The Commission of the European Communities,

Having regard to the Treaty establishing the European Community,

Having regard to Council Regulation (EEC) no. 1628/96 of 25 July 1996 relating to aid for Bosnia and Herzegovina, Croatia, the Federal Republic of Yugoslavia and the former Yugoslav Republic of Macedonia, as amended by Regulation 851/98, as last amended by Council Regulation 2454/99 adopted on 15 November 1999, and in particular Article 12 thereof;

Whereas the measures which have been identified as suitable for financing based on the criteria enumerated in Article19.3 of the above mentioned Regulation;

Whereas the Committee provided for in Art. 12 of the above mentioned Regulation has been informed in advance of the financing proposal in annex, in accordance with article 10;

Whereas the measures should be financed from budget heading B7-546 according to their nature and the relevant budgetary commentaries;

HEREBY DECIDES AS FOLLOWS:

The Financing Proposal described in Annex to this Decision is hereby approved for a maximum amount of Euro 5 million. The amount will be charged to B7-546 of the 1999 budget subject to the availability of the necessary funding.

Done at Brussels

For the Commission

The funds authorised under this proposal will be used for financing the start up of the new Agency for Reconstruction of Kosovo which will be responsible henceforth for implementing the EC’s reconstruction programme in Kosovo.

The European Commission has foreseen an indicative budgetary allocation of Euro 137 million for 1999 of which Euro 52 million has already been committed as follows:

• A damage assessment and ATA facility for support to the Task Force for the Reconstruction of Kosovo (9.5 M Euro );
• An urgent, integrated rehabilitation programme (35.5 M Euro ), focusing on housing reconstruction, public utilities (electricity and water), village employment and rehabilitation, customs, de-mining, and small scale operations projects;
• Rehabilitation of the hospital of Mitrovica (1.0 M Euro ).
• A programme for support for transport and local administration in Kosovo (6 M Euro ).

In addition, the following programmes are envisaged for commitment before the end of the year, and are being presented as separate financing proposals:

• Euro 5 million as budgetary assistance for the budget of Kosovo in 1999
• Euro 2.5 million for an emergency road winterization programme
• Euro 62.5 million for an economic reconstruction programme

The conflict in Kosovo ended in June 1999, giving way to the establishment of UNMIK, the UN interim administration of Kosovo, whose mandate is defined in UN Security Council resolution 1244. In addition, the NATO led Kosovo Force (KFOR) is present to ensure the security of the local population.

The economy of Kosovo, like the rest of the Federal Republic of Yugoslavia (FRY), was in poor conditions long before the NATO air strikes commenced, because of the increasing international isolation of the FRY as a whole as well as the slow pace of economic reform there. Aggravating circumstances were the chronically low levels of both public and private investment under which Kosovo suffered particularly since 1989, when its autonomy within the FRY was withdrawn.

The result is that Kosovo’s economy today is devastated. Infrastructure suffered heavy damage and more than half a million Kosovars have been left homeless. Unemployment levels are very high and institutions are functioning very poorly if at all. A substantial international effort will be required to rebuild the economy, public institutions and infrastructure of Kosovo.

In a joint report by the European Commission and the World Bank entitled ‘A programme for reconstruction and recovery in Kosovo’ ¹ a framework for donor support is proposed, with a preliminary assessment of the financial needs over a 4-5 year period amounting to Euro 2.1 billion (including Euro 500 million for housing). It addresses the needs with regards to restarting the economy (including employment generation), building effective and transparent institutions, and mitigating the effects of the conflict and the general economic degradation which was allowed to occur in Kosovo, in particular in the last ten years.

Given the pace of return of refugees, the pressure to deliver on economic development and reconstruction is immense, in particular all measures designed to alleviate the housing problem and the assurance of functioning basic public services.

The European Council met on 4 June 1999 in Cologne, at which it reiterated the European Union’s commitment to taking a leading role in the reconstruction of Kosovo. In this context, the European Council invited the European Commission to present proposals for the creation of an agency for the implementation of the EC reconstruction programme.

The European Commission issued a proposal² for the creation of the Agency in June 1999. On the basis of this proposal, the Council adopted Council Regulation 2454/99, amending Council regulation (EC) No 1628/99 on 15 November 1999, allowing for the establishment of the Agency for Reconstruction.

The proposal to create an Agency for Reconstruction was made with a view to ensuring efficient and speedy implementation of the reconstruction programme, with the provision of adequate resources and structures. This proposal also drew on the experience of implementation of the reconstruction programmes in Bosnia and Herzegovina.

To ensure speedy and efficient delivery of assistance to Kosovo, in the aftermath of the recent conflict, through the implementation of an EC reconstruction programme by a specialised Agency for Reconstruction.

In its proposal for the creation of an Agency for Reconstruction, the European Commission explained the following:

"An Agency for Reconstruction in Kosovo will enhance the efficiency, speed and visibility of European assistance and make it possible to improve coordination with other donors, including international financial institutions. Responsible locally for executing decisions taken by Community institutions, operating under financial rules adjusted in accordance with appropriate procedures, and enjoying considerable operational independence, the Agency should help avoid duplication of efforts by different donors and ensure stringent and transparent financial management. Though its main task will be to execute the Obnova programme for the reconstruction of Kosovo, it could also handle the contributions of other donors, some of whom have already come forward."

On 15 November 1999 the Council agreed to set up the Agency for Reconstruction which should be operational as quickly as possible. Its duties will include:

• identification and analysis of requirements;
• preparing the reconstruction programmes for Kosovo;
• all aspects of the project implementation cycle ;
• conclusion of financing agreements, signature of contracts and
• coordination with other donors and IFIs.

The first step in setting up the Agency will be the appointment of a director and Governing Board.

It will then be the responsibility of the director to propose a budget for the Agency which will be subject to the final approval of the Governing Board, in accordance with articles 19 and 20 of the modified Council Regulation 1628/96.

It is proposed, for the start up of the Agency, to commit Euro 5 million to cover the start up administrative costs for offices both in Thessaloniki and Pristina. The budget proposed will permit the recruitment of a core group of staff allowing the smooth transition between the Task Force and the new Agency, and the coverage of related administrative costs and equipment.

At this stage, it is estimated that this budget will be sufficient to cover a 4-6 month period, without prejudice to the ultimate decision of the Governing Board, who will be ultimately responsible for the adoption of the Agency’s budget, based on the funds made available through this programme. Contracts with staff will be signed for a one year period, renewable.

A provisional draft budget is attached in Annex 1, although subject to review and decision by the Agency’s Governing Board.

Budget: Euro 5 million

The Agency for Reconstruction will be responsible for the implementation of this programme, through the administration of its budget. The budget will be executed in accordance with the Financial Regulation of the European Agency for Reconstruction to be adopted by the Governing Board at its first meeting, in accordance with article 142 of the Financial Regulation.

Whilst all contracts and expenditure of the budget will require the authorisation of the Director in accordance with the Financial Regulation of the Agency, it may be envisaged that during the transitional period, until the Agency is fully operational, that the Task Force will assist the Director in the management of this budget and in preparing any necessary commitments/contracts e.g. for the recruitment of staff.

The implementation of this programme will be monitored and supervised by the Governing Board of the Agency, composed of one representative from each Member State and two representatives of the European Commission, of which one will be the Chair of the Governing Board (non-voting).

The Governing Board will operate in accordance with article 17 of the revised Council Regulation 1628/96.

The Governing Board shall present a draft annual report to the Commission by 31 March each year at the latest, on the activities of the Agency for the previous year and how they were financed. This report shall be adopted by the European Commission and submitted to the European Parliament and the Council.

In accordance with article 21 of the revised Council Regulation 1628/96, the Commission’s Financial Controller shall be responsible for the financial control of the Agency.

By 31 March each year, the director shall submit to the Commission, the Governing Board and the Court of Auditors the detailed accounts of all revenue and expenditure form the previous year.

The Court of Auditors shall examine these accounts. The European Parliament shall give a discharge to the director in respect of the implementation of the budget.

With its decision of 15 November 1999, the Council adopted the modified Obnova regulation with a view to creating the Agency for Reconstruction.

This Agency should have an administrative budget equal to a maximum of 8 % of the funds that it will manage, on authorisation by the Commission.

For 1999, it is foreseen that the Agency will proceed with the recruitment of staff which are necessary in order to progressively take over the management of the dossiers hitherto managed by the Task-Force. The staff costs below represent an average cost (for Thessaloniki and Pristina).

The definitive transfer of responsibility should take place during the month of February 2000.

To achieve this, the Agency requires a budget in order to sign contracts for a one year period for the following:

This budget is provisional. The decision on the utilisation of the budget and its eventual breakdown will be decided by the Governing Board of the Agency, as foreseen in the regulation.