The European Agency for Reconstruction (EAR) was created under the mandate of Chris Patten as Europe's Commissioner for External Relations: “the first big test of our ability to run things competently and we passed it, was speeding up delivery by cutting corners where we could, setting up the European Agency for Reconstruction and giving it delegated authority and political cover” (Chris Patten, “Not Quite the Diplomat” ).
The Agency was established by Council Regulation (EC) No 1628/96, as last amended by Council Regulation (EC) No 1756/2006 of 28 November 2006. When it was set up in 2000, the Agency was responsible for managing the EU’s aid programmes in Kosovo.
See video: https://www.youtube.com/watch?v=WfrX5hceRHo&t=6s. General objectives set for 2000
36. The 2000 work programme for the reconstruction of Kosovo approved by the Commission and the Governing Board concentrated the bulk of the resources available in 2000 on five areas: energy, housing, transport, environment and economic development/agriculture. The Commission and UNMIK considered these sectors to be essential building blocks for the wider reconstruction effort. Considering that progress in energy, housing, transport and agriculture was season-sensitive, the Agency wanted to launch the projects in these areas quickly and accordingly set very ambitious objectives, to be reached before the winter 2000-2001. The Court examined whether these objectives were being achieved at the end of 2000.
Energy
Objectives
37. The 2000 energy programme amounted to 60 million euro. Its general objective was to allow the energy sector to move away from the quasi-emergency holding and stabilisation phases towards making energy generation more stable and productive as a first step to assuring the self-sustainability of the sector. In parallel with this programme, the Agency allocated 28 million euro to UNMIK for energy imports under the 2000 reconstruction programme.
38. To increase the power generation capacity and, crucially, the reliability of the electricity supply, urgent and extensive overhauls to the two power stations were needed. As a result of consultations with UNMIK and other donors, the intervention of the Agency focused on the newer of the two power stations (Kosovo B). As an integral part of the overall effort in the sector, the Agency had also to support the rehabilitation of the lignite coal mines that feed the two power stations. The expected increased production from the mines aimed to match the increased demand for fuel for the newly overhauled units at the power stations.
Results at the end of 2000
39. At the end of 2000, 96% of the funds committed for this sector during the year up to December were contracted, and 59% of that was paid. The overhaul of unit 2 at Kosovo B power station was completed at the beginning of December 2000 before the onset of winter. Unit B1 was running, with some unplanned power cuts, and the repairs continued during the winter. Although the level of production in the lignite mines had increased, it had not yet reached two thirds of the objective (9 000 tonnes a day compared to an objective of 15 000 tonnes) at the end of 2000, but production was still increasing (12 000 tonnes in April 2001). Although power cuts were still occurring, the output of the two power stations ensured that there was usually sufficient electricity, thanks also to EU-funded energy imports, mainly from Bulgaria, the Former Yugoslav Republic of Macedonia (FYROM) and Montenegro.
Housing
Objectives
40. The overall objective of the programme amounting to 55 million euro was to support the Kosovars in reconstructing some 8 000 war damaged houses in the year 2000. This had to be done with grant assistance targeted at the most vulnerable households, especially poorer families and those in temporary accommodation. Reconstruction work on the houses was normally to be undertaken by the beneficiaries on a ‘self-help’ basis, with quality control and any necessary technical support coming from the NGO implementing partners. Where it was deemed necessary to supplement the self-help approach, a beneficiary could also be allocated labour support, or a works contractor for the most vulnerable, especially in the case of completely destroyed homes.
41. In December 2000 an additional amount of 5 million euro was allocated to this programme because the project was focusing increasingly on the most severely damaged houses (56% of the total number assisted), thus requiring additional materials. The supplementary funding also allowed the target to be increased to 8 400 houses.
42. At the same time the Agency also continued with the implementation of the 1999 housing programme amounting to 14 million euro. This programme for the rehabilitation of 3 600 houses (usually without a roof) was initiated by the task force in 1999, but most of the work was carried out during the first half of 2000.
Results at the end of 2000
43. Out of the 60 million euro committed in 2000, nearly 100% was contracted and 54% paid at the end of the year. The programme was initially delayed because municipalities were slow to identify the most vulnerable families who were to benefit from the programme. Often this problem could have been reduced both through a stronger presence by UNMIK and more professionalism on the part of some NGOs. At a later stage the programme also suffered from border-related bottlenecks in the supply of building materials coming from or through FYROM.
44. At the end of December 2000, activity had commenced on some 7700 construction sites in 23 of the 30 municipalities. More than 50% of the 8000 houses initially foreseen were fully completed, more than 65% were weatherproof and habitable. In early April 2001, according to monitoring reports, all the houses already had roofs on. Of the combined target of 12000 houses to be reconstructed with 74 million euro of funding, a total of 8170 homes had already been completed by the Agency during the year 2000. According to NGOs’ progress reports, a further 2000 houses already had roofs on and 1530 were at earlier stages of reconstruction, leaving just 300 more to be started.
45. The pace at which the Agency managed to rebuild houses contrasts with the slow implementation of similar programmes in Bosnia before their management was devolved to the Delegation in Sarajevo. In a letter dated 31 October 2000 the head of UNMIK pillar IV (dealing with reconstruction) said he had been ‘most impressed by the speed with which the European Agency for Reconstruction has disbursed funds, both in comparison with other EU programmes and with other multilateral agencies in Kosovo, and also the low administrative costs and value for money [that the Agency has]’.
46. The Agency drew the lessons from past experience in Bosnia and Herzegovina. It gave priority to the most disadvantaged people, exercised stronger control over the NGOs appointed and ceased to entrust the purchase of building materials to the NGOs, using instead private sector suppliers managed by a procurement specialist appointed by the Agency.
Transport
Objectives
47. An effective transport infrastructure is essential for Kosovo’s reconstruction. The road network is overloaded and in a poor condition and the railway network was under-utilised, mainly due to a lack of appropriate rolling stock. The Agency had to face the constraints presented by limited time for the work, the logistical issues related to supplies and the limited resources. The 2000 programme (15 million euro) therefore focused on the resurfacing of three of the main roads in Kosovo (the Pristina– Skopje road to the Blace border being the top priority), as well as the repair of two important road bridges destroyed by NATO bombing in 1999.
Results at the end of 2000
48. At the end of 2000, 79% of the funds committed in this sector in 2000 were contracted, of which 61% were paid. Most of the work foreseen was completed or on schedule, except the Blace border crossing.
Agriculture
Objectives
49. In 2000 the Commission approved a financing proposal for fostering the economic development of Kosovo amounting to 25 million euro. Among other measures, an amount of 10 million euro was earmarked to boost the rural economy. Agriculture is the most important sector in the Kosovo economy, representing about 50% of GDP in 1999/2000. Yields fell, together with GDP, throughout the 1990s mainly because of reduced access to fertilisers and a decline in agricultural services.
50. The main task for the Agency in this sector was to ensure the availability of 37500 tonnes of fertiliser, or 40% of overall requirements, for the winter wheat and spring cropping season, benefiting at least 30000 farmers, or 40% of all farm households. The objectives were to ensure increases in the production and yields of major crops for the domestic market by restoring soil fertility.
To strengthen the involvement of private sector wholesalers, distributors and retailers in the distribution and sale of farm inputs, in particular fertiliser, it was proposed to provide dealer credit.
Results at the end of 2000
51. As at 31 December 2000, 97% of the funds committed to this programme in 2000 were contracted, of which 53% was paid. The planting fertilisers (NPK) were delivered in September 2000 in time for winter planting. Part of them (2000 tonnes) was delivered free of charge to vulnerable farmers, including minorities, under the supervision of the FAO. The rest was auctioned and contracts were signed with more than 100 dealers.
52. The Agency managed to offer farmers planting fertiliser at an affordable price. The planting fertiliser delivered was widely used and an improved winter crop was expected. According to research carried out at farm level by the University of Pristina, farmers all over Kosovo had access to the product at an average price that was 30% lower than the market price in 1999, and 86,6 % of them purchased planting fertiliser imported by the Agency. The provision of fertiliser was crucial for the resumption of commercial agricultural production and for reversing the decline in overall agricultural output.
53. The auctioning of the fertilisers also contributed to the development of market economic practices. It initiated competition, while at the same time contributing to sustained growth by enabling the private sector to resume the primary role in the supply of fertilisers as well as other agri-inputs. The credit facility allowed suppliers to restore and refurbish warehouses, to replenish stocks and to increase warehouse capacity.
54. At the end of 2000, 83 out of 103 dealers had paid the first instalment into the revolving fund and others who had partially paid the instalment had to pay the remaining amount plus a penalty before mid-April 2001. Six dealers who did not pay used false documents and gave false information about their business in order to gain access to the credit. They resold the fertilisers immediately at a lower price than cost. Investigation was still going on in September 2001.
55. As for the selling of urea fertiliser, the Agency had to cancel the auction because the prices were so high that the fertiliser would have been unaffordable for the beneficiary farmers. The Agency subsequently fixed a lower sales price and distributed it on a pro-rata basis to those dealers selected for the earlier planting fertiliser distribution who had performed satisfactorily. According to the Agency the farmers received most of the fertilisers in time for the spring planting. However, part of the delivery was delayed until April 2001 because transport had to be re-routed through Serbia after the closure of the FYROM/Kosovo border.
Economy of the Agency’s operations