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HR2007/03/11

1. Basic information

1.1 CRIS No: 019-247/3/11 1.2 Title: Establishment of effective and financially sound management system

and control of use of agricultural funds in line with EU requirements and international auditing standards 1.3 Sector: 11-Agriculture and rural development 1.4 Location: Croatia

Implementing arrangements:

1.5 Implementing Agency:

The CFCU at the Ministry of Finance is responsible for the tendering, contracting and disbursement of all the project’s components in line with DIS principles and the PRAG.

The Programme Authorising Officer (PAO) for the project is:

Mrs Vladimira Ivandić, Assistant Minister Ministry of Finance Katančićeva 5 10 000 Zagreb, Croatia

1.6 Beneficiary (including details on SPO): The Senior Programme Officer (SPO) at the Ministry of Agriculture, Forestry and Water Management is responsible for technical management and authorisations associated with the project, including submission of the detailed technical design for the project’s components to the CFCU, inputs in relation to the corresponding evaluation of technical offers, plus follow-up contract implementation and monitoring, approval of contract outputs and confirmation to the CFCU that no technical constraints (as opposed to procedural or budgetary constraints) exist in relation to the CFCU’’s processing contractual payments.

The Senior Programme Officer (SPO) for the project is: Mr Dragan Kovačević, Secretary of State Ministry of Agriculture, Forestry and Water Management Ulica Grada Vukovara 78 10000 Zagreb, Croatia

Deputy SPO: Mr Miroslav Božić, Assistant Minister Ministry of Agriculture, Forestry and Water Management Ulica grada Vukovara 78 10 000 Zagreb, Croatia Phone: 00 385 1 6106206 Fax: 00 385 1 6109206

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E-mail: m.bozic@mps.hr

On a daily basis, the technical counterparts for the project and for reporting to the SPO are: Mr Srećko Selanac, Assistant Minister (Mrs. Marijana Nakić) Ministry of Agriculture, Forestry and Water Management Ulica grada Vukovara 269D 10 000 Zagreb, Croatia Phone: 00 385 1 6002736 Fax: 00 385 1 6002851 E-mail: marijana.nakic@mps.hr

1.7 Overall cost: € 6.500.000 1.8 EU contribution: € 6.125.000 1.9 Final date for contracting: 30/11/2010 1.10 Final date for execution of contracts: 30/11/2012 1.11 Final date for disbursements: 30/11/2013

2. Overall Objective and Project Purpose

2.1 Overall Objective: The overall objective of this project is to reinforce preparations of the Croatian public administration and institutions in order to ensure the implementation of the Common Agricultural Policy (CAP) after accession.

2.2 Project purpose:

The project purpose is to establish and implement effective and sound financial management system, as well as control system for use of agricultural funds in line with EU and international auditing standards. It is necessary to ensure the full compatibility of financial management system with the relevant EU legislation, to harmonize documents related to the whole Paying Agency system i.e. administrative and operational procedures, with EU requirements and instructions.

2.3 Link with AP/NPIEU / EP/ SAA Following the national accomplishments related to implementation of the Copenhagen criteria and the political conditions set by the Stabilization and Association Agreement (SAA), the European Commission (EC) gave a positive Avis on the Croatian candidacy for EU membership in June 2004. The Avis provided a detailed overview and assessment of Croatia’s ability to meet the political and the economic membership criteria, as well as Croatia’s ability to adopt and implement the acquis communitaire. The screening process, through which the EU acquis was explained and the legal and administrative implications in Croatia were examined, started on 20 October 2005 and was completed on 18 October 2006. Croatian legislation was compared in details with EU legislation.

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The European Partnership for Croatia (Council Decision of 13 September 2004) firstly identified priorities for action in order to support efforts to move closer to the European Union within a coherent framework. The European Partnership was followed and repealed by the Accession Partnership (Council Decision of 20 February 2006), which within its short-term priority suggests:

- to start developing a strategy to establish effective and financially sound paying bodies for the management and control of agricultural funds, in line with EU requirements and international auditing standards, setting up a proper land parcel identification system and animal identification system in line with the acquis;

- to draft a strategy for rural development, as well as instruments for drafting, implementation, management, monitoring and evaluation of the rural development programme. Accession Partnership also sets medium term priorities as follows:

- to strengthen the administrative structures needed to implement market and rural development policies;

- to continue preparations for the establishment of a fully-functional administration and control system and a Paying agency in line with EU requirements. In line with these priorities and objectives, Croatia has achieved a certain progress. Regarding the horizontal issues, the early phase in implementation of Integrated Administration and Control System (IACS), Land Parcel Identification System (LPIS), as well as Farm Register was prepared. With the aim to establish the Farm Accountancy Data Network (FADN), the National committee and implementing agency were set up as well. Furthermore, the special attention must be directed to completion of preparation concerning the horizontal issues, especially on setting up the integrated system for information collecting and monitoring and Land Parcel Identification System (LPIS). The European Commission’s “Croatia 2006 Progress Report” also recognizes, as regards, horizontal issues, that some steps were taken to prepare for the establishment of IACS and LPIS, as well as for a farm register, but those activities in 2006 presented preparations at an early stage. The same document explicitly states that, among other things, substantial financial resources will be needed to ensure the administrative capacity which Croatia needs to administrate the CAP. Following European Partnership agreement, in preparation for further EU integration Croatia has developed a National Program for the Accession of the Republic of Croatia into the EU (NPIEU), which defines short-term and mid-term priorities during the accession process. Within the short term priorities and regarding the use of pre-accession funds for agriculture and rural development (SAPARD), the Ordinance on SAPARD Programme implementation was brought up and entered into force in 2006. In the scope of mid-term priority, one of planned tasks for the following period is also drafting and adoption of the Ordinance which is to regulate the IPA-RD Programme implementation. The NPIEU for 2007 among the short-term priorities includes activities of DMSSA (SAPARD Agency) to be taking the role of IPARD Agency, and in parallel, it is planned to prepare the legislative framework for establishment of the Paying Agency with regional offices. The fully established Paying Agency with regional offices is mentioned as a mid-term priority (by the end of 2008). Also, the NPIEU 2007 explicitly mentions under short-term priorities also the importance of IACS establishment and introduction of LPIS system (as one of the elements of IACS) based on cartography references and use of GIS technology. As a mid-term priority, by beginning of 2009, the LPIS system in compliance with EU requirements should be established.

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Legislative reforms/measures, estimated as the short- and mid-term priorities regarding the agriculture and rural development, represent further continuation and improvement in process of adoption of the acquis communautaire in the area of agricultural policy.

2.4 Link with MIPD Even though there are no explicit and direct link between this project and the Multi annual indicative planning document, a link can be appointed to the part of MIPD that explains major areas of interventions under Component I – Transition Assistance and Institution Building. As it states under paragraph “…Ability to assume the obligation of the membership…“…overall level of alignment and administrative capacity, much remains to be done. The focus of assistance in this area will be on institutional and administrative capacity building for acquis transposition and implementation according to the priorities identified in the Accession Partnership, the screening process and subsequent negotiation in the different chapters of the acquis…”

2.5 Link with National Development Plan (where applicable) Not applicable

2.6 Link with national/ sector investment plans

Establishment of administrative structure for the management of agricultural policy measures for the purpose of the Croatian preparation process for accession are on-going. Directorate for Market and Structural Support in Agriculture, currently within the Ministry of Agriculture, Forestry and Water Management, through strengthening of its capacity should become a Paying Agency which means bearing overall responsibility for implementation of the agricultural policy measures (the Directorate was given the Conferral of Management of aid within the SAPARD Programme). Simultaneously with the establishment of the Agency structure there is an on-going process of preparation for the establishment of Integrated Administration and Control System (IACS), i.e. upgrading of existing Farm Register which includes strengthening of the capacity of administrative control, on-the-spot control, as well as setting up of Land Parcel Identification System (LPIS) for the agricultural subsidies control. 3. Description of project

3.1 Background and justification:

According to the Act on Agriculture (OG 66/01, 83/02), the operative implementation of market and structural support measures in agriculture is under the supervision of the Directorate for Market and Structural Support in Agriculture (DMSSA), which is an organizational unit within the Ministry of Agriculture, Forestry and Water Management. The Directorate is engaged in the following work: implementation of measures of market-pricing policy, implementation of measures of structural policy, implementation of programs of international support for the sector development, preparation of expert background and analysis, keeping records on the activities concerning the operative implementation of measures of market-pricing and structural policies and submitting them to the agricultural

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Information Centre, as well as establishment and carrying out the Integrated administration and control system. Integrated Administration and Control system-IACS

According to the Council Regulation 1782/03, given complexity of the system for agricultural support and the large number of aid applications to be processed, it is essential to use the appropriate technical resources and administration and control methods. As a result, the integrated administrative and control system should comprise, in each Member State, a computerised database, an identification system for agricultural parcels, aid applications from farmers, a harmonised control system and, in the single payment scheme, a system for the identification and recording of payment entitlements and single system to record the identity of each farmer who submits an aid application. The integrated system shall incorporate a system for the identification and registration of animals, when applicable. Directorate for Market and Structural support, through the technical assistance, made an analysis of current state of IACS in the Republic of Croatia (World Bank Project “Croatia Agricultural Acquis Cohesion Project (CAACP)”), and, according to the suggestions from the Report, started with upgrading of the system of national support schemes. Within the World Bank project “Croatia Agricultural Acquis Cohesion Project (CAACP)”, the Directorate for Market and Structural Support in Agriculture (DMSSA) from January to March 2006 used the consultant services (technical assistance-short term contract) for LPIS. Results of this activity are: short overview of the legal background for the need of LPIS in agriculture; the methodologies for creation of LPIS and the methodologies for using it for control purposes and overview of the requirements; brief comparison of different possible methodologies; the current situation in Republic of Croatia from different views (existing sources containing data needed for setting up an LPIS, projects dealing with geographical information systems in agriculture, existing organizations and state institutions having experience in the filed) and possible scenarios for setting up the LPIS in Republic of Croatia. The first preparatory activities for the national project “Establishment of LPIS in the Republic of Croatia” have been based on the activities of the Committee for the LPIS establishment in the Republic of Croatia (nominated in April 2006.) and their situation analyses, guidelines and proposals. From July until October 2006, initial documentation for starting up the project (proposal of methodology for LPIS project; proposal of project organization (project committee, project manager and project team; with work posts); detailed analysis of resources needed for project; proposal of financial and activity plan; proposal for establishing Registers department in DMSSA). The Methodology Manual1 was adopted at the end of October 2006. After that,, the project’s organizational structure, including all relevant institutions, was confirmed, as well as project manager and the team members, financial and activity plan.

1 The Methodology Manual is not available in English. Methodology manual was a base for preparation and starting up the project. It is partly based on results of consultation services and pre-project activities. After starting up the project some plans are changed, but not updated in Metodology manual.

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Ministry decided that all components of initial establishment of LPIS (1. central IT infrastructure (hardware for IT centre and communications); 2. software development; 3. producing of spatial data (digital ortho photo-DOP and digital cadastral map-DCM); 4. information campaign) will be financed by World Bank project “Croatia Agricultural Acquis Cohesion Project (CAACP)”.

Project officially started in January 2007 and will be finished in December 2008. During first project phase (1, 2, 3Q 2007) all infrastructures will be established (hardware, software, communications) and after that will start implementation of LPIS for whole country.

As LPIS is priority project for Ministry of Agriculture, Forestry and Water Management, project team is preparing National program for LPIS establishment, which will be confirmed by Government. With this Program, Government will confirm project organization, activity plan, all stakeholders, tasks and activities, needed administrative capacity and financial resources.

Tender for equipment for IT centre (IT room, servers, backup, storage) for whole DMSSA is launched at the end of 2006, the contract signed during 1Q of 2007, and implementation will be finished in July 2007.

Tender for Information campaign is launched at the end of May 2007. Due to time table, it will be contracted at the end of August 2007. Tender documentation for the required software support is prepared and the public procurement procedure is planed to be initiated. In cooperation with the State Geodetic Administration, preparation of an availability and quality analysis concerning resources and quality of ortho photo was made and the alignment/adjustment of activity plans is finalized. Due to National plan for establishing of LPIS, Croatia will be covered with suitable ortho photo finished by the end of 3Q of 2008. (40% of area will be available by the end of 2007. – and 60% of area will be tendered through international tender; preparation of tender documentation is in final phase). State geodetic directorate is an institution which is in charge of making and updating of ortho photo records. That is being financed by CARDS programme, World Bank projects and national funds. State geodetic directorate and Croatian geodetic institute are working together at the national project of LPIS establishment. The Directorate for Market and Structural Support in Agriculture shall take over the existing ortho photo records from the State geodetic directorate, and the rest of those ortho photo records shall be purchased through the Croatian agricultural acquis cohesion project (CAACP) World Bank project. There is a plan for establishing of the new Department for registers and for increasing the number of employees in other departments within the DMSSA, with the purpose of ensuring the qualified and sufficient human resources who would take care about managing the LPIS establishment project and the other IACS requirements. Through the IPA project the initially established LPIS system will be integrated with other registers and IACS components. IPA project purpose is to prepare DMSSA for setting up an operative Integrated Administration and Control System:

- to enable the data collected to be processed and used for the verification of aid applications and to carry out cross-checks (high-performance computerised data bases);

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- to allow verification of the eligible area - identification system for agricultural parcels; - to allow verification of entitlements and cross-checks with the aid applications and the

identification system for agricultural parcels; - to prevent the submission of multiple aid applications, and set up a single system to

record the identity of farmers submitting aid applications subject to integrated system; - to have a system of on-the-spot checks to verify eligibility for the aid and to verify

whether the farmer complies with the obligations of cross compliance; - to allow reductions and exclusions, where it is found that the farmer does not comply

with the eligibility conditions relevant to the granting of the aid and cross-compliance requirements;

- a system of progressive reduction of direct payments should be introduced; - to ensure that the amounts for the financing of the common agricultural policy respect

the annual ceilings set in the financial perspectives: - for the sake of simplification, to make provision for the submission of a single

application for several aid schemes; - to allow direct and immediate consultation, through the competent authority; - to allow regularly information, about the application of the integrated system, to the

Commission. Rural development

A rural development policy should accompany and complement the market and income support policies of the Common agricultural policy. In this context, measures under rural development should be linked with relevant parts of IACS. In the text below there is a description of activities which the main objective is full implementation of EU rural development at the end of this project. European Commission adopted Plan for agriculture and rural development 2005-2006 for Croatia on 8 of February 2006 (SAPARD Programme). The Act on ratification of Multi-annual financing agreement between Republic of Croatia and European Community was published on 29 of March 2006 ("Official Gazette" - International Agreements, No 3/2006). Furthermore, Commission published Decision on conferring management of aid on Directorate for Market and Structural Support in agriculture for pre-accession measures in agriculture and rural development in Croatia in the pre-accession period for measure 1 "Investment in agriculture holdings" and measure 2 "Improving processing and marketing of agricultural and fishery products" (Commission Decision 2006/658/EC of 29 September 2006). Technical assistance for DMSSA was implemented through two CARDS 2002 projects “Operational capacity building within the Ministry of Agriculture, Forestry and Water Management” and CARDS 2003 project “Capacity building of the SAPARD Agency within the Ministry of Agriculture, Forestry and Water Management” for establishment of fully operational SAPARD Agency. Additionally, technical assistance for DMSSA has implemented, within the “Croatia Agriculture Acquis Cohesion Project” (CAACP), a project to facilitate the integration of the Ministry of Agriculture, Forestry and Water Management (MAFWM) into the European Union agricultural acquis, which was financed on the base of loan contract between Croatia and World Bank. In the framework of CAACP at the end of 2006 and beginning of 2007, functional specification for IT system on authorization of project and payment was prepared within the SAPARD implementation criteria. In 2005 the European Commission prepared the legal basis to follow up on the reform of the external aid policies proposed in the Financial Perspective 2007-2013 which resulted in the elaboration of the new instrument IPA (Instrument of Pre-accession) replacing the five former

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instruments PHARE, ISPA, SAPARD, CARDS and the Turkey pre-accession assistance. Preparatory work between Croatia and European Commission for the IPARD component which will apply from 2007 has accelerated during the year 2005. Within the PHARE 2005 project “Institutional capacity building and support for implementation of SAPARD/IPARD programmes” technical assistance shall ensure support for pre-accession measures from Croatian Rural development plan 2007-2010 namely for axis 2: improvement of environmental and countryside (especially agro-environmental measure with elements of good agriculture practise) and axis 4: Leader. These measures were laid down in IPA implementing Regulation but also in Council Regulation (EC) No 1698/2005 of 20 September 2005 on support on rural development by the European Agricultural Fund and Rural Development (EAFRD). Support for rural development according to DMSSA's Plan for informatization 2006-2010 is compound from two parts: support for pre-accession measures on the base of plan for rural development and support for other rural development and structural measures including fishery (EFF). The first part will be finished at the end of 2007 but for the second part DMSSA need additional technical assistance. The draft Plan for agriculture and rural development 2007-2010 is a continuation of the approved Plan for agriculture and rural development 2005-2006, but it is not fully in line with EU regulation yet.

3.2 Assessment of project impact, catalytic effect, sustainability and cross border impact (where applicable)

This IPA project will provide functionality of the management and control of agricultural funds system, the sustainability of which will be ensured by the existence of the required management for the agricultural funds. The project will provide better controls through the integrated system which will be continuously maintained.

3.3 Results and measurable indicators:

After completion of this project, the following results are expected: 1. Integrated Administration and Control System (IACS) fully established in the following elements:

1.1. System for submission of aid applications, administrative control, approval and payments, including IT solutions 1.2. Land Parcel Identification System (LPIS) 1.3. System for the identification and registration of payment entitlements2 1.4. On the spot control system

2. System for the rural development support fully established 3. System for reporting and the system for X-tables support fully established

2 If Croatia will have the Single Area Payment System (SAPS) this result/activity will have lower priority. During the programming of activities, the fact that Croatia did not decided for SAPS or SPS yet was taken into consideration.

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4. Risk assessment, internal control questioner (ICQ) and audit programs for a system and compliance audits are prepared and pilot audits on established systems, including IT audit and training of auditors, including on-the-job training, carried out in practice 5. Information campaign fully prepared and carried out

6. All the processes and databases are fully integrated

These results could be verified through the following measurable indicators:

1 General Internal Manual for the Paying Agency and a minimum of 6 sets of working procedures and/or documents (administrative and operational procedures) prepared, specifically related to the expected results mentioned above under no. 1.1, 1.2, 1.3, 1.4, 2 and 3)

6 ICQ’s and audit programmes prepared and 4 pilot audits carried out 1 Publicity plan and a Promotional activity plan with schedule prepared, including approximately 5 brochures designed, 28 000 brochures printed, 3 TV commercials designed, 25 TV advertisements carried out, 1 Internet web page designed, 2 Web page applications prepared, 70 Radio advertisements carried out, 4 Newspaper advert designs prepared, 40 Newspaper advertisements published.

3.4 Activities:

Particular activities of this project are organized as follows: TWINNING Component 1: Establishment of Integrated administration and control system (IACS) Sub-component 1.1: Establishment of the system for submission of aid applications and administrative control including software support for register of the data from the aid applications and cross checks with the LPIS, Animal register and other cross checks

• Activity 1.1.1. Preparation of the system for submission of aid applications, administrative control, approval and payments: process flow (procedures), functional specification for the software development, software development monitoring and evaluation, study tour and other necessary activities – during 3 and 4Q of 2008 and during 1, 2 and 3Q of 2009.

Sub-component 1.2: Integration of the Land parcel identification system with other registers and IACS components

• Activity 1.2.1. Preparation for integration LPIS with IACS program support and databases: system analyses, functional specification for upgrading of program support, process flow (procedures) for updating and maintaining of LPIS, study tour and other necessary activities – during the 3 and 4Q of 2008 and 1Q of 2009.

Sub-component 1.3: Establishment of the System for the identification and registration of payment entitlements

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• Activity 1.3.1. Preparation of the System for the identification and registration of payment entitlements: integration with other registers and other necessary activities – during the 1 and 2Q of 2009.

Sub-component 1.4: Establishment of the On-the-spot control, including cross-compliance control and remote sensing; software for the Risk analysis and field reporting

• Activity 1.4.1. Preparation of the control system: process flow (procedures), functional specification for the IT program, training of Trainers and training of Inspectors (Central and Regional Offices), study tour and other necessary activities – during 3 and 4 Q of 2008 and 1Q of 2009.

Component 2: Adjustment of existing procedures and the software upgrading as regards EU rural development and structural measures including fishery

• Activity 2.1. Adjustment of existing written procedures, preparation of functional specifications for IT system, training of stuff – during 3 and 4Q of 2008.

Component 3: Establishment of the system for reporting and X-table

• Activity 3.1 Preparation for establishment and implementation of the reporting system: system analyses, specifications for program support upgrade, stuff education and training – during 3 and 4Q of 2009 and 1Q of 2010.

Component 4: Risk assessment, ICQ and audit programs for a system and compliance audits are prepared and pilot audits on established systems, including IT audit and training of auditors, including on-the-job training, carried out in practice

• Activity 4.1. Workshop on risk assessment on IT risks, preparation of risk assessment documents on IT risks, one study tour- during 4Q of 2008 and 1Q of 2009.

Component 6: Integration of all processes necessary to make payments

• Activity 6.1 Integration of all the processes necessary to execute payments is to be implemented through co-ordination, monitoring and evaluation of all processes and databases related to final payments in order to ensure their compatibility – during 2 and 3Q of 2009.

TECHNICAL ASSISTANCE

Component 1: Establishment of Integrated administration and control system (IACS) Sub-component 1.1: Establishment of the system for submission of aid applications and administrative control including software support for register of the data from the aid applications and cross checks with the LPIS, Animal register and other cross checks

• Activity 1.1.3. Software development, Training of Trainers and training of staff (Central and Regional Offices) – during the 4Q of 2008, 1, 2 and 3Q of 2009.

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Sub-component 1.2: Integration of the Land parcel identification system with other registers and IACS components

• Activity 1.2.2. Program support upgrading, development of procedures and methodology for spatial data (ortho photo) updating, training of trainers and training of staff, including one study tour (Central and Regional Offices) – from 1 until 4Q of 2009 and during 1Q of 2010.

Sub-component 1.4: Establishment of the On-the-spot control, including cross-compliance control and remote sensing; software for the Risk analysis and field reporting

• Activity 1.4.2. Software development for Risk analysis and field reporting – during the 1 and 2Q of 2009.

Component 2: Adjustment of existing procedures and the software upgrading as regards EU rural development and structural measures including fishery

• Activity 2.2. Upgrading of software, training of stuff, including one study tour – during 4 Q of 2008 and 1 and 2 Q of 2009.

Component 4: Risk assessment, ICQ and audit programs for a system and compliance audits are prepared and pilot audits on established systems, including IT audit and training of auditors, including on-the-job training, carried out in practice

• Activity 4.2. Preparation of the audit programs and ICQ (according to relevant regulations) for system and compliance audits on established IT systems; carry out pilot IT audits in practice on established system (including training and on-the-job training of IAD auditors) – during 2009.

Component 5: CAP information campaign preparation and realization

• Activity 5.1. Capacity building, study tour, preparation and organization of information campaign about CAP implementation (brochure design and printing; Web page design and applications; TV commercial design and advertisement; Radio advertisement) and other necessary activities – during 4Q of 2008, 1, 2, 3 and 4 Q of 2009 (the whole year) and during the 1 Q of 2010.

SUPPLY CONTRACT

Component 1: Establishment of Integrated administration and control system (IACS) Sub-component 1.1: Establishment of the system for submission of aid applications and administrative control including software support for register of the data from the aid applications and cross checks with the LPIS, Animal register and other cross checks

• Activity 1.1.2. Purchasing of the IT equipment – during the 4 Q of 2008.

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Sub-component 1.4: Establishment of the On-the-spot control, including cross-compliance control and remote sensing; software for the Risk analysis and field reporting

• Activity 1.4.3. Purchasing of the equipment for Inspectors – during 2 and 3 Q of 2009.

For GPS equipment and digital cameras there are no technically compliant products from an eligible country of origin, so we propose to apply for the derogation from rules of origin for these goods.

3.5 Conditionality and sequencing: In order to ensure implementation of this project, the following assumptions must be fulfilled:

• Sufficient number of employees • Workspace – fully operational and functional

The Directorate for Market and Structural Support in Agriculture (DMSSA) within the Ministry of Agriculture, Forestry and Water Management must have a sufficient capacity and adequate human resources to coordinate and implement this IPA project, which would be properly trained and motivated to assist in implementation and co-operate with consultants during their assignment. Adequate working conditions, including workspace and necessary equipment must be provided for all employees involved. At the moment, the Directorate for Market and Structural Support in Agriculture has 94 employees. Taking into account above mentioned, there is an existing plan for further recruitment that defines needs for new employments. The final sequence of this project is to ensure fully efficient and functional CAP implementation after the accession.

3.6 Linked activities Other correlated projects implemented

Co-operation with on-going projects within MAFWM is essential. The completed CARDS 2002 twinning project “Operational Capacity Building within the MAFWM” enhanced the operational and administrative effectiveness of the MAFWM in fulfilling its obligations under the SAA and in benefiting from pre-accession support for agriculture and rural development. There was also CARDS 2002 Project “Development of Public Internal Control and Internal Audit”. The project purpose was to help the Ministry of Finance in developing policy, organisation, procedures and methods in line with internal financial control in the public sector. Other objective was to enable state internal auditors access to methodology of internal audit in accordance with the international audit standards and to establish a sustainable education program and certification system for internal auditors. Six employees of MAFWM were involved in the education process for acquiring a certificate of internal auditors. They were also engaged in a pilot project accomplishing the first internal audit in MAFWM.

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Within the scope of bilateral aid from France, starting from the year 2004 there is a still on-going project that provides MAFWM with technical assistance (advisor) in preparing the process of accreditation of the Directorate for Market and Structural Support in Agriculture as the Paying Agency. Special attention should be given also to the project CARDS 2003 “Capacity Building of the SAPARD Agency within MAFWM” which was providing assistance to the DMSSA in the pre-accreditation and accreditation process for the SAPARD Agency. Second objective of this project was to upgrade the knowledge of DMSSA staff on implementing the SAPARD programme as regards the selection, contracting, payment, as well as controlling of projects. PHARE 2005 project “Institutional Capacity Building and Support for Implementation of SAPARD/IPARD programmes” is unfortunately late in implementation so at this moment it is still in tendering process. Project has the purpose to evaluate the accredited measures under the SAPARD Programme and to help in preparation and implementation of the new IPA-RD measures. A World Bank Preparation Mission visited Croatia in February 2005 leading to the completion of a draft Project Appraisal Document (PAD) and a Project Preparation Facility (PPF) in April 2005. The PPF, which has financed national and international consultants, studies and equipment essential to SAPARD start-up, was approved by the Bank on 23 March 2005 and the Government of Croatia on June 24, 2005. The project was approved by the Bank Board on February 16, 2006 and by the Croatian Parliament on October 26, 2006. The loan was declared affective on November 21, 2006. During 2006 and 2007 under the PPF significant achievements linked with DMSSA were included:

- technical assistance in critical areas of SAPARD implementation and DMSSA procedures (DMSSA internal audit, IT system, EU public procurement procedures, translation);

- procurement of essential office and information technology (IT) equipment, vehicles and facilities (for the control on-the spot concerning the SAPARD Programme measures only /GPS device – 20 pieces, cars – 7 pieces, notebook PCs – 17 pieces and digital camera – 10 pieces/ and server infrastructural equipment for data centre for the whole DMSSA);

- technical assistance in preparatory phase of IACS and LPIS, as well as analysis

of existing system and its comparison with EU Council Regulation 1782/03 and 796/04.

In order to have a clear picture of all steps already taken or planned for development of IACS, DMSSA has developed an Action plan for IACS (enclosed as Annex V.) through the TAIEX expert mission.

3.7 Lessons learned Segregation of duties but in the same time good co-operation between departments within Ministry and other institutions involved is essential for good progress in general. Also, special concerned is pointed toward different sources of financing and here fore, two

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different units exist within the Ministry of Agriculture, Forestry and Water Management. One unit is in charge of World Bank projects and another of the EU projects. Additionally, concerning the needs of the Directorate for Market and Structural Support in Agriculture, there is Department for information and EU relations – Section for EU relations, which co-ordinates both – World Bank and EU projects.

Directorate for market and structural support in agriculture staff has learned through CARDS and World Bank projects the main principles of EU Regulations as regards preparation of procedures necessary for accreditation in the pre-accession period. The main result of all these activities is the Decision on Conferral of management of aid to the Directorate for Market and Structural Support in Agriculture for pre-accession measures in agriculture and rural development in Croatia in the pre-accession period for measure 1 "Investment in agriculture holdings" and measure 2 "Improving processing and marketing of agricultural and fishery products" (Commission Decision 2006/658/EC of 29 September 2006, conferring management of aid on implementing agencies for pre-accession measures in agriculture and rural development in the pre-accession period).

4. Indicative Budget (amounts in M€)

SOURCES OF FUNDING

Activities

TOTAL PUBLIC COST

EU CONTRIBUTION NATIONAL PUBLIC CONTRIBUTION PRIVATE

Type of contract

Total % * IB INV Total Type of co financing (J /

P) **

% * Central Regional IFIs

SERVICE CONTRACT 3.0 3.0 100 0 TWINNING CONTRACTS 2.0 2.0 100 0 SUPPLY CONTRACT 1.5 1.125 75 0.375 25 0.375 TOTAL 6.5 6.125 0.375 0.375 ** compulsory for INV (minimum of 25 % of total EU + national public contribution) : Joint co-financing (J) as the rule, parallel

co financing (P) per exception

* expressed in % of the Total Public Cost

5. Indicative Implementation Schedule (periods broken down per quarter) Contracts Start of Tendering Signature of contract Project Completion Twinning Contracts 1 II. Q 2008 III. Q 2008 III. Q 2010 Service Contract 1 II. Q 2008 III. Q 2008 IV. Q 2010 Supply Contract 1 II. Q 2008 III. Q 2008 IV. Q 2010 All projects should be ready for tendering in the 2 Q of 2008 following the signature of the Financial Agreement.

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6. Cross cutting issues (where applicable)

6.1 Equal Opportunity Based on the fundamental principles of promoting equality and combating discrimination, participation in the project will be guaranteed on the basis of equal access regardless of sex, racial or ethnic origin, religion or belief, disability, age or sexual orientation. Equal participation of men and women during the implementation of the project will be assured.

6.2 Environment

Not applicable

6.3 Minorities According to the Council Regulation (EC) No 1698/2005 of 20 September 2005 on support for rural development by the European Agricultural Fund for Rural Development (EAFRD) Article 8, equal participation in the project will be assured without prejudice to any discrimination based on racial or ethnic origin, religion or belief during the implementation of project.

LIST OF ANNEXES Annex I: Log frame in standard format Annex II: Amounts (in €) contracted and disbursed by quarter for the project Annex III: Reference List of laws, regulations and strategic documents Annex IV: Details per EU funded contracts Annex V: Action plan for establishment of IACS (*.pdf)

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ANNEX I Log frame in Standard Format ESTABLISHMENT OF EFFECTIVE AND FINANCIALLY SOUND MANAGEMENT SYSTEM AND CONTROL OF USE OF AGRICULTURAL FUNDS IN LINE WITH EU REQUIREMENTS AND INTERNATIONAL AUDITING STANDARDS

Programme name and number IPA 2007

019-247/3/11

Contracting period expires: Disbursement period expires: Ministry of Agriculture, Forestry and Water Management (MAFWM) - Directorate for Market and Structural Support in Agriculture (DMSSA) Total budget: € 6.500.000,00 IPA budget: € 6.125.000,00 Overall objective Objectively Verifiable Indicators Sources of Verification

To strengthen preparations of the Croatian public administration and institutions with a view to ensure the CAP implementation after accession.

All programming objectives are met Successful (Positive) assessment of

Implementation by National and EU authorities.

Mandatory control of payments in agriculture realized

EU reports NAC monitoring & assessment

reports (CODEF) Regular MAFWM reports Paying Agency regular reports

and audit statements to NAO/EC

Project purpose Objectively Verifiable Indicators Sources of Verification Assumptions

Establishment of an effective and sound financial management system and control of the use of agricultural funds in line with EU requirements and international auditing standards

Documents related to the whole system prepared and compatible with EU requirements

Potential beneficiaries are informed and prepared to participate in the programme

Entire IACS and IT system linked with all registers implemented

EU reports Guidelines for potential

beneficiaries are produced and distributed

Internal Control Questionnaires and audit programs prepared

Reports on pilot audits Control reports

Legislative, personnel and administrative frameworks for implementation are in place

Technical personnel involved in implementation fully assist and co-operate with consultants during their TA assignment.

The government maintains a strong commitment to EU accession

National legislation/regulations on Paying Agency published

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Results Objectively Verifiable Indicators Sources of Verification Assumptions 1. Integrated administration and control system (IACS) is fully established in the following elements:

1.1 System for submission of aid applications , administrative control, approval, accounting and payments, including IT solutions 1.2. Land Parcel Identification System (LPIS) 1.3. System for the identification and registration of payment entitlements 1.4. On the spot control system

2. System for the rural development support is fully established 3. System for reporting and the system for X-tables support are fully established 4. Risk assessment, ICQ and audit programs for a system and compliance audits are prepared and pilot audits on established systems, including IT audit and training of auditors, including on-the-job training, carried out in practice 5. Information campaign is fully prepared and carried out

1 General Internal Manual for the Paying Agency

minimum 4 sets of procedures and documentation (administrative and operational procedures) related to the expected results prepared

3 IT functional specifications prepared + 3 softwares developed

Minimum of 40 trainings organised Equipment for fully operational Paying

Agency at the central and regional level upgraded

1 set of working procedures prepared 1 IT functional specifications prepared Minimum of 10 trainings organised

1 set of working procedures prepared 1 IT functional specifications prepared Minimum of 20 trainings organised

2 risk-assessment documents produced 2 risk-assessment workshops carried out 6 ICQs and audit programmes prepared 4 pilot audits carried out Minimum of 6 trainings and 4 on-the-job

trainings organised 1 Publicity plan and 1 Promotional activity

plan with schedule prepared, with approximately:

5 brochure designs prepared

Analysis reports EU reports on IACS IPARD/Paying Agency regular

reports Audit statements Government information from

websites Training reports and number of

trainers’ certificate issued No. of publications and meetings

carried out No. of IT equipment installed Work-load analysis

Respective authorities and institutions have sufficient capacities and are willing to cooperate on the issues linked to implementation

MAFWM builds up adequate capacities and adequate human resources to coordinate and implement IPA projects

Projects’ outputs meet the needs of final beneficiaries

Highly motivated and trained staff remain in MAFWM

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6. All the processes and databases are fully integrated

28 000 brochures printed 3 TV commercials designed 25 TV advertisements carried out 1 Internet web page designed 2 Web page applications prepared 70 Radio advertisements carried out 4 Newspaper advert designs prepared and

40 newspaper advertisements published

Activities Means Specification of costs Assumptions Component 1 Establishment of Integrated administration and control system (IACS) Sub-component 1.1 Establishment of the system for submission of aid applications and administrative control including software support for register of the data from the aid applications and cross checks with the LPIS, Animal register and other cross checks

Activity 1.1.1 Preparation of the system for submission of aid applications, administrative control, approval and payments: process flow (procedures), functional specification for the software development, software development monitoring and evaluation, study tour and other necessary activities

Sub-component 1.2 Integration of the Land parcel identification system with other registers and IACS components

Activity 1.2.1 Preparation for integration LPIS with IACS program support and databases: system analyses, functional specification for upgrading of program support, process flow

Twinning

€ 2.000.000

Stakeholders correctly identified and fully involved

Adequate levels of staffing in key institutions

Staff available to attend training

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(procedures) for updating and maintaining of LPIS, study tour and other necessary activities

Sub-component 1.3 Establishment of the System for the identification and registration of payment entitlements

Activity 1.3.1 Preparation of the System for the identification and registration of payment entitlements: integration with other registers and other necessary activities

Sub-component 1.4 Establishment of the On-the-spot control, including cross-compliance control and remote sensing; software for the Risk analysis and field reporting

Activity 1.4.1 Preparation of the control system: process flow (procedures), functional specification for the IT program, training of Trainers and training of Inspectors (Central and Regional Offices), study tour and other necessary activities

Component 2 Adjustment of existing procedures and the software upgrading as regards EU rural development and structural measures including fishery

Activity 2.1 Adjustment of existing written procedures, preparation of functional specifications for IT system, training of staff

Component 3 Establishment of the system for reporting and X-table

Activity 3.1 Preparation for establishment and implementation of the reporting system: system analyses, specifications for program support upgrade, staff education and training

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Component 4 Risk assessment, ICQ and audit programs for a system and compliance audits are prepared and pilot audits on established systems, including IT audit and training of auditors, including on-the-job training, carried out in practice

Activity 4.1 Workshop on risk assessment on IT risks, preparation of risk assessment documents on IT risks, one study tour.

Component 6 Integration of all the processes necessary to make payments

Activity 6.1 Integration of all the processes necessary to execute payments is to be implemented through co-ordination, monitoring and evaluation of all processes and databases related to final payments in order to ensure their compatibility

Component 1 Establishment of Integrated administration and control system (IACS) Sub-component 1.1 Establishment of the system for submission of aid applications and administrative control including software support for register of the data from the aid applications and cross checks with the LPIS, Animal register and other cross checks, including two study tours

Activity 1.1.3 Software development, Training of Trainers and training of staff (Central and Regional Offices)

Technical assistance

€ 3.000.000

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Sub-component 1.2 Integration of the Land parcel identification system with other registers and IACS components

Activity 1.2.2 Program support upgrading, development of procedures for spatial data (ortho photo) updating, training of trainers and training of staff, including one study tour (Central and Regional Offices)

Sub-component 1.4 Establishment of the On-the-spot control, including cross-compliance control and remote sensing; software for the Risk analysis and field reporting

Activity 1.4.2 Software development for Risk analysis and field reporting

Component 2 Adjustment of existing procedures and the software upgrading as regards EU rural development and structural measures including fishery

Activity 2.2 Upgrading of software, training of stuff, including two study tours

Component 4 Risk assessment, ICQ and audit programs for a system and compliance audits are prepared and pilot audits on established systems, including IT audit and training of auditors, including on-the-job training, carried out in practice

Activity 4.2 Preparation of the audit programs and ICQ (according to relevant regulations) for system and compliance audits on established IT systems; carry out pilot IT audits in practice

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on established system (including training and on-the-job training of IAD auditors)

Component 5 CAP information campaign preparation and realization

Activity 5.1 Capacity building, 1 study tour, preparation and organization of information campaign about CAP implementation (brochure design and printing; Web page design and applications; TV commercial design and advertisement; Radio advertisement) and other necessary activities

Component 1 Establishment of Integrated administration and control system (IACS) Sub-component 1.1 Establishment of the system for submission of aid applications and administrative control including software support for register of the data from the aid applications and cross checks with the LPIS, Animal register and other cross checks

Activity 1.1.2 Purchasing of the IT equipment

Sub-component 1.4 Establishment of the On-the-spot control, including cross-compliance control and remote sensing; software for the Risk analysis and field reporting

Activity 1.4.3 Purchasing of the equipment for inspectors

Supply contract

€ 1.500.000 (co-financing € 375.000)

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ANNEX II: Amounts (in €) contracted and disbursed by quarter for the project A) Cumulative contracting schedule by quarters in € (provisional) Contracted 2007 2008 2009 2010

IV I II III IV I II III IV I II III IV

Twinning contract

2.000.000

Service contract

3.000.000

Supply contract 1.500.000

B) Cumulative disbursement schedule by quarters in EUR (provisional) Contracted 2007 2008 2009 2010

IV I II III IV I II III IV I II III IV

Twinning contract

800.000 1.300.000 1.800.000 2.000.000

Service contract

900.000 1.700.000 2.200.000 3.000.000

Supply contract 1.500.000

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ANNEX III: Reference to laws, regulations and strategic documents: A) Reference list of relevant EU laws and regulations:

1 Council Regulation (EC) No 1782/2003, of 29 September 2003 establishing common rules for direct support schemes under the common agricultural policy and establishing certain support schemes for farmers and amending Regulations (EEC) No 2019/93, (EC) No 1452/2001, (EC) No 1453/2001, (EC) No 1454/2001, (EC) 1868/94, (EC) No 1251/1999, (EC) No 1254/1999, (EC) No 1673/2000, (EEC) No 2358/71 and (EC) No 2529/2001 Commission Regulation (EC) No 796/2004,

2 Commission Regulation (EC) No 796/2004, of 21 April 2004 laying down detailed rules for the implementation of cross-compliance, modulation and the integrated administration and control system provided for in of Council Regulation (EC) No 1782/2003 establishing common rules for direct support schemes under the common agricultural policy and establishing certain support schemes for farmers

3 Commission Regulation (EC) No 795/2004, of 21 April 2004 laying down detailed rules for the implementation of the single payment scheme provided for in Council Regulation (EC) No 1782/2003 establishing common rules for direct support schemes under the common agricultural policy and establishing certain support schemes for farmers

4 Commission Regulation (EC) No 1973/2004, of 13 March 2007 amending Regulation (EC) No 1973/2004 laying down detailed rules for the application of Council Regulation (EC) No 1782/2003 as regards the support schemes provided for in Titles IV and IVa of that Regulation and the use of land set aside for the production of raw materials

5 Commission Regulation (EC) No 1975/2006, of 7 December 2006 laying down detailed rules for the implementation of Council Regulation (EC) No 1698/2005, as regards the implementation of control procedures as well as cross-compliance in respect of rural development support measures

6 Regulation (EC) No 1760/2000 of the European Parliament and the Council, of 17 July 2000 establishing a system for the identification and registration of bovine animals and regarding the labelling of beef and beef products and repealing Council Regulation (EC) No 820/97

7 Commission Regulation (EC) No 1082/2003, 23 June 2003 laying down detailed rules for the implementation of Regulation (EC) No 1760/2000 of the European Parliament and of the Council as regards the minimum level of controls to be carried out in the framework of the system for the identification and registration of bovine animals (Text with EEA relevance)

8 Council Regulation (EC) No 1290/2005, of 21 June 2005 on the financing of the common agricultural policy

9 Commission Regulation (EC) No 885/2006 of 21 June 2006 laying down detailed rules for the application of Council Regulation (EC) No 1290/2005 as regards the accreditation of paying agencies and other bodies and the clearance of the accounts of the EAGF and of the EAFRD

10 Council Regulation (EC) No 1085/2006 of 17 July 2006 establishing an Instrument for Pre-Accession Assistance (IPA)

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11 Council Regulation (EC) No 1083/2006 of 11 July 2006 laying down general provisions on the European Regional Development Fund, the European Social Fund and Cohesion Fund and repealing Regulation (EC) No 1260/1999

12 Council Regulation (EC) No 1698/2005 of 20 September 2005 on support for rural development by the European Agricultural Fund for Rural Development (EAFRD)

13 Commission Regulation (EC) No 1974/2006 of 15 December 2006 laying down detailed rules for the application of Council Regulation (EC) No 1698/2005 on support for rural development by the European Agricultural Fund for Rural Development (EAFRD)

14 Council Regulation (EC) No 1198/2006 of 27 July 2006 on the European Fisheries Fund

15 Council Regulation (EC) No 2371/2002 of 20 December 2002 on the conversation and sustainable exploitation of fisheries resources under the Common Fisheries Policy

B) Reference list of relevant Croatian laws and regulations: 1. Law on Agriculture (Official Gazette 66/01 and 83/02)

2. Law on state subsidies for agriculture, fishery and forestry (OG 87/02, 117/03 82/04, 12/05, 85/06 and 141/06)

3. Law on Agricultural Land (OG 66/01 and 87/02)

4. Law on Food (OG 117/03)

5. Law on fertilizers and soil improvers (OG 163/03)

6. Law on Livestock Production (OG 70/97, 36/98 and 151/03)

7. Law on organic production of agricultural and food products (OG 12/01 and 14/01)

8. Law on Plant Protection (OG 10/94 and 117/03)

9. Veterinary Law (OG 70/97, 105/01 and 172/03)

10. Law on veterinary drugs and veterinary-medical products (OG 79/98)

11. Law on Environmental Protection (OG 82/94,128/99, 163/03)

12. Law on spatial design (OG 30/94, 68/98, 35/99, 61/00, 32/02, 100/04)

13. Law on Nature Conservation (OG 162/03))

14. Law on Air (OG 48/95)

15. Law on Water (OG 107/95)

16. Law on areas of special state concern – consolidated text OG 26/03

17. Law on mountainous areas (OG 12/02, OG 32/02, and OG 117/03)

18. Law on islands (OG 34/99, 149/99, 32/02)

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ANNEX IV Details per EU funded contract (*) where applicable:

TWINNING

Component 1:

• establishment of Integrated administration and control system (IACS)

• integration of LPIS into other parts of IACS system (databases connection)

• establishment of System for identification and registration of payment entitlements – integration with other registers

• establishment of the on-the-spot control

Component 2:

• the full compliance of national support models regarding the rural development with the EU support models

Component 3:

• a complete software for reporting on basis of all databases in the agricultural support system

Component 4:

• workshop on risk assessment on IT risks conducted, prepared risk assessment documents for IT risks, study tour performed

Component 6:

• ensuring the compatibility of all processes and databases related to final payments

TECHNICAL ASSISTANCE

Component 1:

• development of software for system for submission of aid applications and administrative control

• upgrading of programme support for LPIS

• development of software for risk analysis and field reporting

Component 2:

• upgrading of software for compliance of national support models regarding the rural development with the EU support models

Component 4:

• establishment of internal control questionnaire (ICQ) and audit programs for the system

Component 5:

• preparation and organization of information campaign for CAP implementation

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SUPPLY CONTRACT

Component 1:

• purchasing of IT equipment to provide basic work conditions regarding the informatics data treatment, inside the office (PCs) and in the field (Notebook-laptops)

• purchasing of equipment for inspectors (GPS*, digital cameras*, laser distance meters and vehicles) - The equipment is used for checking the data from graphic maps showing the land parcels. Without the GPS devices, the appropriate on-the-spot control within LPIS/IACS systems would not be possible.

(*)non standard aspects: From the market research it is obvious that there are no technically compliant products from an eligible country of origin, so we propose to apply for the derogation from rules of origin for these goods.