predictable problems. As stated in a report of mission of the Committee on Budgetary Control of European Parliament to Slovakia in June 2001, ”early warnings had not been taken seriously, investigations started too late and initially the impression was given that there was a lack of will to investigate the case in depth”. (1) In November 2001, eight months after the scandal emerged, under strong pressure from the EU on one hand and NGOs and media on the other, a government representative announced ”revolutionary changes at the Office of Government” and a set of measures to improve the financial management of pre-accession funds. In the meantime, investigations and several institutional and legal reforms took place. For example, key officials were dismissed from their posts, programming agencies were administratively divided from the ones involved in implementation, the position of the Executive National Aid Coordinator was finally cancelled and the Act on Support of Regional Development was passed in Parliament, formally constituting the partnership principle in the development of key programming documents for EU structural funds. The information flow from the Government was improved and a coordination directive on EU aid was adopted. At least one previously approved, unsustainable PHARE-CBC project was cancelled and a head of the EC Delegation in Bratislava ended his mission in Slovakia earlier than expected. However, the above mentioned steps should have been taken long time ago, and must not be considered a final solution but instead merely as the beginning for reforming the whole system. Unfortunately, despite the fact that Brussels and Bratislava announced political closure of the corruption case in May 2002, it seems that the needed reforms in Slovakia have stopped half-way. For example, NGO representatives report a continuing lack of transparency and irregularities in the decision-making of advisory committees they participate in. Also the current process of preparing the National Development Plan, a major programming document for cohesion and structural funds for the period 2004 to 2006 as well as operational plans once again has excluded effective public participation despite a legal recognition of the partnership principle. Key EC documents, such as OMAS reports have remained confidential. This suggests that the lessons of the previous failures have not been satisfactorily translated into Slovakia’s political practice. In late May 2002, DG Enlargement organized a seminar on governance, transparency and corruption in Bratislava where a head of the anti-corruption unit at the German Ministry of Justice introduced a set of corruption indicators. The indicators included, for example, an effort to avoid supervision, misleading protocols, dissappearance or loss of relevant documents, the by-passing of responsible authorities, an inexplicable acceleration of specific projects, concluding of disadvantageous contracts, and repeated complaints. Many of these indicators correspond almost precisely with the findings of the October 2001 audit report of Office of the Slovak Government concerning the case. The corruption allegations were also indirectly admitted by the Slovak Vice Prime Minister for European Integration in September 2001, who stated that the Slovak case involved ”nepotism, conflicts of interests, influencing and especially non-transparency”, however, ”it is impossible to prove 90 % of these allegations due to missing or even destroyed documentation." (2) However, the European Anti-Fraud Office (OLAF) and the Slovak police and administration hesitated to title their findings as ”fraud” or ”corruption”. The investigations focused on compliance of pre-accession aid management with the then vague legislation which did not legally restrict state officials from a number of activities that would otherwise be considered illegal. Under such circumstances it is not suprising that no legal evidence of the crimes was found by investigators. (3) It is assumed that the reasons was to prevent political consequences to the accession process. At the beginning of the accession process, the NGO community believed that this process could create a window of opportunity for the EC to assist Slovakia in applying the principles of democracy, transparency and sustainability in domestic policies. The experiences so far however, have brought serious disillusion. This has resulted not only in the matter of the pre-accession funds themselves, but also from the enormous resistance of the EC against the attempts of NGO’s to provide input regarding negotiations on pre-accession chapters, such as the chapter on competition. During the accession process which has lasted many years, bureaucrats and politicians from both the EC and the Slovak Government have repeatedly demonstrated a formalistic approach rather than a genuine effort to implement the mentioned principles. This has compromised the legitimacy of the results achieved and has undermined public trust in the process itself. For us NGOs, the pre-accession assistance was a learning exercise. Apart from lessons concerning utilization of public finances in our own countries, it also showed us what must be done differently in second wave countries. Our recommendations concerning development of human resources, institutional capacities, monitoring, evaluation and supervision, transparency and public participation as well as specific proposals for improvements of use of ISPA and SAPARD funds represent the core of the publication Billions for Sustainability you all can find in your folders. Finally, the process has also tought us – the future citizens of the EU - what must be changed in the Union itself if it is to meet its own ambitions and declarations in the areas of democracy, transparency and sustainability.
Notes:
(1) Report #1/2001 by the committee delegation on its visit to Slovakia from 19th to 22nd June 2001.
(2) ”Kadlecikova: Euro Funds Cause is the Tip of the Iceberg”, SME, 7th September 2001.
(3) ”Evidence Against Toth Does Not Exist”, SME, 15th May 2002.