Bosnia and Herzegovina

Evaluation of the PHARE "Essential Aid programme" for Bosnia and Herzegovina


Executive Summary
This report was produced by Sorgem Organisation and Development in consortium with AHT International GMBH for the services of the Directorate General 1A (External Relations : Europe and the NIS) of the European Commission.

The views and opinions expressed herein do not necessarily reflect those of the European commission nor those of the Procurement Agents.

The European Commission and the Procurement Agents do not guarantee the accuracy of the data included in this report, nor do they accept responsibility for any consequence of their use.

Programme Background

Economic and social background

The Dayton Peace Agreement was reached on 21 November 1995 and signed in Paris on 14 December 1995. After four years of conflict, Bosnia and Herzegovina was in a poor condition. 80% of the population were dependent on humanitarian aid. There was an unemployment crisis, as a result of the widespread destruction of economic assets and infrastructure and the demobilisation of up to 200,000 soldiers. All sectors were severely affected by the exodus or death of professional and skilled labour.

Political and institutional background

In accordance with the provisions of the Dayton Peace Agreement, new governmental structures and institutions were established for the new State of Bosnia and Herzegovina. To a large extent, these structures were created from scratch. The state institutions were progressively put in place in the nine months up to the elections of September 1996. The State of Bosnia and Herzegovina was composed of two "Entities": the Muslim-Croat Federation and the Republika Srpska. Each Entity was made of newly created cantons gathering together several municipalities. At the beginning of 1996, Bosnia and Herzegovina was in a state of transition between war and peace. When the fighting stopped, the economy still had many of its pre-war characteristics. Many steps had to be taken before the process of economic reconstruction could commence in earnest.

The reconstruction strategy and the EU contribution

Following the Dayton Peace Agreement, a priority reconstruction programme for Bosnia and Herzegovina was initiated by the international community based on the document prepared by the World Bank (WB) and the European Bank for Reconstruction and Development (EBRD) with the technical expertise of the International Management Group. This programme foresaw an estimated USD 5 billion in donor assistance over the period 1996-1999. The European Union (EU) pledged to contribute an amount of 1,000 MECU. This budget was to be managed by DG IA and funded from the Phare Programme and other budget lines of the EC. In order to start the process, a number of donors, including the EC, decided to initiate their respective programmes focusing on essential aid and urgent financial needs for the year 1996.

Presentation of the EAP : Structure and Content

Objectives of the EAP

The Essential Aid Programme (EAP) was the first step in the EC contribution to the short- and medium-term reconstruction and economic recovery programme, and was designed to alleviate the most urgent needs created by the war. It was considered as a transitional step between the humanitarian aid channeled through the European Community Humanitarian Office (ECHO) and the long-term reconstruction programme. The EAP was designed to provide essential aid in the form of fast supplies of materials, equipment and spare parts to ten vital economic sectors (hence its definition as EAP-Supply, or EAP-S). From the beginning, an indicative breakdown between these sectors was envisaged for the whole Programme. Sectors, objectives and budgets were initially as follows:

MECU
Equipment to Federal Institutions
2.5
Health
10.0
Education
1.0
Housing
24.0
Agriculture
15.0
Energy
18.5
Water & Sanitation
12.0
Transport
22.0
Telecommunications
8.0
Investment and project preparation
2.0
Management
9.0
Reserve and contingency
1.0
TOTAL
125.0

The Financing Proposal was prepared rapidly in order to obtain the endorsement of the Member States. At that time, the preparation of the list of goods to be supplied was not yet completed and the best channels of distribution were still to be investigated.

Legal, institutional and financial arrangements

The urgency of the situation as well as the strong political pressure dictated that the Programme be set up extremely fast. The Financing Proposal was submitted to the Commission on 15/12/1995, one day after the signature of the Dayton Peace Agreement. A Commission Decision dated 20/12/1995 subsequently allocated 62.5 MECU for the EAP as the first tranche of a likely programme of 125 MECU under Phare funding, with a total duration of two years. Procurement Agents (PAs) were contracted by 15/01/1996 and the EAP teams (Delegation and PAs) were immediately operational in Sarajevo. On 22/04/1996 BiH was made eligible to be a recipient of Phare assistance by Council Regulation n8 753/96, and a Framework Agreement between the EC and BiH was signed on 7/06/1996. A Memorandum of Understanding concerning the second 62.5 MECU tranche was signed on 7/06/1996 between the EC and BiH.

Implementation arrangements: The EC Actors

The EC services: management and supervision

The EAP marked the start of the involvement of the European Commission’s Directorate General for External Relations (DG IA) in Bosnia and Herzegovina. The implementation of the EAP could not benefit from an already existing structure, either in Brussels or Sarajevo. The decision organising the Commission services’ management and supervision of the EAP was taken rapidly. For reasons related to internal EC staffing constraints, the initial EC team had to be progressively replaced; the present Special Envoy/Head of Delegation took up his post on 15/03/96.

The PAs

On 21/12/1995, procurement consortia EuroPA and Italtrend were advised that the EC was considering awarding 12-month contracts covering four sectors each. Contracts were signed on 12/01 and 15/01/1996 respectively. Each PA was expected to establish in BiH a long-term implementation structure consisting of four experts assisted by eighty man-days of short-term technical expertise. The long-term teams were to be responsible for (i) final identification of goods, (ii) final definition of technical specifications, and (iii) delivery of goods. DG IA revised its projections in October 1996 and reached the conclusion that the slower-than-expected contracting rate would not allow the expected disbursement of all Special Funds by year end. Consequently the EC services decided to reallocate uncommitted (i.e. not contracted) funds of 42 MECU to project-oriented activities (EAP-P).

The Monitoring Team (MT)

The contract for monitoring the implementation of the EAP was signed on 15/05/1996 with Tecnitas. The contract had a duration of 12 months and provided for a team of two long-term experts in BiH, supported by 6 man-months of short-term expertise. The MT had to control supplies on the basis of documents only (specifications, quantity and delivery terms included in contracts) and had to endorse the provisional and final acceptance documents, together with counterparts, before payments to suppliers could be made.

Implementation arrangements: other parties involved

The Counterparts

In every sector, official counterparts had to be designated to the EAP by the BiH authorities concerned: this was done very rapidly, generally during January or February 1996. The role of the counterparts was to assist in the identification of sector priorities and the finalisation of specifications, sign the MoUs, and ensure proper co-ordination with the various end-users.

The International Management Group (IMG)

IMG is a technical support organisation co-funded by most of the donors present in BiH. At the beginning of the EAP, the EU was already financing more than 50% of IMG running costs. Furthermore IMG had been instrumental in the identification of priority needs in four of the EAP sectors and in the drafting of the "Priorities for Recovery and Growth" document.

Critical assumptions

When the Programme was launched at the end of 1995 under considerable political and time pressure, the EC agreed with the WB on sharing out priority tasks identified during the Medjugorje international donors’ conference. During the conference IMG distributed sector documents describing the needs for the reconstruction of the affected sectors in Bosnia and Herzegovina. All technical information regarding the eight initial sectors attributed to the EC were collected from the WB task managers (...?) in early December 1995. The EC services proceeded on the basis that the data received were both accurate and sufficient to initiate the procurement programme. Indeed, no detailed technical assessment of the data could realistically have been conducted during the very short time left between Christmas and 15/01/1996.

The Financing Proposal considered the Programme as an extremely complex process, the success of which depended on several conditions. This document lists eight critical assumptions: (i) non-fulfilment of the political conditions laid down in the Peace Agreement, (ii) resumption of the hostilities in part or the whole of Bosnia and Herzegovina, (iii) lack of commitment from all parties involved to peaceful coexistence, (iv) lack of commitment to institutional reform and the transition process in general, (v) slow or no normalisation of the macroeconomic situation, (vi) insufficient donor co-ordination, (vii) procurement bottlenecks, and (viii) lack of clarity on identification of final beneficiaries and delivery structures.

The number of long-term experts had been fixed by the EC services at the time of tender, and corresponded indeed to the level of work required by a standard procurement process, i.e. final adaptation of already established specifications into a form appropriate for tendering. Long-term teams were to be assisted on an ad hoc basis by limited specialised short-term technical expertise, while the basic procurement work of tendering, evaluation and contracting was to be performed at HQs. The EC services logically envisaged to use IMG expertise and its infrastructure of nine field offices as a reliable technical support to the EAP.

Achievements of EAP-s and Reallocations

In each sector, upon agreement with the counterparts on priorities and specifications, different MoUs were signed with State and Entities’ governments. Due to the political suspension of the EU aid to the Republika Srpska, some MoUs were left unsigned by the EC although they had been endorsed by the Government of the Republika Srpska. Despite the difficult situation in Bosnia and conditions of implementation, the achievements of EAP-S are significant. About 73 MECU were contracted within 11 months and almost all the supplies delivered within 20 months. The EAP-S suffered from a number of critical constraints, all of which helped to delay the process of contracting and delivering. The distribution of supplies to end-users was more difficult than expected. As the direct result of multiple constraints, notably a slower than expected speed of contracting and inadequate feedback of information from Bosnia, the EC services decided in November 1996 to reallocate 42 MECU of uncommitted funds from all EAP-S sectors, even those which had achieved commendable impact, into new project-oriented activities (EAP-P).

Sector
Total
Budget
Amounts
Committed
Amounts
Contracted
Amounts
Reallocated
Amounts
Federation
Reallocated
RS
Institutions
4.5
2.5
2.8
2.0
Common Institutions
Health
10.0
6.0
8.98
1.5
Common Institutions
Education
3.0
2.0
1.99
-
-
-
Housing
20.075
12.0
10.8
9.0
4.0
5.0
Agriculture
11.0
7.9
7.31
3.0
2.0
1.0
Energy
20.5
19.8
19.3
8.0
5.0
3.0
Water
11.9
8.9
8.45
3.0
-
3.0
Transport
22.0
15.9
13.3
7.0
-
7.0
Telecom.
10.0
-
8.0
4.0
4.0
Investment
2.0
-
-
-
-
(Manag.)
8.0
7.0
(Reserve)
1.0
1.0
0.5
Common reserve
Total
123.975
83.0
72.93
42.0

Evaluation Findings and Recommendations

Programme design and relevance

The Phare EAP was a sound political and economical response to the situation which followed the signature of the Dayton Peace Agreement. Politically, it was a clear message to the affected population. Bosnia had crucial and urgent needs for restarting the basic functions of the economy. The fundamentals of the EAP were sound and the main design of the EAP fully justified.

The European Commission reaction to the Peace Agreement was very fast. EAP implementation started less than one month after the signature of the Peace Agreement in Paris. Funds from other donors were mobilised from mid-1996 onward, yet the implementation of the EAP started on site on 15/01/1996. With a 125 MECU budget, the EAP was the first large post-war reconstruction programme in Bosnia and Herzegovina to provide critically needed supplies of equipment, materials and spares to eight sectors and covering the whole country. As such, it was highly appropriate to the situation and had a strong impact on the Bosnian population and the international community.

The Programme was based on available information provided by the donor community and in close relation with the World Bank. It was based on the assumption that the urgent sectoral needs had already been identified, mainly by the IMG, and that the EAP contribution was in line with the sectoral strategies agreed upon by the donor community. At an early stage of implementation, it appeared that the lists of equipment and goods to be supplied were non-existent or incomplete, and would have to be completed as part of an ongoing process.

The Programme design set up the main implementation, monitoring and management structures. Nevertheless, the lack of identification of some major critical assumptions made the implementation structures unable to carry out smooth implementation when the situation on the ground turned out to be different from that expected. The lack of flexibility in the structures hampered the relevance of the Programme, leading to delays in contracting and loss of control over its implementation. The European Commission terminated the Programme before the full budget was contracted and reallocated uncommitted funds to project-oriented activities.

Implementation and efficiency

The Programme recruited two PAs, EuroPA and Italtrend. During implementation, the provisions included in their contracts were not properly adjusted to the situation faced by the Programme.

At the start of the Programme, an EC management structure was set up in Bosnia with limited human resources. With the EC office in Sarajevo, the PAs had to make a complete reassessment of the sectoral needs, to define priority lists of supplies and to build technical specifications.

The Bosnian environment made implementation extremely difficult. Many constraints due to numerous and conflicting political authorities, weak institutional capacity, lack of infrastructure and poor communication were detrimental to Programme implementation. Conditionalities imposed on RS led to several suspensions of the assistance, making relations with this area more difficult.

Identification by governmental authorities of counterparts/beneficiaries frequently prevented the PAs from making direct contacts with end-users, rendering the assessment of needs more complex. Moreover, co-operation with beneficiaries was uneven and sometimes difficult. It appeared early on that many of the items required were not "on the shelf" but had to be manufactured to complex and detailed technical specifications.

As a safeguard, the EC services set up control procedures at each stage of the supply process: lists of goods, supplier shortlists, tender documents, tender evaluation. It was a sound decision at the beginning of the Programme when risks of fraud or corruption were not fully evaluated. However, when those risks appeared to be limited in scope, the much broader control system of the EC services hampered the procurement process.

The initial planning for fast deliveries soon became unrealistic in many areas. Underestimating difficult implementation conditions, DG IA failed to adjust the allocation of human resources to both PAs and the local EC office. Insufficient personnel and lack of technical expertise were extremely detrimental to sound management and fast implementation. The DG IA decision-making process was far too slow and improvements in procedure were delayed or never implemented. The only notable adjustments were made in the Education and Housing sectors when it appeared that the initial objectives were not adapted to the Bosnian situation.

The EAP monitoring system, limited to quantity and quality control, was inadequate. It could not give any information on upstream activities of the PAs before tendering nor downstream on use of the supplies by the end-users.

An interim evaluation mission would have been useful to reassess the basic assumptions of the Programme and would have led to reallocation of funds in some sectors to project-oriented activities or between sectors, and to adjustments in the procedures.

Effectiveness of the EAP

The EAP contracting period lasted up to 15/11/1996. Only a few contracts were authorised after this date. Therefore the duration of the EAP-S was shorter than could have been expected from the Financing Proposal.

Despite the difficult situation in Bosnia and conditions of implementation, the achievements of EAP-S are significant. About 74 MECU were contracted within 11 months and almost all the supplies delivered within 20 months.

The Federation benefited from the largest part of the funding. Only about 10% was directed to RS when the intention was actually 30%. This was mainly due to frequent political suspension of the assistance. The EC services did not therefore sign some of the MoUs before the reallocation.

Tendering, contracting and deliveries to the beneficiaries were carried out without deliberate fraud and respecting the Phare procedures as adapted for the EAP. Only a few mistakes or faults resulted from those activities, though excessive formalism in the application of the rules resulted on occasion in higher costs being incurred than might have appeared necessary. Transparency was respected throughout the contracting process and no major complaint was raised.

Final deliveries to end-users were not reported as being a matter of fraud or corruption. Some groups of individuals (former soldiers) may have been favoured but this is negligible. The only possible discrepancy, noticed by the ET, may have concerned limited sales of fertilisers by the Ministry of Agriculture. The ET confirms that some sales were made to farmers and possibly to other persons. It was unable to assess the utilisation of the revenues from those sales.

The Programme design was based on the assumption that the urgent needs of the sectors had already been identified by IMG, and therefore that the EAP contribution was in line with sectoral strategies agreed upon by the donor community. When it appeared that the initial lists were non-existent or incomplete, under the supervision of the EC services, the PAs, together with the Bosnian Governments, took the responsibility of allocating sector budgets to identified beneficiaries and establishing the lists of supplies. This exercise was done without economic or technical guidance from the EC services in Brussels. Being endorsed by the identified beneficiaries, these lists could legitimately be considered as reflecting the urgent needs of the sectors concerned. But the EAP contribution lost sight of one of the major Programme objectives which was to contribute towards the implementation of agreed sector strategies. As no interim assessment was carried out to give formal approval to the PAs' agreed sector priorities, the pertinence of the EAP was reduced. The limited co-ordination with other donors (except with WB in Housing and Agriculture) emphasised this deficiency.

Most of the equipment and goods delivered met the needs of end-users. Most of the time, they were used as intended and alleviated urgent post-war needs. The mission’s assessment is that the better the end-users assessed their needs and were able to install the equipment provided, the more effective were the EAP supplies. This was the case in the sectors of Energy (electricity distribution, coal mines, power plants), Education, Transport (except road maintenance), Institutions and Agriculture (motocultivators, fertilisers, insemination equipment). When the PAs had no direct links with end-users, then most of the time the use of supplies was limited. This limitation came both from the inadequacy of goods supplied to specific needs and from the limited resources of end-users to install the equipment delivered. This was the case in the sectors of Water & Sanitation, Health (medical equipment), Agriculture (lactofreezers) and Transport (road maintenance, railways).

The major constraints to the effectiveness of the deliveries came from the beneficiaries and were related to lack of preparation, unclear distribution policy (lactofreezers, medical equipment, ambulances), internal political tensions, and shortage of financial and technical capacities.

The ET noticed that the assistance to the RS was far more effective than that to the Federation. In all sectors, RS counterparts had very well-prepared requirements and delivery and installation systems.

Effectiveness of the system

Both PAs carried out activities beyond their mandate. They were fully involved and dedicated. With limited human resources and in a very difficult context, they achieved a considerable amount of work. The slow pace of the decision making in the EC services and the complexity of the EAP procedures (before streamlining) made their work more difficult. The ET considered that Italtrend was more effective and flexible than EuroPA. Italtrend developed transparency with the beneficiaries and gave full assistance to the EC services with the reallocation of the housing component. It was very effective in the difficult sector of Energy. EuroPA showed some significant weaknesses in implementation in the Water & Sanitation sector and kept its distance from the beneficiaries.

The Monitoring Team could not be very effective due to inadequate Terms of Reference. Nevertheless, the EAP-S benefited from some of their recommendations (i.a. streamlining of procedures) and the MT solved many practical problems (i.a. customs, local supplier quality control).

The DG IA management was not optimal. Shortage of staff, high turnover, lack of specific technical expertise, long decision-making process, and lack of sector strategies hampered the progress of the Programme. The limited and overworked team in Sarajevo, deprived of decision-making powers, could not solve the considerable day-to-day problems relating to implementation.

It is unfortunate that the provision for direct local costs to the PAs' contract was never utilised. It would have increased the effectiveness of the Programme in several sectors (Water & Sanitation, Health, etc.).

Effectiveness and impact of the supplies

The EAP had a strong but variable direct impact according to the sector concerned. Nevertheless the impact could have been stronger with improved management, sufficient staff and more technical expertise.

Institutions. In the Federation, the supplies delivered to all Ministries had a positive impact on standardisation and ease of communication. In RS, the distribution of the equipment to regional technical institutes limited the impact on central institution building.

Education. The impact was very strong. With a limited budget the EAP covered more than 18% of the most urgent requirements of the Ministry of Education. It also contributed to revive one of the largest local furniture manufacturers and make it competitive on the international market.

Energy. The most spectacular impact was the restoration of electricity distribution in Gorazde, which remained without electricity from 1992 to 1996. In Tuzla electricity was secured for 20,000 people. Elsewhere, the EAP contributed to improving the damaged network. With EAP support, the thermal power plant of Kakanj was able to produce 40% of its pre-war capacity and power cuts have been reduced in Sarajevo. 3,800 families in the Novi Grad area of Sarajevo were provided with gas and household equipment for both heating and cooking. Finally, the Breza coal mine increased its production by approximately 30% to 200,000 tonnes, which are delivered to the thermal power plant of Kakanj, and the Tuzla mine was able to start a third shift of miners.

Housing. 976 damaged private houses were rehabilitated in Central Bosnia and in Gorazde to the benefit of displaced families. 6,270 damaged dwellings in public apartment buildings were rehabilitated in Sarajevo and Gorazde.

Transport. The impact of the EAP was very strong on the urban transport in Sarajevo. Gras network (buses) was restored to approximately 75% of its pre-war capacity. Tramway lines were reopened from city centre to the western suburbs reintegrating all Novi Grad (the modern part of Sarajevo) into the economic life of the city. Increased revenues will allow Gras to complete improvements. Nevertheless, other heavily shelled cities (Gorazde, Mostar, Kljuc) received only symbolic contributions. The impact on road maintenance was very limited since the supplies were not technically adequate to needs.

Health. In the Federation, the impact of numerous items is doubtful. Medical equipment requested and supplied corresponded rather more to centralised organisation planning designed by the Ministry of Health than to actual demand from the hospitals concerned. Regional health centres received only symbolic assistance. Moreover, installation of equipment and training of the staff is still pending. Ambulances are used but their sophisticated equipment is underutilised. In RS, the main clinical centre has optimal use of the equipment supplied while the ambulances are said to be used for complex emergency purposes.

Agriculture. Seeds and fertilisers arrived too late for the 1996 cultivation season. They only contributed to increase the 1997 season. 5% of the field equipment (motocultivators) destroyed during the war was replaced with the EAP-S assistance. The equipment is used by the farmers and contributes to increase production. The impact of the lactofreezers is doubtful. The large capacity lactofreezers are not used due to the low level of milk production.

Water & Sanitation. Up to now, the impact is doubtful. The large majority of the 63 municipalities do not use the supplies due to inappropriate equipment, late delivery, and lack of financial capacities of the beneficiaries.

Telecommunications (EAP-P). The impact of this 90% completed project is very strong. The telephone density in BiH is now higher than in pre-war times. The project forced local administrations of two Entities and Muslims and Croats to work together. The inter-entity links will give people the opportunity to communicate for both private and business reasons. A new market for by-products (mobile phones, Internet) has been created.

Visibility

Visibility was excellent in the Transport sector in Sarajevo. Buses with large EU logos are endlessly moving across the city. Visibility is quite acceptable in the rehabilitated buildings in Sarajevo and in Gorazde. In all other components, visibility is either very low or, most of the time, non-existent.

Main recommendations

On additional sector assistance

  • Additional sector assistance in the form of supplies and works should be provided in order to maximise the effectiveness of the EAP’s outputs in the Energy sector and in Gorazde to complete the housing project.
  • Short-term technical assistance should be provided in the Health and Water & Sanitation sectors in order to improve the impact of the delivered supplies and to accelerate the reconstruction.
  • Longer-term technical assistance should be provided to identify further reconstruction needs and to develop long-term policies (energy, housing, transport, health, agriculture and telecommunications).
  • A study should be conducted on behavioural changes of the urbanised displaced persons and refugees before starting large housing reconstruction programmes.
  • Special attention should be given to de-mining activities in cultivated lands close to the rehabilitated villages.


On rehabilitation aid programmes

  • The management and implementation staff must be adapted to the size and the complexity of the programmes, or the ambition of the programmes should be reduced to the level of staffing.
  • Programme management should be decentralised on site with wide powers, and programme implementation should be permanently co-ordinated with other donors. The use of permanent core teams for both management and implementation in order to ensure continuity and of permanent monitoring systems (able to assess the deliveries to the end-users and their use of the items supplied) should be compulsory.
  • An overall strategy must be agreed on and the activities implemented should be clearly defined.
  • Interim evaluations or reassessments of emergency programmes should be carried out a few months after the beginning of the implementation in order to take corrective measures at an early stage.