ENVIRONMENTAL INVESTMENT CENTRE

Administration of EU funds: local municipalities projects

Estonia

01.12.2011RIGA

Hannes Aarmahannes.aarma@kik.ee

Content

1. EU funds: legal and management system

2. Role of the EIC

3. What (municipal) projects?

4. How are they selected & implemented

5. Administration: what worked, and what not?

Lessons learned –what next?

1. EU funds: legal framework

EU regulations and directives

National Strategic Reference Framework in 2000-2006

National Strategic Reference Framework 2007-2013

Operational Programme for the Development of Living Environment 2007–2013 (and other OP’s):

Estonian legal Acts: Structural Assistance Act (first in 2000, new version in 2007) Governmental (horizontal) decrees: (conditions for payments,

audit, publicity, eligibility), Ministerial (measure specific) decrees establish legal basis for

projects implementation. Grant financing decision for a project (decided by EIC)

EU funds: management system

Ministry of Finance - (Managing-, Paying-, Auditing Authority)

Ministry of Environment - Intermediate Body, level 1(legal framework, supervision over EIC)

EIC- Intermediate Body, level 2(assistance to FB’s, supervision of FB’s)

Final Beneficiary (e.g. Municipality)

Consultant (supervisor) Contractor

2.Environmental Investment Centre

• Established by the Ministry of Finance in 2000 as a foundation, i.e. non-profit organisation, the EIC had only one structural unit- the Environmental Programme Unit (EP), located in Tallinn

• Now also 15 county representatives advise applicants and control the realisation and eligibility of funded projects.

• In 10 years EP has funded from state budget means over 1300 water management projects with a total budget of 125 million EUR (+ FB’s self-financing 0-50%)

• EIC is Intermediate Body for CF since 2001 ; from 2004 also for ERDF and from 2007 - for SF (environmental soft only)

• Since 2009 EIC is on-lending130 MEUR (EIB loan for Estonia, water & wastewater projects co-financing)

• Since 2010 EIC is Implementing Agency also for projects funded from CO2 quota sales money

Why is EIC Intermediate body for EU funds?

• (Well) established management and control system (manual of procedures, flow-charts, check-lists, forms of documents, etc).

• The system is kept up-dated - EIC does periodically risk assessment of it’s performance, carries out system and project audits and takes preventive measures

• Sufficient number of experienced, competent employees responsible for CF/ERDF/SF projects (13 well-experienced, 14 new employees)

• Efficient personal network within EIC and with partners outside (MoE, MoF, local authorities)

• Reliable and efficient performance of IB tasks, like:

- appraisal and selection of projects for funding

- ex-ante (ex-post) supervision over public procurement (carried out by FB-s) - supervision over projects, implementation, incl. on-the-spot checks

- checks of payment requests, execution of payments (through central operational system of structural funds projects–SFOS

- administration of project modifications/grant decisions

Organisation scheme

Council (9)

Management Board (2)

Project audit unit (3)(all EIC funded projects)

Administration unit Lawers(3)

Supervision unit (5)(CF/ERF/ESF projects)

Structural assistance unit(CF/ERF/ESF) (27)

Environmental programs Unit (Office-8)

Environmental programs unitReginal representatives (15)

Auditing Commmitte

Internal auditor

IT development manager

Financial unit (8)(ERF/ESF/CF /state budget)

Environmental Investment Centre(as of 01.12. 2011)

EIC’s work-load & challenges for 2012(EU funds +CO2 money)

Year

No of EU projects

(+CO2)

EU funds (payments and prognoses)

Number of payment requests

Average payment order

2010

210 (+40) 42,6 MEUR 1 195 35 500 EUR

2011

~300(+40) ~120 MEUR < 2 400

50 000 EUR2012

~ 300(+40) > 200 MEUR < 4 000

Töötajate arvu kasvu prognoos on minimaalne.

Simplification of payment procedures, clear division of tasks and smooth cooperation between SF, Supervision and Financial units will help!

3. EU support for municipal projects

1. From 9 CF measures (out of 11), e.g.

- water & wastewater infrastructure development (74/74 projects)

- Improvement of status of watercourse bodies (3/10)

- Waste handling (infrastructure development for waste collection, sorting and recovery (4/17) and closure of old landfills (4/16).

2. From 2 ERDF measures (out of 9):

- projects aimed at preservation of natural diversity (8/32)

- infrastructure development for environmental education 5/13

Further on only water projects will be explained in more detail!

4. Water management - legal set-up

“Development of water and waste water systems infrastructure is local authorities responsibility”

(Act on Public water and sewage systems, §4)

“Local authority is obliged to provide for public water and sewage services”

(Act on local authorities, §6 article 1)

Local authority approves tariffs (> 2000p.e.) for water services (Act on Public water and sewage systems)

For > 2000 p.e. Competition Board approval is needed

Water projects - legal framework

All public investments must and are targeted at directives requirements:

• Water Framework Directive (WFD)

• Urban Wastewater Directive (UWWD)

• Drinking Water Directive (DWD)

• Nitrate Directive (ND)

Water projects: general objective

To secure and maintain better condition of surface water bodiesOP allows support for investments in 3 main directions:

1. Investments in public water and wastewater infrastructure;2. Investments for achieving better condition of surface water bodies;3. Investments for elimination former residual pollution from soil and

groundwater.

These directions are financed (supported) by the:

EU Cohesion Fund

EIC national environmental programme (EP);

.

.

Water services: targets & deadlines

Drinking Water Directive (DWD) requires

To guarantee supply of purified water viaDrinking water systems providing water over 2 000 clients - at the end of

2008Drinking water systems providing water over 50-1999 clients - at the end

of 2013

Baseline and targets in EstoniaIn 2006 70% out of connected clients were supplied with drinking water

which corresponded to the quality standards. The goal at the end of 2013 is to guarantee drinking water which meet quality standards for all clients connected with drinking water systems.

In 2006 86% of the residents were “clients” ie connected to the public drinking water systems. The goal for 2013 is to guarantee drinking water connection (opportunity) for 90% of residents.

Wastewater services: targets & deadlines

Urban Wastewater Directive (UWWD) requires:

to collect and purify all wastewater:

- in WWCA where pollution load is over 10 000 p.e. - by the end of 2009, and

- in WWCA where pollution load is 2000 – 10 000 p.e. - by the end of 2010

Baseline and targets in Estonia:

In 2005 89% of residents in WWCA over 2000 p.e. were connected to public wastewater system (total in Estonia -72%). The goal at the end of 2010 was to collect and purify 100% of wastewater in WWCA with pollution load over 2000 pe.

In 2005 60% of WWTP in WWCA over 2000 p.e. worked in compliance with the law. The goal at the end of 2010 was that 100% of WWTP work according to the legal requirements.

How to reach these objectives?

What EU funds are available for water and

wastewater projects? OP- Priority axis 1 – fixed CF support rate is 85%

Measure 1.1. Water and wastewater infrastructure development – total available is 409 MEUR from CF, (ERDF= 0)

Support is for (net)revenue creating projects only, but it is not State Aid as private companies are not eligible.

Therefore project owners financing must be 15% (of funding cap)

No additional financial support from the State

After (3) rounds of open call(s) for proposals EIC decided to fund 73 projects (incl. 2 major ones, approved also by the EC).

Total of committed CF support - 392 MEUR

Project owners financing obligation is 70 MEUR , and

projects net revenues - 28 MEUR

EU funds for improvment of the status of watercource bodies

CF measure: total budget available - 9,6 MEUR.

• Min size of the project’s eligible costs – 16 000 EUR

• Min size of water body’s water-shed, which state is improved– 25 sq km (except for salmon rivers)

First round (2010) of open call for applications:

budget: 3,2 MEUR CF; approved: 4 (out of 12) applications for 2,6 MEUR from CF (incl. one municipality’s project)

Second round (2011), budget ...MEUR, approved 6 (out of 8) applications for 3,6 MEUR CF (incl. 2 municipalities)

5. EU funds administration - what works?

1. Legal measures - work!

1.1 Act for SF as amended in 2010 - allows government to fix (by decree) target levels for spending EU funds at ministerial level, starting from 2011 (see next slide)

1.2 grant decisions for projects – also work, because annual spending amounts (plan for funding of multi-annual project) were included into decisions

Target levels for EU funds spending established by the Government

 Priority axis 

For 2011 State of play (24.11.2011)

Target (EUR)

% out of EU total 2007-13

Payed out (EUR )

% out of total 2007-13

1. Water & waste - infrastructure (CF) 156 583 539 25 114 488 245 18

2. Sustainable use of environment - infrastructure (ERDF) 24 158 603 45 7 032 273 13 2.Preparedness for envir.emergencies (ERDF-MoIntAff) 17 256 145 45 18 331 871 48

3. Energy sector development (ERDF) 4 270 896 45 2 967 449 31

What works (2)

2. Management measures:

Supervision over project public procurement and spending plan (N+2/N+3 rule!), incl. quarterly hearing of annual funding plan progress; (“traffic lights” system).

Results: from 73 water and wastewater projects at the moment 30 are “green” (implementation and spending in schedule), 25 “yellow” (2-3 month delays, but may be recovered) and 18 “red” (significant delays and unsolved problems, administrative measures needed, see next slide)

What works (3)

3.Administrative measures- warning letter (from EIC to FB, meetings with FB

(municipality) staff; - precept (if no improvement after warning letter)- a coercive measure (prescribed amount of penalty

payment -if a precept of EIC is not complied with during the term indicated in the precept)

- order for partial or full repayment of EU funds,- abolishment of the grant decision.

What works (4)

4. Financial measures - on-lending (130 MEUR, borrowed means from EIB) for water infrastructure FB-s only!

Decision making scheme:Loan administrator analyses loan application and prepares a creditworthiness

analysis, describing all possible risks and risk mitigation measures

EIC’s Credit committee discusses the given analysis and decides whether to make a lending proposal to the EIC Board

EIC Board makes a lending decision based on the proposal

Loan characteristics: Minimum-Interest rates:

Local Governments: Euribor + 1% Water companies: Euribor +1,25%

Grace period: maximum 2 years after project implementation period.

Payment period: maximum 20 years

Repayment twice a year

What works (5)

5. Supportive measures:

- guidance ( EIC web-page, papers)

- advice,

- training of FB.

What has not worked

1. 2008(!) -2013 projects:

bottom-up development (=consultant based) > low understanding of the application and implementation rules> delayed start> still high risk for loosing part of EU funds (N+2/N+3 rule).

2. Time (and money) consuming methodology (based on EC Guide for CBA) - to decide and amend grant rates for revenue creating projects

3. (Some) decrees late, and some - default!

Still problems...

1. Cost increase on construction market (again!) > additional funding, and / or cuts?!

Scope: 42 (out of 73) may need in total 30-35 MEUR

2. Difficulties to secure/provide own funding (low borrowing capacity of FB’s, incl. municipalities)

3. Too many and long-lasting public procurement claims!

(Average time (lost/per claim) – 45 days!)

Utilization of EU 2007-2013 funds

1.08.2011 Total Payed out% (out of

total)Current

rankEstonia 3456 1011 29,2 1Latvija 6885 2004 29,1 2Finland 1716 449 26,1 3Irland 901 231 25,6 4Danemark 26340 6589 25,0 5Portugal 21511 5183 24,1 6...        Luksemburg 65 9 14,0 22Malta 855 109 12,7 23Tchek 26929 3319 12,3 24Italy 28812 2797 9,7 25Bulgaria 6853 550 8,0 26Romania 19668 676 3,4 27

THANK YOU !

QUESTIONS?

www.kik.ee/en

Background: wastewater collecting areas (WWCA)

• WWCA and its nominal pollution load serves as a bases for investments prioritization and projects selection

• WWCA-s were determined in 2007 by the Ministry of Environment in collaboration with local authorities

• In Estonia there are 505 wastewater collecting areas (WWCA):

– 60 WWCA bigger than 2000 pe;

– 445 WWCA smaller than 2000 pe;

Background: water companies and WWTP

• Water companies:

– approximately 250 water companies, owned by local municipalities

– Water-company and its operation area must by approved by local municipality, when company serves over 50 clients.

Estonia has approximately 850 wastewater treatments plants (WWTP):

6 WWTP over 100 000 pe:

Tallinn; Tartu, Narva, Kohtla-Järve, Pärnu, Rakvere

12 WWTP over 10 000 pe (mainly 20 000-50 000 pe):

Võru, Valga, Põlva, Viljandi, Jõgeva, Põltsamaa, Paide, Rapla, Haapsalu, Kuressaare, Paldiski, Tapa, ;

31 WWTP 2000 -10 000 pe;

800 WWTP under 2000 pe (approx. 70% 200-300 pe, residual are small private WWTP);

Environmental Programme: 7 branches

1. Water management (approx. 50% of available funds)2. Waste management3. Environmental management4. Wildlife preservation5. Environmental awareness6. Forestry7. Fishery

+ County projects (approx. 20 000 €)+ co- financing (3-4 INTERREG projects, annually)

EP for water management...

...is divided into 5 subprograms:

• Drinking water (approx 1 million €)

• Wastewater (approx 1 million €)

• Rehabilitation of water bodies (approx 1 million €)

• Residual pollution

• R & D