Funding flaws
At the heart of the recent controversy over the 2007-2013 EU budget is the amount of funding designated for aid to the newest member states. While Polish officials demand the fattest possible check from Brussels, the British argue that new members don't make use of all the funds they're granted. Poland has absorbed just four percent of the structural aid available to it over the last two years, and experts and entrepreneurs are pointing the finger of blame squarely at Polish bureaucracy.
The overall amount of funds that the European Commission granted Poland for the implementation of the 2004-2006 National Development Plan (NPR) amounted to EUR 12.8 (zł.49.5) billion, including EUR 8.6 (zł.33.2) billion in structural funds and EUR 4.2 (zł.16.2) billion in cohesion funds. So far, only EUR 370 million (zł.1.45 billion) has been transferred to beneficiaries' accounts.
That's not to say that Polish entrepreneurs aren't striving to obtain the funds. On the contrary, businesses here have applied for more aid than the amount allotted to them. Instead, the funding paper trail is bogged down in Polish bureaucracy.
Blame the bureaucracy
According to Artur Bartoszewicz, an EU funds expert at the Polish Confederation of Private Employers (PKPP) Lewiatan, excessive bureaucracy on the Polish side is the biggest barrier for all applicants. "We have created a system whereby we put the biggest obstacles at the very beginning of the application process. Many entities with good projects are refused aid for formal reasons, [such as] small flaws in documentation. Neither the process nor the potential beneficiaries have been properly prepared," he explains.
The new government seems determined to change this trend. A brand new Ministry for Regional Development was created to deal with EU funds. Jerzy Kwieciński, Deputy Minister for Regional Development, said: "We have two main priorities. We want to simplify EU fund distribution in order to increase their absorption in Poland and prepare a better financial plan for 2007-2013."
Co-financing dilemmas
The Ministry is facing a tough task, however, as Prime Minister Marcinkiewicz declared this year's utilization of less than five percent of Poland's allotted structural funds will transform into absorption of almost 50 percent in 2006, which will have an extremely beneficial influence on the Polish economy.
However, before the Polish coffers start overflowing with euro, the government will have to find some of its own money, and distribute it to those who have already carried out projects. Only then can it count on reimbursement from the EU.
"This whole system doesn't work that fast. In other new member states the situation was similar. People seem to forget that Spain was a net contributor for the first four years of its EU membership, the same was true for Ireland's first three years in the EU," said Kwieciński.
Artur Bartoszewicz admits that the state can count on higher incomes from VAT and PIT if fund-absorption is pushed forward, but he also warns that before this happens the Polish budget will have to co-finance the projects from its own resources.
"Moreover, one has to bear in mind that EU audits of the completed projects will begin soon, and improperly used money will have to be paid back," Bartoszewicz warned.
New solutions from a new Ministry
'The National Strategic Reference Framework 2007-13', a document describing how each member state is going to use EU funds, has until May next year to be adopted. The Ministry for Regional Development is already working on it and says it welcomes suggestions from entrepreneurs. In order to speed up the process of EU funding, the Ministry also wants to change two important acts.
"The first thing to do is amend the Act on Public Procurement," the Minister for Regional Development, Grażyna Gęsicka, told journalists at her first press conference. "The change will consist of simplifying tender procedures to the furthest possible extent compliant with EU law," she said.
The next step would be amending the Act on the National Development Plan. "It should, among other things, specify rules and procedures of obtaining and using EU funds in Poland," Gęsicka added.
Enterpreneurs complain
This, however, is not enough to eliminate all of Poland's fund-procurement problems. At the 11th Polish Economic Forum of Small and Medium Enterprises, Economy Minister Piotr Woźniak was presented with a report drafted by the National Chamber of Commerce and three other business organizations containing a list of barriers that Polish entrepreneurs encounter when trying to obtain EU funding for their projects.
"Some of the major problems for Polish entrepreneurs are a lack of own resources to finance the project and a very long waiting period for reimbursement," said Leszek Janowski, president of the SME Foundation. Many companies decide to take a loan for new investments and point to EU subsidies as a repayment source, but it's almost impossible to determine exactly when the money will come - and repayment of the loan must begin immediately after a project is completed.
Trials and tribulations
Applying for EU funds is especially difficult for micro-enterprises (those employing less than nine people). These account for 95 percent of all companies in Poland, and in order to be granted a subsidy, they have to comply with exactly the same requirements as medium-sized companies, which employ up to 250 people. However, according to Economy Minister Piotr Woźniak, this situation would be extremely difficult to change.
The regional distribution of funds also seems unfair to the authors of the report. They point to the fact that in the case of the Investment Subsidies Fund Phare 2003 SSG, the Podkarpackie voivodship, with 140,000 registered companies, was allotted EUR 2.6 (zł.10) million, while the Mazovian voivodship, with over 590,000 entities, was granted a mere EUR 800,000 (zł.3 million). As a result, many regions run out of available funds after they have processed only a fraction of submitted projects.
Brain drain
Entrepreneurs also complain about poor access to information about funds for which they are eligible, as well as how to apply for them. Finding competent staff at information points is rare. Bartoszewicz is unsurprised. "Public information offices provide free training to young people who work for state institutions for a couple of months, gain some experience and leave for private consulting companies who offer far better salaries. It is a vicious circle," he adds.
Consultants are of little help. After Poland's accession to the EU, many advisory companies popped up that specialized in the application process for EU subsidies and greatly profited from entrepreneurs' ignorance in the face of the complicated application procedures.
Whether the new government and the Ministry for Regional Development will be able to simplify the procedures and do away with the existing barriers is yet to be seen. For the time being, the battle is over the EUR 14 (zł.54.1) billion of aid to new members. But with 25 countries trying to make a unanimous decision on the EU budget, the discussion is almost certain to carry over into the Austrian presidency. Hopefully, once the budget is adopted, the distribution of funds will prove easier than the process of deciding who gets them.
