Digesting the EU

Krystyna Gurbiel remembers Poland's first encounter with European Union bureaucracy. "In 1990, we were faxed six pages about cooperation procedures, which we then called a bible," said the government's vice minister for European integration, who coordinates funds flowing to Poland from the EU. But times have changed. "Now, it's two thick volumes describing procedures for ISPA and Phare 2000 alone, while Sapard has its own procedures," she said. ISPA, Phare 2000 and Sapard are the EU's three key financial aid programs aimed at helping 10 Central and Eastern European candidates to close the development gap with the bloc's existing members. But the three funds are only intended to pave the way for the multibillion-euro structural schemes after the country's EU accession, expected in 2004. The trouble is that Poland is having a hard time digesting the money.

€13.8 billion According to a proposal of the European Commission, the EU's policy-implementing executive branch, Poland will be offered some €13.8 billion ($13.5 billion) in 2004-2006 - more than 6% of the country's gross domestic product (GDP) and more than the national budget's alarmingly wide deficit. The government here is pushing for quick accession and plans to use the funds to modernize the country's poor infrastructure, to improve the quality of the environment and to stimulate regional growth. But Poland may never see a substantial part of these funds due to the strict and complex project approval procedures and demands for cofinancing. The country's experience with ISPA, Sapard and Phare 2000 give enough reasons to worry. "There is a danger that Poland may lack the funds required to secure its own contribution," Gurbiel said. Poland will have to pony up a minimum of 25% of the value of each project subsidized from the EU's structural funds, or 15% if the money comes from the bloc's cohesion fund, which provides grants for environmental projects to EU members states with a per capita income of less than 90% of the EU's average. So to obtain the theoretical €13.8 billion in the first three years of its EU membership, Poland will need to pay some €3.6 billion from its own coffers, Gurbiel said. The funds will have to come either from the state budget or from local governments benefiting from the EU-assisted projects. But the dire public finance situation has Poland's finance minister struggling to keep the budget deficit within tolerable limits. Consequently, there is no room to generate additional funds to finance EU projects, said Jacek Szlachta, a regional development expert and a professor at the Warsaw School of Economics. "We won't find the required funds unless public finances are reformed," he said. Poland's state budget, according to Szlachta, includes too much fixed expenditure, which leaves the finance minister with too little money to bankroll growth-promoting long-term investments.

Local gov't strapped "Another reason why the money for the Polish contribution may be missing is that the government, in its efforts to patch the budget hole, is and will likely continue to dump more and more responsibility on regions and local governments in order to make them pay," said Grzegorz Gorzelak, the director of Euroreg, Warsaw University's European Institute for Regional and Local Development. But local government's finances are not in any better shape than the national budget. "Local governments are already sinking in debts, so it's uncertain if they will be able to cover the Polish part of financing," Gorzelak said. The Warsaw area is a relatively well-off region and has enough of its own funds to cofinance EU projects, although other local governments may have major problems, according to Piotr Malicki, the director of the Warsaw City Administration's department for development strategy and European integration. "Local governments will have to spend all their development resources on cofinancing the EU subsidies," he said. "Otherwise, the money won't suffice."

In the works The European Union is now assisting the first stage of the city's northern sewage treatment plant's modernization and extension. The project's first phase will cost €42 million, of which €27.5 million has been provided by the EU's ISPA fund. Malicki estimates the total cost of the plant's modernization and extension to be €280 million. Although Poland has a way to go before joining the EU, the procedures for securing grants are already under way. Warsaw, especially, is gearing up for greater cash injections. "We must file the first blueprint (for the sewage treatment plant's second phase) by fall this year," Malicki said. The ISPA, or Instrument for Structural Policies for Pre-accession, program finances environmental projects and infrastructure development and is one of three pre-accession funds designed for 10 EU candidates. Of the program's €1.04 billion annual budget, some €350 million has been designated for Poland. But while the EU has approved the Warsaw sewage treatment scheme, the money will only be transferred when the project is completed and, even more important, supervised, scrutinized and finally approved by EU officials according to lengthy and multi-tier community procedures.

"The key problem" The EU's complex procedures are one of the key reasons behind Poland's current and potentially future problems in acquiring the European aid. "Requirements are more complex than it is the case with acquiring funds from the Polish budget," Gurbiel said. Warsaw authorities presented the first draft of their sewage treatment plant project as early as September 1999, but Malicki expects to contract work out only by the end of this year, when the actual work on the first phase should begin. Approval procedures and project implementations run very slowly - projects must be approved at several stages, and each time by a large number of institutions, including Polish and EU bodies, such as municipal authorities, the National Environmental Protection Fund, the Environment Ministry and the European Commission, according to Malicki. "The multi-tier system is the key problem here," Malicki said. "Documents are first approved by an official who sends them to another official, and the latter passes them to a third one or sends them back with his corrections. As a result, the project spends a long time ambulating between institutions." The EU's system is designed to avoid the problems the bloc experienced when distributing structural funds to other countries that joined during the past two decades. Greece, which entered the EU in 1981, received a total of €4.5 billion in the first year, although some €1.5 billion disappeared in the country, according to Szlachta. "Today, the European Union doesn't allow any more funds to disappear," he said. The complex scrutiny system strangled Spain's ability to absorb the funds in the first years following its EU accession. "Spain was in the end a net contributor (to the EU budget), as it wasn't able to use all funds made available by Brussels," Gorzelak said. And the approval procedures have become even more stringent since Spain's accession.

Use it or lose it When the ISPA, Sapard and Phare 2000 programs started in 2000, they had average annual budgets of €350 million, €170 million and €400 million, respectively. ISPA subsidizes major projects with an implementation period of several years, so the risk of losing that allocation is limited. But the deadline to start spending Sapard funds is November 2003, while for Phare 2000 it's as early as November 2002. Projects that are not commissioned to contractors by those periods will lose the EU support. It's a likely scenario, according to experts and some Polish officials. "There are delays in a series of projects," Gurbiel said, referring to Phare 2000. "Some €100 million is threatened." To date, 34% of Phare 2000 funds have been contracted, while a great number of public tender documents for other projects are now under review by the European Commission, Gurbiel said. "We'll have very little time left to finish tender procedures after EU approval," Gurbiel said. The experience with Sapard has been even gloomier than with Phare 2000. Sapard, or Special Accession Program for Agriculture and Rural Development, provides funds to farmers, local governments and small food plants for modernization and infrastructure expansion. Its goal is not to distribute subsidies, which Poland will receive after EU accession, but to promote restructuring and development in rural areas. Poland's Agency for Restructuring and Modernization of Agriculture (ARiMR) was supposed to distribute the cash. But now, 30 months after Sapard's launch, the program still can't get off the ground because ARiRM hasn't been cleared by the EU as an institution capable of handling money efficiently and transparently. "The European Commission demands a precise description of all job positions, of the document circulation system and of the distribution of duties (within ARiRM)," Gurbiel said. "It means piles of paper."

"No experience" The process will be more difficult with Sapard than with ISPA and Phare 2000. ARiRM may not have enough time to use all available funds since the program has been conceived for a large number of small beneficiaries, Gurbiel said. "These beneficiaries must be found, contacted and assisted in applying these funds," she said. "And these institutions have no experience in using EU funds." Poland's administrative staff has difficulties with handling the current funds, and experts expect the problems to be exacerbated when the cash flow increases from 2004. "We have delays (in Phare 2000), because there are too few people across the country to process tender documents," Gurbiel said. The government is trying to match the administrative challenge with a large-scale scheme of recruitment and training. Sizeable European integration units must be set up in ministries and government agencies in order to use rather than lose euros. "There are few personnel in the National Environmental Protection Fund's department for ISPA, which causes delays in processing cases, and projects have to wait in a queue," Malicki said of Warsaw's experience with seeking approval for the city's environmental projects. Some 300 administration personnel are handling EU projects now, a number insufficient to carry the load, Gurbiel said. The number of staffers will grow to 600 in 2002 and to some 1,000 by the end of 2003. Nevertheless, the amount of staffers would still fall short of EU estimates which range up to one worker for each €2 million in grants or 2,000 staff to process the expected €4 billion-€5 billion annually. But as the EU plans to gradually shift aid from large schemes to smaller projects, local administrations will be faced with an increasing challenge of complex EU bureaucracy. And it is Poland's lower rank local staff that lacks the skills and experience to operate efficiently in the world of Eurocracy, experts said. "There is no civil service and no real culture of administrative work there," Szlachta said. "Letters are not replied to and papers get lost."

In English The local administration has been challenged by EU requirements. "They were suddenly told to produce complicated documents in the English language," Szlachta said. And the approaching local elections next September would only aggravate the situation, he added. "Most people in the local administration will be replaced after elections and we'll start with new people again," Szlachta said. Poland still has at least 18 pre-accession months to prepare its staff, institutions and finances to meet the challenge of EU bureaucracy. And it can learn from the experience with pre-accession funds. "We are now subject to the same requirements as the existing member states, and if we want to take part in this game, we must adapt ourselves," Gurbiel said.