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SINGLE PROGRAMMING DOCUMENT OF LITHUANIA

2004-2006

FOREWORD BY THE MINISTER OF FINANCE Upon joining the European Union in May 2004, Lithuania will qualify for EU financial assistance. Structural Fund and Cohesion Fund support will provide a strong impetus to the Lithuanian economy and will help capitalise on existing competitive strengths. EU assistance will also help identify and foster the development of key sectors with the best growth potential. As well as qualifying for EU financial support, upon accession, Lithuania will also enter into the single European market – which will open up new market opportunities for Lithuanian businesses.

The Single Programming Document sets out Lithuania’s national strategic socio-economic development plan for the 2004-06 period. It draws on previous national economic development and sectoral-based strategy documents including the Lithuanian National Long-term Development Strategy and the National Agreement for Economic and Social Cohesion. The SPD will become the key strategy document to help facilitate the implementation of the priorities identified in the above documents over the 2004-06 programming period. While drafting the Plan, efforts have been made to ensure that the economic development strategy is compatible with the principle of sustainable development, and that there is an appropriate balance between different investment priorities. While the 2004-06 programming period is short in developmental terms, it is envisaged that the programme will have a significant impact on the economy and on progress towards achieving social and economic cohesion within Lithuania.

The identification and prioritisation of Lithuania’s developmental needs has involved direct inputs from the Government of the Republic Lithuania and government ministries. It has also involved extensive consultation with wider society, which in the course of the drafting of Single Programming Document has been kept closely informed of progress and consulted on key issues. We believe that the close involvement of a diverse range of key stakeholders in the drafting of the Single Programming Document will underpin its successful implementation through a keen sense of collective ownership.

The preparation as well as the implementation of the Plan has highlighted the need for new knowledge, administrative capacities and skills of those who will be administering support as well as the need for awareness raising amongst potential project applicants. Every effort will be made to develop and strengthen such capacities.

We appreciate the efforts of all those who contributed to the drafting of the Single Programming Document. We believe that this initial experience of planning and implementing Structural Funds support will prove successful in Lithuania. We believe that the implementation of this plan will result in increased economic prosperity, the improved competitiveness of Lithuanian industry and progress towards achieving the goal of economic and social cohesion.

Dalia Grybauskaitė

Minister of Finance

of the Republic of Lithuania

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TABLE OF CONTENTS

FOREWORD BY THE MINISTER OF FINANCE.................................1

EXECUTIVE SUMMARY................................................................5

1. ANALYSIS OF CURRENT SOCIO-ECONOMIC SITUATION..............8

1.1. NATIONAL CONTEXT.............................................................................81.1.1. Lithuania – Overview.........................................................................................................81.1.2. Lithuania in a Wider Context.............................................................................................91.1.3 National Policies And Institutional Context......................................................................121.1.4. Lessons From The Past Experience................................................................................13

1.2 MACROECONOMIC TRENDS..................................................................211.2.1 Key Disparities between Lithuania and the EU................................................................211.2.2 Overview of Recent Economic Changes...........................................................................211.2.3 Macroeconomic Policy......................................................................................................30

1.3. SECTORAL TRENDS............................................................................381.3.1. Industry and Business.....................................................................................................381.3.2. Scientific Research and Experimental Development (R&D)............................................501.3.3. Tourism...........................................................................................................................561.3.4 Agriculture, rural development, forestry and fisheries....................................................601.3.5. Transport........................................................................................................................781.3.6 Energy..............................................................................................................................921.3.7 Environment..................................................................................................................1031.3.8 Health Care Infrastructure and Social Infrastructure.....................................................1171.3.9. Employment and Unemployment.................................................................................1271.3.10 Education and Vocational Training..............................................................................1351.3.11 Information Society......................................................................................................143

1.4 REGIONAL DIMENSION.......................................................................148

1.5 SWOT ANALYSIS AND KEY SECTOR ANALYSIS.....................................151

2. DEVELOPMENT STRATEGY..................................................159

2.1. VISION STATEMENT..........................................................................159

2.2. STRATEGY OF THE SINGLE PROGRAMMING DOCUMENT......................1612.2.1 Programme Goals and Objectives..................................................................................1612.2.2. Overall Strategy............................................................................................................1632.2.3. Essential dimension of the common strategy...............................................................177

3. PRIORITIES AND MEASURES................................................185

3.1. PRIORITY 1: DEVELOPMENT OF SOCIAL AND ECONOMIC INFRASTRUCTURE.............................................................................................................185

Measure 1.1. Improvement of Accessibility and Service Quality of Transport Infrastructure. 195Measure 1.2. Ensuring of Energy Supply Stability, Accessibility and increased efficiency......197Measure 1.3. Improvement of Environmental Quality and Prevention of Environmental Damage................................................................................................................................................199Measure 1.4. restructuring and Upgrading of Healthcare Institutions....................................202Measure 1.5. Development of Infrastructure of Labour Market, Education, Vocational Training, Research and Study Institutions and Social Services (Complementary to the measures supported by the ESF).............................................................................................................205

3.2. PRIORITY 2: HUMAN RESOURCE DEVELOPMENT.................................208

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Measure 2.1. Development of Employability..........................................................................218Measure 2.2 Development of Labour Force Competencies and the Ability to adapt to changes................................................................................................................................................221Measure 2.3. Prevention of Social Exclusion and Social Integration.......................................224Measure 2.4. Development of Conditions for Lifelong Learning..............................................227Measure 2. 5. Improvement of Human Resources Quality in Scientific Research and Innovations................................................................................................................................................229

3.3. PRIORITY 3: DEVELOPMENT OF PRODUCTIVE SECTOR.........................231Measure 3.1. Direct support to business.................................................................................238Measure 3.2. Improvement of Business Environment.............................................................240Measure 3.3 Development of Information Technologies Services and infrastructure.............243Measure 3.4. Public tourism Infrastructure and services........................................................245

3.4. PRIORITY 4: RURAL AND FISHERIES DEVELOPMENT............................247Measure 4.1. Investment in Agricultural Holdings..................................................................255Measure 4.2. Support for Young Farmers................................................................................258Measure 4.3. Improving Processing and Marketing of Agricultural Products..........................259Measure 4.4. promoting the Adaptation and Development of Rural Areas.............................261Measure 4.5. Forestry.............................................................................................................263Measure 4.6. Leader + type measure.....................................................................................265Measure 4.7. Training.............................................................................................................270Measure 4.8. Fishing fleet related actions..............................................................................271Measure 4.9. Protection and Development of Aquatic Resources, aquaculture, fishing port facilities, processing and marketing and inland fishing..........................................................272Measure 4.10. Other (fisheries related) actions......................................................................274

3.5. PRIORITY 5: TECHNICAL ASSISTANCE................................................275Measure 5.1. Support for Programme management, implementation MOnitoring and Control (ERDF).....................................................................................................................................276Measure 5.2. Publicity AND evaluation of the Programme (ESF)............................................277

4. FINANCING........................................................................279

4.1 FINANCIAL PLAN...............................................................................279

4.2 ADDITIONALITY STATEMENT..............................................................286

4.3. EX-ANTE EVALUATION OF THE MACROECONOMIC IMPACT OF THE PROGRAMME..........................................................................................289

4.4 QUANTIFICATION OF OBJECTIVES.......................................................291

5. PREPARATION OF THE SPD.................................................296

5.1. PARTNERSHIP..................................................................................296

5.1. EX-ANTE EVALUATION......................................................................299

5. 2. MID-TERM EVALUATION...................................................................299

5. 3. EX-POST EVALUATION....................................................................299

6. IMPLEMENTING PROVISIONS...............................................301

6.1. ADMINISTRATIVE STRUCTURE...........................................................3016.1.1. Managing Authority.......................................................................................................3016.1.2. Intermediate Bodies......................................................................................................3036.1.3. Implementing Agencies................................................................................................3046.1.4. Paying Authority...........................................................................................................3056.1.5. Coordination of ESF measures implementation............................................................306

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6.2 PROJECT SELECTION PROCEDURES.....................................................310

6.3. ORGANISATION OF FINANCIAL CONTROL AND AUDITING SYSTEM........310

6.4. MONITORING SYSTEM.......................................................................312

6.5. DATA COLLECTION AND ELECTRONIC TRANSMISSION.........................314

6.6. MOBILISATION AND CIRCULATION OF FUNDING.................................315

ANNEXES...............................................................................317

ANNEX I HUMAN RESOURCE DEVELOPMENT REFERENCE FRAME (COMPLIANCE OF HUMAN RESOURCE DEVELOPMENT PRIORITY WITH NATIONAL EMPLOYMENT STRATEGY).......................................................................318

ANNEX II: ENVIRONMENTAL IMPACT ASSESSMENT OF THE SINGLE PROGRAMMING DOCUMENT.....................................................................338

2 PRIORITY. HUMAN RESOURCES DEVELOPMENT......................................349

3 PRIORITY. DEVELOPMENT OF PRODUCTIVE SECTOR...............................352

ANNEX III: STRATEGY OF THE COHESION FUND IN LITHUANIA (TRANSPORT SECTOR)................................................................................................362

ANNEX IV: STRATEGY OF THE COHESION FUND IN LITHUANIA (ENVIROMENT SECTOR)................................................................................................365

ANNEX V: CO-OPERATION OF THE MINISTRY OF FINANCE WITH PARTNERS IN THE COURSE OF PREPARATION OF THE LITHUANIAN SINGLE PROGRAMMING DOCUMENT FOR 2004-2006.....................................................................367

ANNEX VI – DETAILED SWOT TABLES........................................................374

ANNEX VII. STATE AID SCHEMES IN THE LITHUANIAN OBJECTIVE 1 PROGRAMME..........................................................................................385

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EXECUTIVE SUMMARY

Lithuanian Objective 1 Programme

Lithuania, which has a population of approximately 3.5 million, has undergone rapid socio-economic and political transformation since re-gaining independence in 1991. Currently it is the fastest growing European economy, which serves as a major east-west transit point due to its well-positioned geographical location at the heart of Central Europe. However, in terms of GDP per capita, in 2002, Lithuanian GDP was only 38% of the EU15 average. Hence as such the whole Lithuania upon the accession to the European Union will fall within Objective 1 of the EU regional policy and therefore will be able to benefit from financial assistance provided by all EU structural funds.

The present Single Programming Document (SPD) of Lithuania for the period 2004 - 2006 sets out the economic context for the Programme and the existing conditions in Lithuania. Based on this information it produces an analysis of the strengths, weaknesses, opportunities and threats in the country and the strategy for tackling and overcoming the problems identified. The strategy is informed by lessons from previous EU pre-accession assistance to Lithuania as well as from implementation of programmes assisted by EU structural funds in the present EU member states. The development plan seeks to encourage the rapid development of a few key strategically positioned economic growth centres and key sectors that over the medium and long term have the potential to act as a catalyst for sustainable economic development across Lithuania as a whole due to their favourable location and competitive advantages.

Programme Vision and Objectives

The Programme is based on the vision, which was devised in broad partnership will all types of partners and follows the established political consensus in the country. The vision states that:

“By 2015, Lithuania will have achieved parity with the more prosperous EU Member States in terms of key social and economic indicators. Its people will enjoy a high quality of life based on a modern, knowledge-driven economy that exploits the country’s many unique strengths.”

The Single Programming Document 2004-2006 will involve large-scale joint investment between Lithuania and the European Union (EU). It will play a critical role in helping to create the necessary framework conditions for growth that will enable Lithuania to realise its potential, and will contribute to the realisation of the long-term vision set out above. It is estimated that due to the SPD investments real GDP growth in Lithuania can increase by approximately 1.5 percentage points over the baseline scenario. Moreover, macroeconomic forecast estimates that due to the SPD number of employed workers in the economy could increase up to 28 000.

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Four complementary operational priorities (the fifth priority concerns Technical Assistance, which shall facilitate effective implementation of the SPD) have been agreed to achieve such objectives, each of which has its own set of measures, which govern the types of actions which will be supported.

Priorities

The Priorities have been developed taking full account of EU, national, regional and local policies and initiatives.

Priority 1: Development of social and economic infrastructure

One of the key priorities in the development plan is to invest in physical infrastructure to facilitate social and economic development, and also to take advantage of the aforementioned favourable geographical location of the country. Appropriately developed infrastructure should provide the preconditions for the development of the national economy and help Lithuania capitalise on growth opportunities that are so far largely untapped. In order to implement the SPD’s overriding objective of creating a modern, dynamic and knowledge driven economy, economic and social infrastructure development priority has the goal of sustainable and economically efficient development of infrastructure of energy, transport, health care and the network of education institutions, based on principles of rational energy use and environment protection. E.g., it is estimated that some 650 km of roads will be (re)constructed under this Priority, while total volume of goods transported by all means of transport would increase by 17% by 2008.

Priority 2: Human resource development

The aim of this Priority is to ensure that the labour force more closely meets labour market requirements and that a culture of lifelong learning is fostered. In many respects this priority is horizontal, with close links to other priorities of this development plan and many of their measures. The goal of the priority is to reduce structural youth unemployment and prevent unemployment through the co-ordination of knowledge and skills of employees with evolving labour market needs, sustainable growth of human resource competence with economic development goals. Over the longer term human resource development in its broad sense and more specifically – the level of qualifications in the labour force – will be a critical determinant of the stable development of the Lithuanian economy. Consequently, the Priority will finance training of some 20 000 beneficiaries, while share of those taking part in continuous education and training among population within 25 to 64 age group would increase by almost 7 per cent.

Priority 3: Development of productive sector

Whereas the first two priorities and their implementation form the pre-requisites for attaining the global objective of the SPD, this priority covers active measures intended to support the restructuring of the country’s economy and the strengthening of its competitiveness. Attempts to find ways to promote such changes have led to the conclusion that both direct and indirect support to business will be important. Generally, it is expected that implementation of this Priority will allow taking better advantage of (and will promote) strengths identified such as increasing business internationalisation (as well as FDI), co-operation, the formation of clusters and the development of new technologies. To summarise, it is estimated that some 10 000 additional jobs will be created under this Priority.

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Priority 4: Rural and fisheries development

Although the share of GDP accounted for by the agricultural and fisheries sector is relatively small, agriculture nevertheless accounts for a large proportion of employment amongst those residing in rural areas. The overriding goal of this priority is creation of a modern agriculture, forestry and fisheries sector with investment in alternative activities to traditional farming and in economic diversification to help mitigate the negative social and economic consequences in rural and coastal areas caused by modernisation. As a result it is estimated that income level in agricultural sector will increase by 4.5% due to investments under this Priority. Moreover, in the case of fisheries, the primary focus is on the adjustment of fishing capacity bringing all the links in the fish-handling chain (vessels, ports, industries) into conformity with food safety, occupational safety and environmental protection requirements.

Priority 5: Technical assistance

Technical Assistance will be available to support the effective management and administration of the programme. It includes both support to programme management, implementation, monitoring and control and financing of publicity measures and evaluation of the programme.

Financial Allocations

The Financial Allocations (in million euro, rounded) in the SPD by Fund and by Priority are:

Total Public Funding

Private

Funding1

Total Community Support National

public

funding

Total ERDF ESF EAGGF FIFG

Priority 1 459.1 459.1 347.1 347.1 0 0 0 112.0

Priority 2 217.0 217.0 163.8 0 163.8 0 0 53.2

Priority 3 300.6 300.6 222.4 222.4 0 0 0 78.2

Priority 4 198.8 192.0 135.0 0 0 122.9 12.1 57.0 6.8

Priority 5 35.8 35.8 26.9 14.5 12.4 0 0 8.9

TOTAL 1211.4 1204.6 895.2 583.9 176.2 122.9 12.1 309.4 6.8

1 Private sector participation is shown only in case of FIFG .

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1. ANALYSIS OF CURRENT SOCIO-ECONOMIC SITUATION

1.1. NATIONAL CONTEXT

1.1.1. LITHUANIA – OVERVIEW

Lithuania, which has a population of approximately 3.5 million, has undergone rapid socio-economic and political transformation since independence from the Soviet Union in 1991. The economy has undergone significant structural changes with major shifts in patterns of foreign trade – whereas previously trade was mainly oriented towards Russia and Commonwealth of Independent States countries, the EU now accounts for the majority of foreign trade.

Lithuania is a major east-west transit point and is geographically well positioned at the heart of Central Europe. It is the largest of the three Baltic countries with a population equivalent to Latvia and Estonia combined. Lithuania is bordered by Poland, Belarus, Kaliningrad (Russia) and Latvia.

Politically, integration into the EU and NATO, both scheduled for 2004, will enable Lithuania to play a greater role on the European and international stage. Economically, participation in the Single European Market should result in increased levels of trade and prosperity. Lithuania has developed close economic and political relationships with its neighbouring countries in the Baltics and in Scandinavia as well as with Poland and Germany (its largest EU foreign trading partner). Lithuania has also developed close political and trading relationships with other EU member states such as the UK, France, Italy and Spain. Economic and political links with Russia (first and foremost the Kaliningrad region), Belarus and Ukraine are also strong and have provided increased stability across the region.

In terms of GDP per capita, in 2002, Lithuanian GDP was only 38% of the EU15 average. However, GDP has grown rapidly over the past five years – growth of 5.9% was achieved in 2002. According to the World Economic Forum‘s annual global competitiveness report, Lithuania ranked 36th in the Growth Competitiveness Index rankings in 2002, ahead of many other Central and Eastern European EU candidate countries.

The biggest city in Lithuania is Vilnius – the capital (located in the Eastern part of the country), followed by Kaunas (central Lithuania) and Klaipėda (seaport in the west). Administratively, Lithuania consists of 10 counties (Alytus, Kaunas, Klaipėda, Marijampolė, Panevėžys, Šiauliai, Tauragė, Telšiai, Utena, Vilnius) which are further divided into 60 municipalities. Vilnius county is the biggest both in terms of population and territory (850 700 inhabitants, 9730 km2). In terms of population it is followed by the counties of Kaunas and Šiauliai, which are the second and third largest counties, though in reverse order. Four historical regions are also often referred to: Aukštaitija (northern part of the country), Dzūkija (southern part), Suvalkija (central part), Žemaitija (western part), where certain cultural and linguistic peculiarities can still be identified. Substantial economic, social and cultural role is played by individual cities and towns.

The most advanced county in economic terms is Vilnius county - its 2001 GDP/ cap was 41,3% above the national average (19,500 and 13,800 Litas respectively). Klaipėda county, where GDP/cap in 2001 was 9,5% higher than the national average, was the second highest. The highest unemployment rates in 2001 were in the counties of Marijampolė, Šiauliai, Panevėžys, Tauragė – all above 16% (national average – 12,5%). The best situation in this respect was in Kaunas, Vilnius, Klaipėda and Utena counties – where unemployment was below the national average. Vilnius also led in terms of overall investment, Foreign Direct Investment (FDI) and personal income. In 2002 cumulative FDI

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in Vilnius county reached almost 7 bn Litas. The second and third highest levels of FDI were Kaunas and Klaipėda counties with 1,31 and 1,30 bn Litas respectively2.

1.1.2. LITHUANIA IN A WIDER CONTEXT

Lithuania and the Wider Baltic Context

It is important that the wider Baltic context is taken into account in the SPD – the Baltics and other neighbouring countries such as Poland are strategically important partners – both economically and politically.

The structure of economic activity in Lithuania in many respects is similar to that of its neighbouring countries, yet also demonstrates some peculiar characteristics. As in many other EU-15 member and candidate countries, the services sector dominates in terms of overall gross value added. The most important service sectors include telecommunications, financial services and banking, wholesale and retail trade and transport services. Compared with the other two Baltic States, the industrial sector accounts for a relatively higher share of gross value added. In terms of industrial production the largest sectors are oil refining, food production, textiles, clothing, leather, wood and wood articles. A noticeable difference with EU countries is that low-value added sectors and labour intensive technologies are still of major importance – there must be a shirt to higher value added activities if current national development strategies are to be successfully implemented. Lithuania also has excess electricity generation capacity and is an important exporter of electricity across the Baltic region. This situation will change considerably in the years to come as the Ignalina nuclear power plant is to be decommissioned between 2005-2009.

Agriculture in Lithuania accounts for a relatively large share of the economy in terms of both GDP and employment. As in many of the candidate countries, this sector is still plagued by low productivity and inefficiency. Low income levels in the agricultural sector and social exclusion problems stemming from high unemployment characterise many rural areas. In terms of the economic and social importance of agriculture, Lithuania compares well with Poland. For both countries agriculture was an issue of major importance in the EU accession negotiations and it is widely expected that the results achieved will help to modernise the agricultural sector and improve its competitiveness.

The transport sector, telecommunications and the energy sector are relatively well developed in Lithuania as well as in neighbouring EU candidate countries. At the same time regional differences along the lines of centre-periphery are pronounced. While the quality of infrastructure in areas around major urban conglomerations approaches EU standards, in other areas, especially in the countryside, infrastructure barely meets minimum quality requirements.

As far as economic co-operation is concerned, the data provided below confirms that Lithuania’s immediate neighbours and other countries in the broader Baltic Sea region account for a major share of Lithuania’s external trade relations. Trade with the EU countries constitutes some 50 percent of total foreign trade volume – this is set to grow even further once Lithuania joins the common market. Relations between the three Baltic countries encompass an ever-increasing range of areas – not least due to the effective functioning of free trade agreements. The most recent statistical data reveals that Latvia continues to be among the largest export markets for Lithuanian producers.Table 1. Main trade partners of Lithuania (January-September 2002).

Exports Imports

2 1 litas = 3.4528 euros.

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Country % of exports Country % of imports

1. United Kingdom 14.2 1. Russia 21.5

2. Russia 12.3 2. Germany 17.3

3. Germany 10.4 3. Italy 4.9

4. Latvia 9.4 4. Poland 4.8

5. Denmark 4.8 5. France 3.9

6. Sweden 4.2 6. United Kingdom 3.4

7. France 4.1 7. Sweden 3.3

8. Estonia 3.8 8. Denmark 3.0

9. Poland 3.6 9. USA 2.9

10. USA 3.6 10. China 2.3

The development of physical infrastructure in the transport sector would enable much closer co-operation between neighbouring countries in the Baltics. It has therefore been assigned an important priority. In the field of transport infrastructure, Lithuania focuses on common development projects such as “Via Baltica” or “Rail Baltica”, which should ensure an adequate North-South connection and transit capacity both by road and rail. In the energy sector, there is also a trend towards a common development strategy. The dispatcher centre “Baltic” in Riga, which is in charge of sustaining the parallel functioning of the electricity systems of Lithuania, Latvia and Estonia, recently elaborated plans to establish a common energy market for three Baltic states. Lithuania’s participation in two INTERREG IIIA (cross-border co-operation) programmes - Lithuania, Latvia and Belarus and Lithuania, Poland and Kalinigrad – should help to accelerate this process of cross-border collaboration and the development of common strategies across key sectors.

Another important aspect of the regional context is the tourism sector. Frequently treated as a fast growing and important sector of the economy, foreign tourism in Lithuania (as data below indicates) to a large extent relies on tourism from neighbouring countries. Moreover, the presented data suggests that their relative importance is growing.Table 2. Number of visiting foreign tourists, by country and total (in thousands)

Country 1996 1997 1998 1999 2000 2001

Latvia 832.3 943.3 1089.2 1199.0 1383.9 1341.1

Estonia 296.0 300.1 299.7 318.7 242.7 231.9

Poland 336.5 263.7 230.9 178.7 215.5 275.5

Germany 90.3 79.1 74.6 77.7 97.4 117.8

Sub-total of 4 countries:

1555.1 1586.2 1694.4 1774.1 1939.5 1966.3

Total no. of foreign tourists:

3498.8 3701.6 4287.5 4453.8 4092.1 4195.2

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Share of 4 countries in total:

44.4 42.9 39.5 39.8 47.4 46.9

Lithuania has also developed close bilateral relations with North European countries – Denmark, Finland, Sweden, Norway and Iceland – in the fields of politics, economy, defence, culture, education, environmental protection, social security amongst others. Scandindavian investors account for a significant proportion of foreign direct investment (FDI) in Lithuania (accounting for 41.7% of FDI in Lithuania in September 2000) as well as being the most active supporters of Lithuania’s membership in the EU and NATO.

Lithuania in a Broader Context

In 2002 Lithuania achieved two of its major foreign policy objectives: EU and NATO membership. At the Copenhagen summit (December 2002) Lithuania was invited, together with 9 other countries from Central, Eastern and Southern Europe, to join the EU while at the Prague summit (November 2002), Lithuania was invited to join NATO. NATO and EU accession are both expected to take place in 2004.

Forthcoming EU and NATO membership are of great political, economic and symbolic importance for Lithuania as well as Latvia, Estonia and other candidate countries, signifying a final step towards rejoining Europe after a period of Soviet occupation and democratic transition, which followed the regaining of independence. EU membership and membership of the single European market will also open up a multitude of economic opportunities. It also implies a recognition on the EU side that Lithuania, is not only a stable democracy as noted in the 1997 Opinion of the European Commission, but also a functioning market economy which, provided the current pace of reform is sustained, will be able to cope with competitive pressure and market forces within the Union (European Commission, 2002 Regular Report on Lithuania's Progress towards Accession).

EU membership will bring a change in trade regime with Russia, Belarus, Ukraine and other countries, none of which are EU candidates. Lithuania will become part to the trade agreements between the EU and third parties while a number of current trade agreements will be renounced. However, recent studies suggest that this change in trade relations with third countries due to EU accession should not cause any major detrimental effects to Lithuania’s external trade relations.

At the same time, longstanding relationships between Lithuanian companies and businesses in Russia, Belarus and Ukraine are flourishing - Lithuania considers itself to be an important trade bridge between the West and East and economic co-operation with none EU countries will continue to play an important part in the Lithuanian economy. An example is the active involvement of Lithuanian investors in the Kaliningrad region. The changing trade regime does bring with it the risk of ‘trade diversion’, but this should be avoided through the pursuit of a pro-active external trade policy.

EU integration is not the only factor impacting the economic development climate in Lithuania. Ongoing global economic and social changes are also bound to have a major impact. Globalisation is often used to point to the multi-faceted nature of those changes, which include the transition in many countries towards a knowledge-driven economy, the emergence of new centres of global economic power, the rethinking of social norms and structures. These trends offer both challenges and opportunities which must be faced carefully and where possible, exploited strategically.

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1.1.3 NATIONAL POLICIES AND INSTITUTIONAL CONTEXT

This section provides an overview of Lithuania‘s national policy framework and details current institutional arrangements for the implementation of national policies. It also provides a review of the wider regulatory environment.

In a number of areas the European Commission in its 2002 Regular Report on Lithuania’s Progress Towards Accession concluded that while many of the necessary administrative structures were already in place for the implementation of Structural Funds, these were not yet operating satisfactorily. It is important that these issues are addressed prior to the implementation of the 2004-06 Structural Funds programme.

In economic terms EU membership means the removal of barriers to the free movement of goods, services, labour and capital between the EU and EU accession countries in 2004. This offers further opportunities to exploit existing trade and investment potential, and to take advantage of other forms of economic co-operation. The adoption of the EU acquis – a pre-condition of EU membership – has brought about important changes in the regulatory environment. The main product standards and production requirements have been aligned with EU norms. There are a number of implicit benefits from the process of regulatory change, as EU-wide standards and the implementation of the principle of mutual recognition make economic activity within Europe more transparent.

At the same time, the short and medium term costs of adopting, implementing and enforcing new legislation have also been (and will continue to be) incurred by companies and by the Lithuanian government. During the accession negotiations a small number of temporary transition periods were agreed with regard to issues where the negotiating parties accepted that the cost of the immediate application of EU legislation would be disproportionate to the benefits.

In addition to regulatory requirements imposed by the adoption of the acquis, there is widespread recognition amongst government that attempts should be made to try and reduce the administrative burden on the economy - essential for rapid economic and social development to occur. There is a long-term commitment on behalf of the government to decrease taxes on both capital and labour, which most frequently takes the form of incremental decreases in taxation rates. Arguably, overall aggregate level of various taxes on capital is still lower in many other European countries. In 2002 the corporate profit tax rate was reduced from 24% to 15%. Moreover, there is an ongoing effort to improve the skills levels of tax inspectors and to make greater use of information technology in order to improve the efficiency of the taxation system, simultaneously reducing the high level of tax inspections on SMEs and eliminating other potentially harmful tax measures.

According to some international observers (e.g. the European Commission and the International Monetary Fund), the setting up and registration of businesses in Lithuania still takes too long, and complex administrative procedures still constitute obstacles to SME creation and development. The simplification of administrative procedures in this area is ongoing, and the time needed to register a company is in the process of being reduced (the target is a maximum of 10 days). An example of steps to simplify the administrative/ regulatory environment is the establishment of a single Register of Legal Entities, which by 2004 will substitute numerous other registers, currently used to registration various types of businesses. Moreover, Government is pursuing a programme of improvements in the regulatory environment in the construction sector and in land acquisition - streamlining procedures and improving the methodology for calculating land valuations, facilitating the preparation of territorial planning documents and the definition of requirements for property development and defining more clearly procedures for compensation.

According to the Commission’s latest assessment, the implementation of the bankruptcy and restructuring laws seems to have been effective, thereby laying a sufficient regulatory framework for the ongoing restructuring of the Lithuanian economy. In the

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area of access to capital, the strengthening of the banking sector and the related improved access to long-term credit (+20% of the corporate loan portfolio in 2001) have had a positive impact on investment levels. Nevertheless, smaller businesses still complain about difficulties in accessing capital from the banking sector. To some extent, access to finance for SMEs has improved through the setting up of dedicated credit lines in commercial banks and the setting up of a new public institution to provide guarantees on SME loans – INVEGA.

Lithuania has achieved a relatively good level of alignment with the acquis in the area of mutual recognition of professional qualifications, which should allow Lithuania to benefit fully from the free movement of labour. EU nationals and members of their families wishing to be employed in Lithuania no longer need to obtain a work permit. Equally, the recommendation by the Commission in their assessment that Lithuania needs to introduce measures to ensure that professionals can meet the requirements laid down by the EU accession directives are being actively pursued.

1.1.4. LESSONS FROM THE PAST EXPERIENCE

The overview focuses on lessons to be learned under the four Priority headings set out in the Lithuanian Objective 1 SPD:

Priority 1: Development of Social and Economic Infrastructure

(Transport, Energy, Environmental Protection, Health Care, Education, Research and Development)

Expenditure on infrastructure development typically accounts for one-third of Structural Fund expenditure in Objective 1 regions. During the 1994-99 programmes, the priority switched from the renewal of basic infrastructure in many regions – roads, rail links, public utilities, etc. – to measures with a more specific business orientation, such as the provision of new incubation space or tourism infrastructure development.

In the Lithuanian context, given the need for large-scale infrastructure investment to create the right framework conditions for economic growth, there is likely to be a strong focus on more traditional types of interventions during the 2004-06 programming period. However, lessons from good practice elsewhere in terms of more innovative types of infrastructure development – for example – increasing the provision of incubation space / research and development sites and innovation facilities - are also of potential relevance.

An important consideration is the need to ensure that infrastructure measures are coherent with wider developmental needs and that synergies between infrastructure Measures and other types of interventions such as measures to improve the provision of publicly funded business support services are fully exploited.

In the environmental protection field, for example, there are good examples of Measures to clean up former industrial areas in the regions which have been part of a broader attempt to regenerate deprived areas. There are also good examples of how new business space has been created on the site of former disused or polluted industrial sites – with SMEs located on-site involved in innovative activities such as research and development and the commercial application of renewable energy sources.

There are good examples of synergies being exploited between infrastructure and ESF training measures. New technology and innovation centres supported by the structural funds were constructed in order to boost the level of research and development being undertaken at regional level. ESF training schemes were consequently tailored so that they were focused on providing training tailored to the needs of the research community. The training schemes were developed based on a thorough needs analysis of regional R&D skills requirements.

Priority 2: Development of Human Resources

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(Employment, active labour market policies, social integration, education and vocational training)

Ensuring that the targeting of ESF interventions is appropriate and in line with labour market demands is essential prior to the implementation of human resource development Measures. In other EU countries, the targeting of interventions has had to be rethought where domestic programmes in the employment field overlapped with planned ESF interventions resulting in a significant absorption gap i.e. difficulties with regard to the utilisation of available training funds.

Another key lesson is that careful consideration needs to be given to the potential integration of ESF and ERDF funds and the scope for synergies between interventions (i.e. internal coherence). Previous evaluation experience suggests that insufficient attention has been paid both at planning and implementation levels in terms of how synergies between the two funds can be successfully exploited.

In Lithuania, given continuing problems relating to high unemployment, ESF training interventions will essentially be targeted in two areas a) assisting the unemployed in general and the long-term unemployed in particular back into employment and b) improving the skills base of those already in employment – reform has already taken place in the vocational training sector to ensure that vocational training qualifications meet labour market requirements – but further work will need to be done. In terms of innovative training measures targeted at those already in employment, there are a number of good practice examples that can be drawn on – e.g., various schemes targeted at SME managers to improve managerial, legal and marketing know-how – and SME competitiveness more widely.

Priority 3: Development of Productive Sector

(Support for Industry and Business, Tourism, Information Society)

In both the 1989-93 and 1994-99 programming periods, an increasing proportion of Structural Fund resources were channelled into support for the development of the ‘productive environment’ with proportionally less resource devoted to supporting infrastructure measures. This was equally true of Objective 1 and Objective 2 regions. Measures to support the productive environment include a) support for SMEs, b) development of business related services such as the provision of consultancy support and information services c) initiatives to promote innovation and the transfer and diffusion of technologies and d) investment to help small firms to modernise. This trend towards the productive environment reflects the growing importance of ‘softer’ types of measures in promoting economic growth and wealth creation.

In the business support field, there are essentially four main aims of interventions:

Providing support to accelerate the formation of start-ups and to improve business survival rates; Helping existing SMEs become more competitive and allowing them to take advantage of growth opportunities in new and/or expanding markets; Helping SMEs become more responsive to changes in market conditions and competition from indigenous and foreign firms. Schemes to help SMEs internationalise and develop new export opportunities have proved relatively successful. Encouraging Lithuanian SMEs to seek new markets should be seen as critical given the relatively small size of the domestic market and the opportunities and threats opened up by the Single European Market.In the SME promotion field, Structural Funds supported risk financing instruments (also known as financial engineering measures) have proved particularly successful as a regional development tool – the funds can be re-used and often have a significant leverage effect. They also improve SME access to finance (a stated Community

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goal) thereby encouraging investment and entrepreneurship. The 2000-2006 Structural Fund Regulations allow member states the option of providing an additional 10% of assistance to SMEs for those parts of an investment project funded in other ways than by direct government aid. The Regulations place increased emphasis on the use of Risk Capital Financing instruments such as equity-based venture capital and innovative loan schemes as a more cost-effective and sustainable public policy instrument than traditional grant-based aid.

With regard to measures to promote the information society, there are also good examples of a holistic, integrated approach. Measures are aimed at promoting the business benefits of ICT (improved productivity levels, scope for new market opportunities through the use of e-commerce, improved competitiveness), seeking to raise awareness about the potential societal benefits of the application of ICT (improved access to information, easier access to government services, time saving, educational opportunities, reducing the isolation of peripheral areas).

Priority 4: Rural Development

(Agriculture, Rural Development, Forestry and Fisheries)

The Lithuanian agricultural sector is currently undergoing a rapid period of structural change. Structural adjustment is needed to reform and modernise the agricultural, forestry and fisheries sectors in order to improve their competitiveness and long-term sustainability both domestically and internationally. Some of the problems currently facing Lithuanian rural areas are similar to the sorts of issues faced by less favoured rural areas in Objective 5b regions over the 1994-99 programming period. These issues typically include: over-dependency on agriculture for employment and regional GDP and the consequent need for economic diversification, the need for structural changes to and modernisation of agricultural holdings and the need for productivity improvements to improve competitiveness.

In order to support the process of change, there is a need for training to ensure that the workforce is able to adapt to new challenges. Vocational training is important at two levels (1) providing job seekers with new employment opportunities outside the agricultural sector and (2) upgrading the skills base of those working in agriculture so that technological and productivity advances can be fully exploited.

There are a number of lessons that can be drawn from the interim evaluations of the 1994-99 Objective 5a and 5b programmes of relevance to the Lithuanian context. The aim of Objective 5a, a horizontal objective, was to speed up adjustments of agricultural structures as part of the reform of the Common Agricultural Policy (CAP). Two types of measures received the most support: measures to support agricultural holdings, and measures to improve conditions for processing and marketing agricultural products. The objectives of the former were to support structural change, modernisation and readjustment whilst the aims of the latter were to improve the competitiveness and long-term sustainability of agricultural products.

The evaluation found that the employment impacts of schemes to promote processing and marketing were often under-estimated - the direct employment effects were limited because most projects involved efforts to support modernisation and rationalisation. However, there were important indirect impacts resulting from efficiency / productivity improvements on the one hand and improved competitiveness on the other. In terms of less positive experience, in many instances, Objective 5a Measures often focused on too many sectors, resulting in a lack of strategic coherency and fragmentation of impacts.

Objective 5b, an initiative to support development activities in less favoured rural areas found that whilst at a planning level, SPDs adopted a multifund approach combining funding sources from EAGGF Guidance, ERDF and the ESF, at the implementation level, there was often a lack of integration between different types of interventions – with opportunities to capitalise on synergies and linkages between different types of rural development measures being wasted.

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In terms of Measures to support economic diversification, the evaluation found that tourism promotion was an increasingly important competitiveness driver in many rural areas. Although there were some examples of integrated measures demonstrating a more holistic approach to tourism sector development, the emphasis was usually too narrow – with a focus on increasing the number of accommodation places. Other types of initiatives to support tourism development included improvements to parkland, village renewal and the restoration of heritage sites – as well as marketing activities. Tourism is supported under Priority 3 of the Lithuanian SPD – but clearly also has implications for rural development.

Lessons from pre-accession programmes

As a candidate country, Lithuania received EU assistance from the Pre-Accession Programmes ISPA, PHARE and SAPARD. ISPA and SAPARD, introduced in 2000, are relatively new instruments, while the PHARE programme has been in operation in Lithuania since 1991, although the programme was reformed in 2000. The pre-accession instruments, albeit relatively limited in financial size, have played an important role in preparations for EU Structural Funds assistance. They have enabled innovative approaches to be piloted and have helped those implementing assistance programmes to gain knowledge of EU financial instruments and procedures, project selection and appraisal criteria, prioritisation depending on strategic needs, evaluation and monitoring aspects etc.

The following table sets out levels of financial assistance under each of the three pre-accession programmes for the period 2001-2003.

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Table 3. Annual allocations from the EU budget under pre-accession financial assistance programmes in 2001-2003, EUR million.

Allocations

SAPARD 2000 2001 2002 2003

Annual agreement for 2000 30,34




Total 30,34 30,96 31,26 32,02

PHARE

Programme for 2000 52,07




Total 52,07 52,20 60,5 60,5

ISPA

Budget liabilities undertaken by the EU 49,88 55,46 55,37 56,29

Pre-accession financial support, total 132,29 138,62 147,13 148,81

ISPA programme (Instrument for Structural Pre Accession Aid)

The objective of the ISPA (Instrument for Structural Policies for Pre-Accession) programme is to provide assistance in implementing the aims of the Accession Partnership and National Programme for the Adoption of the Acquis in the sectors of environmental protection and transport. In the environment sector the main objective has been to bring applicant countries in line with EU environmental regulations, while in the transport sector the objective has been to modernise trans-European transport networks. Following Lithuania‘s accession to the EU, the ISPA programme will be replaced by the Cohesion Fund.

The annual allocation to Lithuania constitutes between 4 and 6% of the total ISPA budget (i.e., 41.6 – 62.4 MEURO). ISPA has been administered on a project-by-project basis. Under the 2000-2002 ISPA programme, the European Commission approved a total of 27 (8 – transport, 14 - environmental and 5 technical assistance) projects. The total project value of approved projects amounts to 486.36 million Euro (ISPA assistance – 252.35 million Euro or 52%). The ISPA rules provide for retention of balance between the sectors. Under the 2000-2002 ISPA programme, the environment projects were allocated 41% of funds available whilst transport was allocated 56% - the remaining 3% was spent on technical assistance.

Project selection has been consistent with the national environment and transport strategies, which were agreed by Lithuania and the European Commission at the

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beginning of the programme. On the other hand, ISPA itself and projects supported under ISPA have not been subject to a mid-term or ex-post evaluation, which makes it difficult to conclude on their economic and social impacts, efficiency and effectiveness, relevance or utility.

Nevertheless, during this investment period several institutional reforms have taken place. In the waste sector the regional waste water and waste management systems approach was applied. Lithuania decided to establish 10 regional waste management systems. Regional waste management systems are comprised of the following elements: the construction of regional landfill, the closure and recultivation of old landfills in the region, the establishment of waste handling, the development of appropriate transportation systems, and construction of composting and bulky waste sites. Regional Waste Management Centres have already been or will be established by the municipalities of each region for the implementation of regional waste management systems. Since 2004 the regional waste water management system according to the ‘river basins’ approach will be applied. In October 2003, only one project (technical assistance projects excluded) had been finalised, with all others still in progress. The implementation of transport projects has progressed faster than environmental projects due to a combination of a) the larger number of stakeholders involved in environmental projects requiring an extensive consultation process prior to projects being approved and b) legislative and regulatory requirements in the environmental sector. Environment and transport projects have significantly different project lead times and this will clearly need to be taken into account in the project planning process.

The implementation of ISPA assistance has played an important role in the creation and strengthening of administrative capacities, which will be used for administering SF assistance. The national ISPA co-ordinator is the Ministry of Finance (the future Managing Authority of SFs). The National Authorising Officer authorised by the government is the Undersecretary of the Ministry of Finance who heads the National Fund responsible for financial management of EU funds (to serve as Paying Authority for the structural funds in the future). The Ministries of Transport and Environment have established and developed implementing agencies (IA): the Transport Investment Directorate (for transport projects) and ISPA Implementing Agency (for environmental projects). The significant amount of experience gained from implementing the ISPA programme should enable Implementing institutions to make the necessary transition from DIS towards EDIS (decentralised implementation system ) from 2004.

PHARE Programme

PHARE is mostly oriented towards ‘institution building’ measures, which should ensure the successful transposition of, and ability to apply, the EU acquis, rather than being directly targeted at preparation for structural funds.. However, from 2000 onwards there has also been an Economic and Social Cohesion (ESC) component in the programme, which supports investment in economic and social development and the piloting of projects. The ESC dimension of PHARE has aimed to assist Lithuania in preparations for the successful administration and implementation of future ERDF and ESF assistance.

The PHARE programme is administered on project-by-project basis, with annual allocations fixed in Financing Memoranda. In 2000 the National PHARE allocation to Lithuania amounted to 52.07 million Euro, 14 million Euro of which were earmarked to the Economic and Social Cohesion component There were similar allocations in 2001 while in 2002 and 2003 they have amounted approximately to 60 million Euro, including the PHARE Cross Border Co-operation (CBC) programme, which served as a prototype of INTERREG, thereby paving the way for the generation of cross-border projects and increasing the capacity of local and regional partners to implement them.

In general Lithuania has been successful in absorbing PHARE assistance: recently it achieved one of the best rates of contracting committed assistance amongst candidate countries.

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The impact of the PHARE programme difficult to assess – mainly due to the very broad scope of the programme, which combined with rather limited investment amounts, effectively dilutes the effects. However, the PHARE programme is the only one of the three pre-accession instruments to have been systematically evaluated. Nevertheless, the scope for deriving useful lessons from this evaluation process is somewhat limited, as Evaluations of PHARE projects predominantly concentrate on administrative and management aspects, as well as on setting out project activities and looking at initial outputs.

There are however useful lessons in relation to the implementation of PHARE ESC. Business development and human resource development grants allocated under the programme have provided a valuable practical learning experience for the respective implementing agencies and have revealed procedural bottlenecks, problems relating to the quantity of applications received (and consequently large numbers of disappointed applicants) and problems relating to administrative capacity. The two agencies involved in the implementation of the grant schemes – the Human Resource Development Programme Support Foundation (HRDPSF) and the Lithuanian Business Support Agency under the Ministry of Economy will be responsible for implementing SF assistance so clearly these lessons are of immediate practical use.

The PHARE programme has brought indirect benefits to Lithuania in terms of anticorruption activities, financial management and audit projects, all of which provide a helpful framework for future management of community funds. As for ISPA, PHARE also passes through an EDIS process intended to accredit agencies to operate without ex-ante visa. PHARE funds, and by extension the Transition Facility, will finish execution in 2009.

SAPARD (Special Assistance of Pre-Accession in the fields of Agriculture and Rural Development)

SAPARD supports agricultural and rural development projects. In many respects, the programme is essentially a prototype for the EAGGF-Guidance section, as it supports investment in agricultural holdings, improvements in the processing and marketing of agricultural and fisheries products, the development and diversification of economic activities, the improvement of rural infrastructure, the reforestation of agricultural land and improvements in forest infrastructure, investment into environment-friendly agricultural methods, and vocational training tailored to the needs of the agricultural and fisheries sector.

SAPARD stands out from the other two pre-accession instruments in that the programme is financed (and administered) on a multi-annual basis – the National Rural Development Plan for Lithuania, 2000-2006. In general, the programming, implementation, monitoring and evaluation arrangements quite closely resemble those of the EU structural funds. The annual SAPARD commitment averages around 30 MEURO.

The implementation of SAPARD was delayed due to its implementing agency – the SAPARD National Paying Agency – being accredited only on 26th November 2001. Nevertheless, the implementation of the programme has gained pace rapidly, and there have already been 5 rounds of grant applications. Greatest demand for support came from applicants looking for support to improve processing facilities and marketing as well as investment in agricultural holdings. In late October 2003, 477 projects had been approved under the SAPARD programme – with a total project value of 134.9 MEURO.

Information sources in relation to SAPARD include annual monitoring reports to the European Commission as well as various reports for national purposes (reports to Government, Parliament, etc.). These mainly include data on outputs (e.g., by the end of 2002 86 farmers, 23 agricultural companies and 38 municipalities had received support), but also some estimates in terms of outcomes (e.g., it is planned that when implemented approved projects will create 693 new working places). Moreover, there are some qualitative assessments, e.g., that the amount of funds initially earmarked for the first measure was too high, and needs to be reallocated and that applicants have experienced

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difficulties providing the necessary private sector co-financing, limiting their ability to participate in the programme.

Another observation concerns the fact that though the priority area for improvement of the processing and marketing was the meat-processing sector, the dairy sector received proportionally more financial support – despite the fact that the sector was already relatively competitive internationally - suggesting difficulties with regard to the targeting of beneficiaries. This emphasises the importance of adopting appropriate selection criteria to ensure that only those sectors that really need assistance are supported – in other words – rigorous enforcement of the principle of additionality. Targeting should have been more strongly focused on the meat production sector where very few firms were able currently meet EU hygiene and sanitary requirements.

The fully-fledged evaluation of SAPARD and its socio-economic impacts in Lithuania is not yet available. The mid-term evaluation of the SAPARD programme in Lithuania is only expected to be available in late January, 2004.

Whilst there are a number of interesting lessons from the pre-accession programmes, more concrete conclusions cannot yet be drawn due to the lack of formal evaluation work undertaken to date. The experience gained during the preparation of National Rural Development Plan for 2000-2006 was used to help draft the agricultural dimension to the SPD, and the National Paying Agency’s experience and administrative structures are available to implement and manage rural development measures, not repeating the delays and problems of SAPARD implementation and management process.

New commitments under SAPARD will no longer be made once the implementation of Priority 4 of the SPD – dealing with rural development, agriculture and fisheries - commences.

Three of the already accredited measures will continue in one or another form under the SPD: Investment in agricultural holdings, Improving processing and marketing of agricultural products and Adaptation and development of rural areas. There will clearly be benefits from an administrative / implementation perspective in having already implemented such measures under SAPARD.

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1.2 MACROECONOMIC TRENDS

1.2.1 KEY DISPARITIES BETWEEN LITHUANIA AND THE EU

The following table provides an overview of key disparities between Lithuania and the EU across a range of key macro-economic indicators such as GDP per capita, labour productivity and employment rates. As the table demonstrates, there are quite wide disparities between Lithuania and the EU across most key indicators.Table 4: Key disparities between Lithuania and the EU

Indicator Year Lithuania EU average

Assessment of disparity

Gross Domestic Product (GDP) per capita, PPS, %

2002 39.1 100 Large

Unemployment 2002 13.1% 7.7% Large

Labour Productivity, % 2002 41.7 100 Large

Unit Labour Cost Growth 2002 -0.5% -0.4% Small

Inflation 2002 0.

%

2.1% Large (but positive)

Total Employment Growth (annual change in employed population)

2002 +4% 1.3% Large

Employment Rate 3 2002 59.9% 64.3% Small

Source: Eurostat

1.2.2 OVERVIEW OF RECENT ECONOMIC CHANGES

General Results

The past decade has seen fundamental changes in the Lithuanian economy: the level of openness and liberalisation has grown significantly and major structural changes have taken place such as the decline of agriculture’s share of GDP and employment and the dramatic increase in service sector activity. Additionally, the private sector has developed rapidly and has within a short timeframe become economically more important than the state sector. Competition – both amongst domestic companies and from foreign competitors – has also increased markedly leading to increased price competition and low inflation.

Structural reforms have led to rapid improvements in labour efficiency. In 2000, labour productivity grew by 7.8%, and in 2001 – by 10.3%. Foreign investment has played an important role in the modernisation of the Lithuanian economy. The process of economic integration into the EU has continued apace. While Russia and CIS countries continue to play an economically important role, the growth in foreign trade has been marked by a rapid increase in trade with EU-15 and accession countries, which now account for over 50% of Lithuania’s exports.

3 Total employment rate - employed persons aged 15-64 as a share of the total population of the same age group

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During the period which followed the economic downturn of 1998 - 1999, linked in large part to the Russian economic crisis, Lithuania adopted a monetary policy based on the Currency Board model and maintained a strict fiscal policy. Such measures helped Lithuania get back onto its former track of rapid economic development. Positive macroeconomic trends, which became apparent in 2000, continued further in 2001: a low level of inflation (1.3%), reduced fiscal deficit (1.6% of GDP), current account deficit of 4.8%, and a 5.9% increase in real GDP. Macro-economic progress continued in 2002 and 2003 and projected growth according to the Lithuanian Ministry of Statistics should reach 6.8% in 2003. Foreign and domestic debt has remained stable and it is not large by international standards.

As the national currency was pegged to the US dollar under the conditions of the Currency Board, inflation was reduced from 45% in 1994 to 1.4% in 2000, and the exchange rate for the lita became much more stable. Taking account of the fact that the Lithuanian economy has become increasingly entwined with the economy of EU member states and candidate countries, on 2 February 2002 the lita was pegged to the euro – an additional factor likely to lead to continuing macro-economic stability and a favourable investment climate.

Over recent years, the following structural changes have taken place: the structure of the Lithuanian economy has become much more similar to that of EU-15 and other accession countries. Privatisation has played an important role in increasing the dominance of the private sector in the Lithuanian economy and has provided a strong impetus to rapid GDP growth. (The share of GDP generated by the private sector has risen to 72%) In 2001, the Lithuanian service sector generated a total of 58.6% of GDP (in 1991 - 34%). Conversely, the proportion of the economy accounted for by industry and agriculture has fallen dramatically. In the case of industry, it has fallen from 44.4% in 1991 to 28.3% in 2001, and in the case of agriculture – it has fallen from 16.4% to 7%. However, despite these changes, the labour force employed in agriculture, hunting and forestry still made up around 17.7% of the total workforce in 2001.

GDP Trends and Share of GDP by Industry Type

Between 1995 - 1998, Lithuania’s GDP increased on average by 5.1% per year. In 1997 and 1998 Lithuanian economy grew at a particularly rapid pace and GDP increased by 7.3% and 5.1% respectively. However, due to unfavourable economic trends in Russia and CIS countries, GDP fell by 3.9% in real terms in 1999. Upon the successful re-orientation of export flows to EU-15 and other markets, GDP grew by 3.8% in 2000, and increased by 5.9% in 2001. In 2002, GDP rose by 6.1% and projections suggest that in 2003, that figure will be surpassed.

Over the past years, the economy has undergone rapid restructuring – although this process is clearly far from complete. The value added of the service sector grew from 34% of total value added in 1991 to 59% in 2001. A particularly rapid development of some under-developed services, such as financial services, the wholesale and retail sectors and the transport sector, can also be noted.

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Figure 1. Real annual GDP growth 1995 – 20034.

Major restructuring in the productive sector has taken place over the past 5 – 1- years as companies moved to replace outdated and inefficient technologies consuming high amounts of energy and raw materials with more advanced technologies complying with EU and international standards. Growth in labour productivity has outpaced increases in wages - one of the reasons for a marked improvement in competitiveness since 1999. The most significant industries in 2001 included the production of food and beverages (accounting for 21% of manufacturing in the processing, mining and quarry exploitation industry) and the manufacturing of refined oil products (21.8% of production). In 2001, employment in industry accounted for 20% of Lithuania’s workforce.

While its proportion of both GDP and value added has declined over the past ten years, the industrial and manufacturing sectors remain significant sectors of the Lithuanian economy. Over the past decade, industry’s share of value added declined from 44.4% in 1991 to 22.8% (manufacturing industry made up 17.6%) in 1999. However, investment in new and modern technologies and consequent improved competitiveness in the industrial sector has begun to reverse this decline. In 2000, industry’s share of total value added rose to 28.4% (manufacturing industry accounting for 23%) suggesting that the strategy of shifting towards higher value added activities is beginning to pay dividends.

A downward trend has been apparent in agriculture since 1995 - from 11.7% of total value added down to 7% in 2001. Employment in the agricultural and fisheries sectors has dropped from 24% of total employment in 1995 to 18% in 2001.

In 2001, total domestic investments grew by 25.3% as compared to 2000.

Labour market trends

The average rate of unemployment increased from 11.8% in 1998 to 16.1% in 2001 (data based on Population employment survey). Unemployment was caused by structural factors, namely, limited labour force mobility, imbalance between qualifications and market needs. At the end of 2001, 68% of the unemployed were unskilled. Seeking to address the demand for employees with certain qualifications, programmes for re-training of unpopular professions are organised. At the end of 2002, the rate of unemployment fell to 10.9%, and the average unemployment rate in that year was 13.8%. .

Fiscal Policy

4 Data source – Department of Statistics under the Government of the Republic of Lithuania, Bank of Lithuania and Ministries of the Republic of Lithuania.

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Over the past few years, the direction of fiscal policy has changed twice. From 1997 to 1999, the fiscal deficit increased each year and, in the years of economic recession, accounted for 5.6% of GDP (calculated according to ESC-95). A sharp increase in the fiscal deficit in 1999 was caused by the restoration of savings accounts for which 2.9% of GDP was used.

Seeking to achieve fiscal consolidation, there was a fundamental change in fiscal policy direction in 2000. At the beginning of 2000, a stand-by arrangement, treated as precautionary, was signed with the IMF, and was followed by structural and tax reforms which influenced the country‘s general budget deficit which amounted to 2.7% of GDP in 2000. This has allowed macroeconomic stability to be strengthened and for the necessary pre-conditions to facilitate sustainable economic to be created.

In 2002, the country’s National Budget fiscal deficit amounted to 1.4 % of GDP.Figure 2. Share of the country‘s general budget fiscal deficit on GDP in 1997-2003 (%).

EMBED Excel.Chart.8 \s

Over the past five years, public sector revenue has been decreasing each year due to steadily decreasing non-taxable income and the granting of tax exemptions. Hence the major part of fiscal consolidation programme was implemented via a reduction in public expenditure: transfers to households (restoration of savings, etc.) and state lending operations were reduced, a reform of the budget structure was carried out, a stricter control of budget organisations was introduced, and moderate wage increases in the public sector was achieved.

In 1999, the deficit of the State Social Insurance Fund amounted to LTL 134 million. Over 2000 – 2001, it was reduced from LTL 175.7 million to LTL 13.41 million. Upon implementation of the new Law on the Budget Structure, extra-budgetary funds were included into the State Budget. Amendments to laws were passed to provide for an accumulation of financial resources in the Reserve (Stabilisation) Fund, its main income source being proceeds from the Privatisation Fund (approximately LTL 1.2 billion).

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Table 5. State funds used for investment in 2001-2004, thousands of LTL.

2001 2002 Growth, % 2003 Growth, % 2004 Growth, %

Money from State Budget5

873,376 1,380,204 58,0 1,551,440 12,4 1,751,550 12,9

Money from Privatisation Fund

227,000 201,760 -11,1 205,000 10,2 150,000 -26,8

Total national money

1,100,376 1,581,964 43,7 1,756,440 11,0 1,901,550 8,3

Borrowed money 728,742 331,130 -54,8 271,271 -18,1 226,000 -16,7

Total 1,829,118 1,903,094 4,0 2,027,711 6,5 2,127,550 4,9

Due to the Russian financial crisis, public expenditure had to be curbed, and this reduced the amount of state capital investment and considerably limited and/ or brought to a halt the implementation of new projects. However, this situation had no impact on Lithuania‘s ability to contribute to funding new investment programmes co-financed under the EU pre-accession instruments.

The financing structure of the country‘s general budget fiscal deficit has changed over the past years. In 2000-2001, upon reduction of fiscal deficit, financing by shares and other capital (F.5) decreased – in 2000, it accounted for 2.0% of GDP, and in 2001 – for around 1.0% of GDP.

Interest on the main instrument for deficit financing, i.e. Government securities, has decreased steadily, - in 1999, the weighted average of average interest rates of all Government securities issued on the domestic market amounted to 11.4%, over the year 2000 this index fell to 9.4%, in 2001 - to 6.46%, and in 2002 – to 4.62%. The foreign and domestic market for Government securities was extended – the longest maturity period of Government securities currently stands at ten years.

State Debt

When estimating state debt, Lithuania follows a conservative calculation methodology and includes loans against state guarantees into the total amount of debt. State debt is split into domestic and foreign state debt according to currency.

At the end of 2001, state debt amounted to LTL 12.9 billion (26.9% of GDP), of which direct state debt (loans granted on behalf of the State) – LTL 10.7 billion, and contingent state debt (loans taken against state guarantee) – LTL 2.2 billion. State foreign debt amounted to LTL 9.86 billion (20.5% of GDP), or 76.38% of total debt. The major portion of direct state foreign debt (almost 58%) was formed of loans in currencies of the euro-zone, loans in US dollars accounted for 31.8%, and other loans – around for 10.2%.

5 The definition of investments is different between the EU and Lithuania. This line includes expenses of the State Budget which are not considered investments according to the classification applicable in Lithuania, and hence not accounted for in the Public Investment Programme, but they are assigned to investments according to the understanding in the EU (for instance, investment in human resources, small and medium-sized business, tourism development, etc.).

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Loans with a fixed rate of interest form the major portion of direct state debt (75.4% of all loans received on behalf of the state). On the domestic market, loans are issued on behalf of the state only with fixed interest rates. Loans with fixed rates of interest are aimed at avoiding the risk of fluctuation in interest rates and impact of fluctuation in debt servicing costs on the national budget. According to the a decision by the Government, direct state debt at a fixed interest rate each year must amount to at least 70% of the total direct state debt.

At the end of 2001, loans granted by foreign banks and financial institutions accounted for the largest portion of direct state debt – approximately 44.6%. Direct state debt mainly consists of long-term liabilities – around 94%, of which bonds – around 60%, and loans – 32.1%. Short-term direct liabilities account for 5.9%, and they comprise only T-bills and savings bonds issued on the domestic market.

The scope of public borrowing is strictly regulated by the Law on the Approval of Financial Indicators of State Budget and Municipal Budgets which, on an annual basis, confirms the limit on public net borrowing and newly issued state guarantees as well as maximum amount of obligations undertaken by guarantee institutions and insurance companies secured by a state guarantee. The limit set on public net borrowing in 2003 is LTL 900 million (LTL 1,100 million in 2002). It has been provided not to issue new state guarantees in 2003 (the limit on newly issued guarantees in 2002 was LTL 400 million).

Local authorities – municipalities – have a right to borrow independently each budget year to finance projects provided for in the Public Investment Programme and municipal investment projects as well as to cover the temporary revenue deficiency. The Parliament (Seimas) approves their borrowing limits on an annual basis. The Ministry of Finance is in charge of the supervision of municipal borrowing.

Inflation

On 1 April 1994, the currency board arrangement (CBA) was introduced, under which the litas was pegged to the US dollar. It took three years for the annual consumer price index (CPI) inflation to go down to single-digit levels. The undervalued exchange rate of the litas was a significant inflation factor under CBA conditions, especially during the first year.

Inflation has been low in Lithuania since 1997. During the 1999–2000 period, prices decreased due to reduced demand for exports in Lithuania’s Eastern markets and decreased domestic demand. Thus, the annual inflation rate was on the verge of deflation in 1999 and during the first half of 2000. Beside the above-mentioned factors, during Lithuania’s economic downturn, inflation was also helped by the strengthening of the lita, relative price convergence as a result of the underestimated exchange rate of the litas and reduced oil prices in 2001. In 1999, the average annual inflation was at 0.8%, in 2000 – at 1%, in 2001 – at 1.3%. In 2002, average yearly inflation stood at a mere 0.3% in part as a result of competition in the retail sector and in foodstuffs. Current estimates suggest that this year Lithuania will experience deflation of around 1%.

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Figure 3. Lithuania’s CPI (Chain 12-month index), %.

The price level in Lithuania also depends on regulation of state-administered prices (administered prices in 2002 accounted for 21.5% of CPI basket), increase in excise tax tariffs and pricing decisions by de facto monopolies.

Monetary and Exchange Rate Policy

The stability of the lita is very important to Lithuania in terms of macroeconomic development as a small country with an open market economy.

The main objective of the Bank of Lithuania is to achieve price stability. This is being implemented by using the fixed exchange rate strategy and applying the principles of the Currency Board. The Law on the Credibility of the lita states that the liabilities of the Bank of Lithuania in litas have to be fully covered by foreign reserves (over 160% was covered on 1 April 2002).

Taking into account the Lithuanian economy’s increasingly close interrelation with the economies of EU15 member states and other candidate countries, as well as seeking to promote further integration into EU markets, it was important to fix the exchange rate of the lita against the euro. Since 2 February 2002, the anchor currency of the lita has been the euro - the official exchange rate is LTL 3.4528 per EUR 1. Proper preparation resulted in a transparent and stable process of pegging the lita to the euro, without any need for devaluation or revaluation. The official fixed exchange rate of the lita in relation to the euro was calculated on the basis of the reference exchange rate of the US dollar against the euro announced by the European Central Bank on 1 February 2002 (i.e. 0.8632) multiplied by 4 (the former official exchange rate of the lita and US dollar).

The fixed exchange rate of the currency does not automatically ensure the same inflation level in the country as that of the anchor currency’s, but it helps to reduce the pace of inflation and contributes to ensuring the relative price stability in the long run. The selected currency exchange system also created pre-conditions for positive interest rate changes. This is proved by the reduction of inflation and interest rates.Table 6. Inflation and interest rates in 1994-2002.

Year 1994 1995 1996 1997 1998 1999 2000 2001 2002

Average annual inflation 72.2 39.6 24.6 8.9 5.1 0.8 1.0 1.3 0.3

Average interest on bank loans in litai 57.4 27.2 21.3 13.9 12.0 13.0 11.9 9.3 6.7*

Average interest on 46.3 20.0 13.8 7.4 6.0 4.9 3.8 3.0 1.7*

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deposits in litai in the banks

* January – November 2002

Monetary policy measures by the Bank of Lithuania consist of unrestricted exchange of the anchor currency to the lita, and that of the lita to the anchor currency, mandatory reserve requirements, loan possibilities restricted by net foreign reserves of the Bank of Lithuania and reversible open market operations (auctions of deposit and repurchase transactions).

External Sector

Lithuania has chosen a liberal regime of trade and capital movement. General trade liberalisation was greatly influenced by the conclusion of free trade agreements. The countries, with which Lithuania has signed free trade agreements account for 70% of total foreign trade. In 2001, Lithuania became a member of the World Trade Organisation.

The Lithuanian economy is characterised by a low level of protectionism. Custom duties in 2001 amounted to 0.28% of GDP even though imports were equivalent to 52.4% of GDP.

Another key trend is that of a shift in external trade between Lithuania, Russia and CIS countries towards increased trade with EU-15 and candidate countries. Over the period 1996-2001, for example, Lithuania’s exports to the EU increased from 32.9% to 47.8%, whereas exports to CIS countries fell from 45.4% to 19.7% of total exports. Similarly, whereas imports to the EU grew from 42.4% to 44%, they dropped from 32.9% to 29.4% in CIS countries. In 2002 and 2003, this trend has continued.

In 2001, exports increased dramatically by 20.3% and imports also rose significantly by 16.4%. Despite the slowdown in economic activity across EU-15 countries, exports to the EU increased by 20%. An increase in economic activity in CIS countries, and in Russia in particular, combined with favourable currency changes between the lita and CIS currencies helped stimulate increase volumes of exports to these countries. Therefore, exports to the CIS countries in 2001 rose by 45.9% in comparison with 2000, and export to the CIS countries accounted for 19.7% of total export. During January – October 2002, export to the EU and CIS countries increased respectively by 12.2 and 14.8% if compared with the same period in 2001. These figures show that Lithuania’s major export markets –both East and West - are growing at healthy rates. Secondly the increased diversification of export markets reduces the economic risks of being overly economic dependent on a small number of external markets – helping to shelter the Lithuanian economy from adverse external economic shocks.

As a result of export growth and Government‘s strict fiscal policy, the current account deficit in 2001 dropped by 15% (USD 101.2 million) and totalled 4.8% of GDP (in 2000 - 6% of GDP). During the period of January – September 2002, the current account deficit stood at 3.7% of GDP.

Due to its comparatively low gross domestic saving, Lithuania, like other transition economies, has had to borrow foreign capital to finance its current account deficit. However, the source of these funds has altered significantly over the past few years. Until 1999, the bulk of the current account deficit was financed by foreign capital contributions, increasing the level of foreign debt. In 2000 and 2001, however, more foreign loans were repaid than taken, and thus, the current account deficit was not financed from this source.

The increased pace of privatisation and a general improvement in the investment environment have led to increases in levels of direct foreign investment flow into Lithuania. FDI grew by a factor of 3.4 times over the 1998 – 2001 period, as compared with the 1991 – 1997 period. Therefore, the financing of the current account deficit from direct foreign investment has increased considerably. In 2001, 77.7% of the current

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account deficit was financed from this source (in 1999 – 40.7%, in 2000 – 56.1%). In 2000 and 2001, investment portfolio inflows were decreasing, and the significance of this source of financing to help manage the current account deficit declined.

The current account deficit of Lithuania‘s balance of payments was not financed from official international reserves. At the end of 2001, official international reserves totalled 2.9 months when calculating in months imports of goods and services.

Privatisation

In August 1996 the second phase of privatisation was launched in Lithuania – domestic and foreign investments were granted rights to privatise entities only for cash at market prices, on an equal footing. In 1999, the privatisation of the insurance sector was completed, in 2000 – that of the telecommunications sector, and 2002 marked the end of privatisation of the banking sector.

In 2002, a 34% stake in “AB Lietuvos Dujos” was sold to a strategic investor. Currently, the privatisation programme for 34% of this company to a gas supplier is being carried out. The selection of an advisor on the privatisation of “AB Rytų Skirstomieji Tinklai” and “AB Vakarų Skirstomieji Tinklai” and the sales of these power companies was scheduled for the first quarter of 2003.

The privatisation of the shipping sector will be completed following the sales of “AB Klaipėdos Transporto Laivynas” and “AB Lietuvos Jūrų Laivininkystė” in the 2nd

quarter of 2003. In the 1st quarter of 2003 the privatisation of “AB Lietuvos Avialinijos” was announced the objective being to sell off part of the company‘s share capital to a strategic investor.

The list of state owned companies and assets that will be privatised is constantly being supplemented with companies and real estate properties owned by state (municipalities) earmarked for privatisation. Privatisation agreements for state controlled companies provide buyers‘ obligations to retain a certain number of jobs in these companies. Supervision of this process is assigned to labour exchange offices.

In 1998, proceeds generated from the sales of companies and real estate entities amounted to 2,259 million litas, which accounted for 5.2% of GDP, in 1999 – to 471.3 million litas, which made up 1.1% of GDP, in 2000 – to 797 million litas, or 1.8% of GDP, in 2001 – to 557.2 million litas, or 1.1% of GDP, and in 2002 – to 287.4 million litas, or 0.6% of GDP. The projected privatisation proceeds in 2003 amount to 898 million litas, equivalent to around 3.7% of GDP.

Restructuring and bankruptcy of companies

In recent years, there has been a trend of increasing numbers of bankruptcies amongst Lithuanian companies. In 1998, a total of 99 companies went bankrupt, in 1999 – 250, and in 2000 – 415. As a result of time consuming and inefficient bankruptcy proceedings, the backlog of pending cases has been constantly increasing. The growing number of bankruptcies in labour-intensive sectors (manufacturing, trade) which employ a large number of women, is an important factor influencing labour market dynamics.

During the period 1993 - July 2002, assets of bankrupt companies amounted to LTL 4.2 billion according to the book value estimated at the commencement of bankruptcy proceedings, but usually assets were sold at a lower value than net asset value by 2 – 2.5 times. The main reasons for insufficient efficiency of bankruptcy procedures includes problems with regard to the clarity of legislation in this area, an underdeveloped private property market and an imbalance between supply and demand for property.

Bankruptcy laws, restructuring and a Guarantee Fund were introduced in 2001 in Lithuania as a result of studying best practices across EU-15 and other countries on bankruptcy and following recommendations on issues around bankruptcy in Lithuania from both PHARE projects and the World Bank’s advisors. Changes in banking procedures

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include a simplified procedure for initiating bankruptcy proceedings, a 2-year maximum limit for completing bankruptcy procedures, simplified procedures for asset sales at auction, company liquidation procedures and amended concept of insolvency. The Guarantee Fund ensures partial settlement with employees of bankrupt companies which have no assets.

1.2.3 MACROECONOMIC POLICY

Policy objectives and tasks

The past decade of economic reforms in Lithuania has been fruitful from a macro-economic perspective – Lithuania now has a fully functioning market economy and a stable macro-economic environment characterised by high levels of GDP growth, low inflation and progress in tackling unemployment. However, the economic transformation is not fully complete in all the fields, and therefore, in comparison with more long-established market economies, additional objectives have been formulated for Lithuanian economic policy. The objectives of the Lithuanian economic programme are aimed at ensuring the country‘s preparation for EU membership in 2004 and its obligations under the EU acquis.

The main objective of economic policy for the pre-accession period is to meet the economic criteria for EU accession (Copenhagen criteria) and to prepare for membership in Economic and Monetary Union. The whole programme of reforms is orientated towards the creation of measures for implementation of this objective within the medium-term period. The aforesaid measures would comprise:

1. Rapid and even pace of economic development and stable macroeconomic environment.

2. Favourable conditions for business development and successfully implemented structural reforms.

3. Transparent state management and political consent regarding reforms to be implemented.

4. Stable legal environment.

5. Deep economic integration with the EU.

The objectives listed above are reflected in state strategic planning documents which form the basis for joint investment with the EU in Lithuania’s economic development. Such documents include the Lithuanian Long-Term Development Strategy, the Long-Term Economic Development Strategy for Lithuania - 2015, the National Agreement for Economic and Social Advancement and the Lithuanian Economic Programme for the pre-accession period amongst other relevant strategies.

Lithuania intends to pursue an economic policy oriented towards maintaining macroeconomic stability and enhancing economic competitiveness. These goals are critical to achieving economic convergence with other EU countries. These objectives will be achieved through structural and economic reform, the most significant of which include improvements in the efficiency of public spending, the implementation of tax reform, the liberalisation of telecommunications and energy markets, the privatisation of infrastructure entities earmarked for sale, further reforms in the field of labour market and efficiency and other improvements to the social security system.

In order to achieve the overriding objectives of Lithuanian economic policy, it will be necessary to implement the following policies:

1. Stable monetary policy by retaining a fixed currency exchange rate with the euro.

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2. Tight fiscal policy in order to reduce the fiscal deficit and attempt to move closer towards the goal of having a cyclically balanced budget.

3. Investment and business promotion policy favourable to economic development and entrepreneurship.

4. Active labour market policy aimed at creating new employment and increasing labour market flexibility.

The Currency Board arrangement will continue to underpin macroeconomic policy. This arrangement creates a stable monetary environment and helps contribute to low inflation. Taking account of the fact that the Lithuanian economy is closely interrelated with the economy of the EU and applicant countries, the anchor currency is the euro.

Continued fiscal consolidation provides a solid basis for the policy of having a fixed currency exchange rate and strengthens resistance of the economy to external factors. This allows borrowing costs of the public and private sectors to be further reduced and will help in achieving the cyclically balanced budget and the fulfilment of the requirements of the Negotiation Chapter on Economic and Monetary Union.

Over the medium-term, Lithuania intends to retain the level of state debt below 30% of GDP (including guarantees), and that of foreign debt below 23% of GDP.

In order to achieve long-term sustainable economic growth, macro-economic stability and the fostering of a favourable investment and business environment will be critical. During the pre-accession period, an effort will be made to increase investment levels – particularly private sector investment. The plan is to complete the privatisation process in respect of the energy and transport sectors as quickly as possible, to promote private “green field” investment, to implement measures to improve the business environment and to attract more foreign direct investment.

Policy steps are also being taken to maximise the value of human resources and to ensure that economic growth and new employment opportunities benefit all Lithuanians. Structural Funds will be used to create more favourable conditions for the creation of new employment, and to facilitate the adaptation of the vocational training system so that it more closely meets labour market needs. Skills upgrading and retraining will help to ensure that those in the labour force whose skills have become outdated or who missed out on educational opportunities when they were younger have the chance to learn new skills and make a positive contribution to socio-economic development in Lithuania. The underlying policy framework will be supportive of measures to enhance economic activity and create new employment opportunities, activities that support the promotion of entrepreneurship and of activities that help the workforce adapt to structural changes necessary in the Lithuanian economy. The principle of equal opportunities will be enshrined within this policy framework.

Lithuanian economic policy will be flexible and will adapt where necessary to changes in the external economic environment – given that Lithuania is a small country, it is vital that there is scope for economic policy to react to the prevailing economic situation in neighbouring Baltic and CIS countries with whom it does much of its trade and with EU countries which account for an increasing proportion of exports.

In order to achieve economic growth and enhance economic competitiveness, it is planned to continue with the main structural reforms already underway such as maintaining strict fiscal policy. The privatisation programme will have been largely completed by the end of 2003. However, the privatisation of state-owned companies that have yet to be privatised – including major companies in the energy sector as well as some transport companies - will condition productivity growth in these significant sectors and promote the development of a more efficient and flexible economy.

The elimination of barriers to market entry, the lifting of business restrictions and the harmonisation of business conditions will provide a basis for the creation of a favourable

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business environment characterised by increased competition leading to efficiency improvements as well as benefiting Lithuanian consumers. It is intended that further steps will be taken to remove any outstanding obstacles to free competition – that still affects some sectors. Also, the legal-institutional environment will be strengthened.

A strict fiscal policy backed up by structural reforms should help to ensure that economic development will not be restricted by the lack of suitably qualified / skilled labour or by a lack of financial resources to fund investment in modernisation and rationalisation – at least over the medium-term. Along with the growth in competition in the banking sector, improvements in domestic business prospects and the continuation of a strong fiscal policy, private savings and lending for private sector investments will increase at a more rapid pace. Long-term economic development and growth combined with productivity improvements and a shift towards higher value added activities should help to mitigate the impact of ageing demographics.

Economic forecasts

Projections for the Lithuanian economy are based on the assumption that the underlying pre-conditions for sustainable growth and development i.e. a stable macro-economic environment underpinned by sound monetary, fiscal and economic policies will be sustained in Lithuania over the programming period. Other assumptions relate to the external economic environment. Macro-economic projections in Lithuania assume that broadly speaking, European Central Bank (ECB) projections of long-term GDP growth across Europe of approximately 2.2%, and average inflation rates within the acceptable set by the ECB will prevail. The forecasts are also based on the presumption that European economic development will gradually accelerate following a period of relative stagnation over the 2001-03 period. A final assumption is that following Lithuania’s accession to the EU, Lithuania will receive EU financial assistance to support the decommissioning of the 1st reactor of Ignalina nuclear power plant.

In the first nine months of 2003, GDP in Lithuania rose by 8.1%. Over the next three year period, according to forecasts made by the European Commission, Lithuania will be the fastest growing economy of the 25 member states in the enlarged EU –achieving a growth rate of 6.6% in 2003 and 5.7 % in 2004. Increased economic development at these levels is dependent in part on external factors, such as oil prices, international currency rates, demand for Lithuanian exports by key trading partners (in turn governed by the state of their economies) as well as international interest rates6. The forecast is also based on the precondition of stable exogenous factors (i.e. presuming there will be no major positive and negative shocks).

Economic growth in Lithuania is likely to be driven by further export growth and rapidly increasing investment and consumption growing at a balanced pace. Economic activity will be further enhanced by an increase in financial services activities, and increased domestic consumer and business borrowing. Lithuanian companies are likely to embark on modernisation and investment projects using long-term loan finance. Economic growth is likely to be accelerated by Lithuania’s accession to the EU.

Although growth projections vary considerably from sector to sector, rapid growth trends are likely to continue in the service sector as well as in the export of manufactured goods i.e. in the transport sectors, telecommunications, logistics and transport of freight, manufacturing, the extraction and processing industry and financial services. Increased domestic demand should help to create the right conditions to maintain higher than average growth in the wholesale, retail and construction sectors. It is anticipated that the pace of growth in the public sector / and of businesses providing services to the public sector will be moderate. The agricultural sector’s share of value added is likely to

6 The forecast is based on the presumptions, that world oil prices in 2003 will amount to 27.6 US dollar per barrel, and in 2004 – 2006 – to 23.5 US dollar per barrel; and that 1 euro will equal 1.07 US dollar in 2003-2005, and 1.11 US dollar in 2006.

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decrease due to restrictions on production quotas that will be imposed as a result of EU membership.

Increased domestic demand will play an important role in sustaining economic growth - growth in consumption and investment is likely to be significant. New domestic lending opportunities and EU Structural Fund assistance should create a business environment conducive for increased levels of investment. Much of the increase in GDP is forecast to stem from increased levels of domestic and FDI investment. Gross domestic investment is forecast to rise from 21.0% of GDP in 2002 to 25.7% of GDP in 2006. Private investment should grow as a consequence of increasing investor confidence in the stability of the economy which should help reinforce the long-term growth potential of the Lithuanian economy.

Final consumption expenditure is projected to account for a smaller share of GDP by 2006 than is presently the case. The comparative share of final consumption expenditure is forecast to drop from 84.5% of GDP in 2002 to 79.4% of GDP in 2006. This structural change is likely to be influenced by increased levels of private savings and investment due to a change in the way households plan their finances and improvements in the efficiency of financial and capital markets. The slight increase in government expenditure from 20.2% of GDP in 2002 to 22.2% in 2006 is connected with Lithuania’s accession to the EU.

Changes in world oil prices and the exchange rate between the Euro and dollar could cause the pace of export growth to be more moderate. An increase in the level of imports may materialise as a result of increases in domestic demand which would negatively affect the balance of trade in goods and services. The balance of trade in goods and services should increase from 5.3% of GDP in 2002 to 6.0% of GDP in 2006 over the programming period.

The forecast average annual figure of the employed will be 1,463,000 at the end of the forecast period. As a result of increases in economic development and productivity, the average monthly gross wages will rise from LTL 1034 litas in 2002 to LTL 1,333in 2006. Over the medium-term, growth in wages may be limited to some extent by labour supply. The forecasts are that nominal wages will grow at a slower pace as a consequence of natural persons’ income tax reform providing for reduction of taxation on earnings in 2002 and 2003.

The plans for the pre-accession period are to carry out a strict fiscal policy. The most significant fiscal objective during this period is to move closer to the target of achieving the cyclically balanced budget by ensuring the implementation of economic policy objectives, to carry out tax reform and to rationalise public expenditure policy. The measures of the total national budget revenue and expenditure policy ensuring process towards the target of a cyclically balanced budget are intended for enhancing the firm and rapid economic development and competitiveness of the economy necessary for economic convergence with the EU countries.

The fiscal policy of the medium-term period will be aimed at implementing the following macroeconomic policy priorities:

1. Ensure macroeconomic stability by carrying out an anti-cyclical fiscal policy.

2. Create favourable conditions for increasing labour efficiency, further promote significant factors whilst continuing structural reforms in the energy and agricultural sectors, make further improvements to the tax system and introduce budgetary management reforms.

3. To conduct fiscal policy in a manner consistent with the priorities of the social policy.

In the taxation field, the harmonisation of excise duties on tobacco and fuel according to the minimum norms set by the EU is nearing completion. Regulation of state

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administered prices (supply of electricity, gas, hot and cold water, heating, transport and telecommunications services; these goods and services accounted for 21.5% of the total CPI in 2002) and the establishment of tariffs on goods and services of natural monopolies, which will be implemented over the next few years, is likely to lead to a rise in the CPI level. As administered prices in the power and heating system are fixed independently from the cost assessment of the governmental commission, a slight rise is forecast in prices. The largest increase may occur in the area of public transport. Some rises in inflation are anticipated as a result of the more efficient exploitation of Lithuania’s economic potential, increases in productivity and growth in average monthly wages. Taking account of these factors, average annual inflation is forecast to rise to 1.9% in 2004 and 2.2% in 2006.

The increased pace of development of the Lithuanian economy in 2003 - 2006 should increase domestic demand and lead to a rise in the level of imports. Therefore, the current account deficit may amount to 6.0% of GDP by 2006. However, this size of the current account deficit would be acceptable and fully manageable considering the cautious fiscal policy.

Furthermore, the current account should be positively influenced by the forecast increase in domestic saving. The final consumption expenditure share should decrease from 83.0% of GDP in 2002 to 79.4% of GDP in 2006, and thus, the norm of saving will rise respectively and more investment will be financed from domestic resources.

The successful process of Lithuania’s integration into the EU, further improvement of the investment environment, the restructuring of the energy sector and the continuing process of privatisation should help to attract foreign investments over the coming years. Projections suggest that 50% of financing of the current account deficit will be made from direct foreign investment in 2006.

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Table 7. Main projected macroeconomic indicators.

2001 fact

2002 fact Forecast

2003 2004 2005 2006

Gross Domestic Product (GDP), LTL million

47498 50679 53731 57068 61652 66398

Real growth, percent 6,5 6,7 6,8 6,2 6,5 6,0

Final consumption expenditure

Ratio to GDP, percent

84,5 83,0 81,6 81,4 80,5 79,4


Gross domestic investment


21,0 22,6 23,8 24,1 24,9 25,7


Inflation

Average annual, percent

1,3 0,3 -0,9 1,9 2,1 2,2

Rate of unemployment:

Average annual, percent

12,5 11,3 10,8 10,2 9,1 8,5

At the end of year, percent 12,9 10,9 10,5 10,0 8,8 8,4

Balance of goods and services, ratio to GDP, percent

-5,5 -5,7 -5,4 -5,4 -5,4 -5,0

Current account deficit, Ratio to GDP, percent

-4,8 -5,3 -5,6 -5,7 -5,8 -6,0

State debt

Ratio to GDP, percent.26.9 26.6 26.4 25.8 24.2

General government budget revenue, total

(ESC95 system)

Ratio to GDP, percent.

33.6 33.8 33.8 35.6 36.2 36.0

General government budget expenditure, total

(ESC95 system)

Ratio to GDP, percent.

35.4 35.2 36.2 38.5 38.7 37.8

General government fiscal deficit

(ESC95 system)


-1.9 -1.4 -2.4 -2.9 -2.5 -1.8

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The natural persons’ income tax reform will cause a drop in revenue from 36.8% of GDP in 2002 to 35.3% in 2003. The projections are that the increase in the non-taxable income band from LTL 250 to LTL 290 as of 1 January 2003 would reduce fiscal revenue by approximately 0.6% of GDP. For this reason, the national budget revenue from taxes (D2+D5) will decrease in 2004 - 2005.

Some public expenditure will be used to promote private sector activities and improve current account indicators of the balance of payments. The higher fiscal deficit forecast for 2003 is related to the country’s rapid integration in the last year before EU accession and NATO membership.

In order to improve the conditions for long-term saving, reform of the pension system will be launched in 2004.

The direction of subsequent expenditure policy will be determined by strategic priorities, changes in the tax system and fiscal projections, international agreements and laws. The Government’s priorities are implemented through strategic activity plans and budgetary programmes. Some priorities (e.g. development of information society) are of a horizontal nature while other priorities are vertical (e.g. improvements in the education and vocational training sectors, improvements in the productive environment).

Public expenditure policy is strongly influenced by EU accession and evolving national strategic priorities. In the pre-accession period, efforts have been made to maximise the potential value of projects financed through EU assistance. Further plans are to implement the principles of strategic planning in all stages of budget planning and to ensure compliance of these actions with EU accession requirements. When budgetary reform is launched, efforts will be made to ensure better co-ordination between state funds and EU assistance. In the area of planning, this co-ordination comprises the development of the Single Programming Document, budget cycle and investment planning. The basis of this scheme is the actual mechanism – special programmes – embedded in the Law on the Budget Structure.

The financing structure of the national budget fiscal deficit in 2002 – 2005 should not differ significantly from the structure adopted in 2001. Financing will basically depend on the domestic market and it will be related to the diversification of Government securities and extension of terms, the most significant lending criterion being low borrowing costs.

The most important task in state debt management is to ensure timely and complete financing of public expenditure and performance of all debt liabilities at the lowest possible cost and risk within the set limits on state dent and borrowing. Over the coming years, the need for public borrowing will occur mainly due to the repayment of foreign and domestic loans, and financing of the budget deficit.

In compliance with the Medium-Term Borrowing Policy for 2002 – 2004 adopted by the Government of the Republic of Lithuania, as of 31 December 2004 state debt may not exceed 30% of GDP and foreign debt only 25% of GDP. Direct state foreign debt in Euro should amount to at least 75% of total direct foreign debt at the end of 2004.

Over the coming years, the ongoing process of privatisation will continue: sales of state-owned assets such as small and medium-sized companies will be targeted at domestic Lithuanian investors, whereas larger companies in the energy and transport sectors will be targeted at foreign investors. Further privatisation will provide much needed investment capital to help ensure that advanced management systems and new technologies can be implemented in former state-owned companies. This will help to maintain the competitiveness of Lithuanian companies.

The presumption is that privatisation in conjunction with other factors analysed above will cause major structural changes in the economy and condition the further development of the private sector and growth in economic effectiveness. Over the 2001-2004 period, revenue of up to 3.5 billion litas is likely to be generated from the sale of state (municipality) -owned property, based on the valuation of its current condition.

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1.3. SECTORAL TRENDS

1.3.1. INDUSTRY AND BUSINESS

Key statements:

The competitiveness of Lithuanian industry at European and international level is increasing, but not at a sufficiently fast rate.

The structure of Lithuanian industry is dominated by low and average value-added industries and industries using unskilled and medium skilled labour. A transition is needed to higher value-added activities.

Industrial productivity in Lithuania is considerably below the level achieved in other industrialised countries, therefore, while wage rates are competitive, total production costs are not cheap by comparison.

Export volumes are increasing. However, the export structure is dominated by low-value-added products and services.

An opportunity exists to exploit the potential of industrial zones – a number of cities have an industrial infrastructure leftover from the Soviet period.

The current structure of Lithuanian industry does not allow the skills base of the Lithuanian workforce to be used to its full potential.

Despite progress made in improving the transparency of private sector activities, entrepreneurship levels remain low. SMEs also face barriers to growth, such as a bureaucratic regulatory environment, problems with regard to access to finance, and skills gaps.

A publicly funded business support infrastructure has now been set up, however, further improvements in terms of institutional capacity and the quality and efficiency of services provided is needed.

Lithuania’s natural environment, cities, lakes and coastline are favourable to the development of tourism, but currently tourism infrastructure is underdeveloped. There is a need for increased training in the tourism sector to further employment opportunities and career prospects for those in low- and medium-skilled tourism jobs.

Lithuanian companies in the industrial sector are gradually adapting to the competitive economic environment that EU membership and increased internationalisation will bring: the volume of industrial sales is growing, over half of industrial products are exported. The share of value added produced in all branches of industry is highest in the total value added comparing to other key sectors of the Lithuanian economy (see figure 4). It constituted 24.2 % in 2002, which exceeds the level before economic crisis in Russia in 1999 by 0.5 points.

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Figure 4: Value added by economic sectors in EU (2000) and Lithuania (2002)

However, a closer analysis of Lithuania’s industrial structure as compared to the EU industrial structure (see figure 5) as well as of the nature of products being exported shows that Lithuanian industry still needs to take further steps to improve industrial competitiveness.

Figure 5:The Structure of Value Added in Manufacturing in Lithuania (2002) and EU (1999)

The largest share of industrial produce sold is made up of refined oil products (20.1% in 2002), food and beverages (21.6% respectively), textile products and wearing apparel, leather and its products (15.0%), wood and wood products, fibre, paper and paper

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products and polygraphy (13.8%), machinery and mechanical equipment, electrical equipment, radio, television and communication equipment and apparatus, vehicles and auxiliary transport equipment (11.9%). This means that capital and labour intensive industries using relatively low technologies dominate in Lithuania.

Industrial production in Lithuania is mainly currently destined for export markets. According to data from Statistics Lithuania, manufacturing enterprises in 2001 and 2002 exported almost 59 % of total sold production. Compared to the previous period, the proportion of production destined for export has increased significantly (see figure 6).Figure 6: Sales structure of mining, quarrying and manufacturing produced in Lithuania, %

Businesses from most sectors of the Lithuanian economy exported over 70% of total production sales. Production in the Lithuanian mining, quarrying and manufacturing industries is mostly oriented towards export markets with the exception of businesses in the food and beverages sector, building materials, ceramics, which are more closely oriented to the domestic market (see figure 7).

Figure 7: Sales structure of most important sectors of industry in 2002 (according to interim data by Statistics Lithuania)

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The largest proportion of Lithuanian production was exported to Russia and former CIS countries. However, the proportion of products exported to EU Member States has increased markedly in recent years. For example, in 2002, it increased by 11.7% and accounted for 57.2% of total exports in terms of products (in 2001 – 55.4 % respectively).

Competitiveness is closely correlated with the development of high quality products and the introduction of quality management systems. Enterprises that have implemented quality management and environmental management systems can both guarantee product quality and stipulate to potential clients that their technological processes meet EU environmental requirements/ meet international standards such as ISO 9000. At the beginning of 2003 there were upwards of 350 Lithuanian companies that have so far implemented quality management systems according to the international standard ISO 9000 series, while more than 40 enterprises have implemented environmental management systems.

Statistics Lithuania conducted a survey of enterprises engaging in innovation-related activities over the 1999-2001 period. 26.9% of survey participants were intending launching new product innovations and technological process innovations in the near future. Within the manufacturing industry sector enterprises engaged in petrol and chemical industry manufacture were most active in the implementation of product and technological process innovations (66,7%), the manufacture of medical, precision and optical instruments (64,7%), the manufacture of electric machinery and apparatus (54,5%), the manufacture of food products, beverages and tobacco (46,3%) and finally, the manufacture of radio, television and communications equipment and apparatus (43,8%).

The majority of survey participants carried out innovation activities by means of cooperation with various Lithuanian and foreign partners. Key partners with whom Lithuanian businesses are working to introduce new innovations include equipment suppliers, materials, components and software (63,9%), clients and customers (55%), consultants (42,8%) and other enterprises (36,5%). The survey results show that enterprises are not particularly enthusiastic on cooperating with universities and higher educational establishments (17,3%) and public scientific research institutions (12,3%).

With the aim of increasing industrial competitiveness, science and technology parks are being supported in Lithuania. In 2002 five new science and technology parks were established – 2 in Vilnius and 3 Lithuania’s other large cities. Six science and technology parks already in operation are cooperating with scientific institutions, public organisations, universities and high-tech companies. Thus, both the private and public sectors support the establishment and development of science and technology parks. These create favourable conditions for the promotion and implementation of new innovations, the consolidation of links between the public and private sector, and the creation of new employment. More than 10 high-tech companies have been already established and the business success of these initial ‘pioneering’ companies should help to encourage other companies (particularly start-ups) to consider locating in science and technology parks too.

Another key yardstick by which competitiveness can be assessed is the level of productivity. Productivity rates have been rising recently in Lithuania. Value added created by one employee has increased to 29.7 Lt in 2001 against 9.8 Lt in 1995 an increase by a factor of 3 times.

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Figure 8: Productivity of Lithuanian Mining, Quarrying and Manufacturing in 1995 and 2001 (Lt)

Notwithstanding the fact that growth in productivity has been rapid (see figure 8), Lithuania still lags significantly behind the EU average. More positively, however, Lithuania’s international competitiveness has been steadily increasing. According to The Global Competitiveness Report 2002-2003 Lithuania is amongst the six most progressive countries (out of a total of 80 countries) in 2002 in the field of competitiveness. In the growth competitiveness index (GCI), Lithuania ranked 36th place in 2002 (up from 43rd place in 2001) ipso facto surpassing 6 Accession Countries as well as 2 EU Member States. In terms of the wider macroeconomic environment Lithuania ranks in 45th place, which is 11 places higher than in 2001 - no accession countries were placed beyond Lithuania.

Increased competitiveness can be largely attributed to the following competitiveness drivers: the implementation of new technologies and innovations, the more widespread adoption of modern management and marketing methods, the acquisition of know-how and licences and patents, investment in Human Resource Development, training and retraining, the introduction of new quality management and environmental management standards, etc. Current wisdom suggests that a relatively cheap labour force and cheap local raw materials are no longer decisive factors in determining competitiveness, since their impact is outweighed by low industrial productivity. Thus, labour force costs are only cheap in relative terms, because productivity levels are several times lower than the EU average in individual sectors of industry. This tends to suggest that labour intensive industries in Lithuania going forward are likely to have only limited scope for development.

Given that Lithuanian industry is dominated mainly by low and medium value added activities that require unskilled, low or medium skilled workers, Lithuania’s industrial structure offers only limited prospects for economic growth unless significant private sector investment is made in modernising businesses and in introducing new technologies in order to bring about a shift to higher value added activities. In terms of the technologies currently in use, production based on high technologies accounts for approximately 13% of industrial production in Lithuania, whereas in West European countries this indicator is much higher usually ranging from 20% to 25%. In terms of the labour force, industries that use highly-skilled labour (e.g. pharmaceutical, machinery and equipment, electronics, etc.) account for less than 4% of total industry.

Thus, low industrial productivity is aggravated by the ineffective use of the skills potential of the labour force: over 50% of the labour force is employed in low skilled (food and

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beverages, light industry, plastic products, etc.) industries, furthermore, the existing skilled labour force concentrated in former industrial zones has not been used to its full extent. There is a consensus that the current industrial structure is inefficient which means that in order to become competitive in the single European market, there is a need to restructure and modernise the industrial sector, to increase investments into advanced technologies and innovation, to expand cooperation, consolidation and the clustering of scientific institutions and industrial enterprises, i.e., to develop hi-tech industry which requires highly skilled labour. The key for Lithuanian businesses to overcome such obstacles and maximise the potential benefits and opportunities that EU membership and increased globalisation present is through investment in new technologies to improve efficiency and competitiveness, to invest in training and the development of managerial, professional and entrepreneurial skills and to actively seek new export markets. Taking these steps will enable a transition from low value added to knowledge-based manufacturing to take place – a pre-requisite for the competitiveness and survival of Lithuanian companies in the industrial sector.

Industrial zones i.e. towns that have preserved their industrial infrastructure but are currently suffering from economic recession or undergoing restructuring rather slowly due to the need for large investments clearly offer good development potential given sufficient investment in improving existing infrastructure. However, the current lack of fully equipped investment sites (“green field”/”brown field”) limits possibilities for attracting investment, both local and foreign, to such industrial zones.

Despite such obstacles, the inflow of foreign direct investment (FDI) has quickened since the second quarter of 2002. FDI into Lithuanian industry increased by 41.6% in 2002. The most significant increase in investment appeared to be in the manufacture of chemicals, chemical products and oil recast (a nine-fold increase), the manufacture of leather and leather products (an increase of 3.8 times). Investment growth in the machinery and equipment sector and computer and other electrical equipment production constituted 24%, and 61.1% respectively - in the production of medical, precision and optical instruments. The largest investments in Lithuanian industry were made in the food and beverage industries and in tobacco production (38.3 % of total investment into industry) and the manufacture of textiles (8%), vehicles (3.9%), construction materials (5.2%), radio, television and communications equipment (4.2%), wood products and furniture (5 %). More FDI investment is made in industry than in any other sector.

Table 8. Total Foreign Direct Investment by Sectors, 1 January 2003.

Sector Share in the total amount of FDI, %

Processing industry 29.3

Retail and wholesale 17.3

Financial brokerage 20.0

Post and telecommunications 13.9

Real estate, its lease, etc. 7.1

Other 12.4

It should be noted that long-term investment have always dominated in Lithuania among total foreign capital investments. As mentioned before, the Law on Restructuring, Bankruptcy and other laws were adopted in 2001 and are effectively applied to ensure transparent activities of the private sector, the application of international standards and the sector’s attractiveness to foreign

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investors. On the other hand, most FDI investment in Lithuania resulted from privatisation and/ or company mergers/acquisitions, i.e. “green field” FDI investment remain very limited. This trend is likely to remain in the immediate future: given the planned privatisation of large companies in the energy sector.

With a view to diversifying the industrial structure, consideration is given to the fact that the viability of industrial sectors is determined by the positions they have achieved in domestic and international markets, changes in foreign markets and the ability to adapt to changes, as well as comparative advantages. Investments in training, the implementation new of innovations, the adaptation to international quality and regulatory requirements, etc. is aimed at shifting manufacturing activities towards the production of higher value-added products and the provision of high value-added services both in traditional industrial sectors which have a comparative competitive advantage (although short-term) and in hi-tech and knowledge-based industrial sectors. This is necessary in order to diversify the risk of economic development cycles of different traditional and new sectors – the development cycle of traditional sectors is slower, growth rates are lower and the expansion of markets is slower. However, low growth rate sectors are characterised by stability which can help to balance risk given that new, more rapidly growing sectors; while generating higher levels of added value, tend to be inherently more risky than long established sectors.

Table 9. Assessment of Industrial Development Disparities between Lithuania and EU Countries.

Disparity Indicator Year Lithuania EU average Assessment of Disparity

Share of GDP created by the processing industry in the country’s GDP

% 19992001

15.720.7

20.6 Small

Share of population working in the processing industry

Share of population working in industry (including construction)

% 199820011998

17.317.927.1 29.5 Small

Share of R&D-oriented industry in the processing industry

%19982001

5.95.6

22.5 Large

Share of industry using highly skilled labour in the processing industry

% 19982001

3.53.1

16.8 Large

Productivity in the extracting and processing industry

Added value generated

by 1 conventiona

l workers per hour, Lt.

19952001

9.829.7

this indicator in

some countries exceeds

Lithuanian volumes by 10 times or

more

Large

Government Initiatives

In order to improve the existing business environment in Lithuania, the Ministry of Economy has initiated proposals on how to improve and modernise legal acts with respect to company law and to prepare draft laws relating to the incorporation of new

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business start-ups, company restructuring and company closure. To encourage entrepreneurs to pursue and develop their businesses as well as to promote and support the development of existing undertakings and new investment, the transparency of legal regulations as well as their mutual harmonisation is assured, including the reduction of various kinds of constraints to different enterprises. This is achieved by creating clear and transparent legal provisions for enterprises of different legal forms.

Currently, drafts of Company Law, Partnerships and Personal Enterprises are being finalised and will soon be presented to Parliament for consideration. Draft laws to harmonise legal requirements with the Civil Code of the Republic of Lithuania, clarify and set more precisely many legal norms, simplify various requirements related to enterprises. For example, the proposed draft Company law cancels the requirement for private companies to have a maximum of 100 shareholders, abolishes detailed requirements for the representation of shareholders’, cancels the requirement for companies to have at least one collegial management body, reduces the threshold for private companies mandatory audit to be performed, cancels the law preventing private companies from issuing bonds and allows then to buy limited number of their own shares. It also creates the legal basis for founding and registering branches of foreign companies.

Small and Medium Sized Businesses (SMEs)

The proportion of micro enterprises (up to 9 employees) as a percentage of the total number of undertakings stabilized at 79,5% at the end of 2002. The proportion of small enterprises with between 10 and 49 employees as a proportion of total undertakings increased from 11,4% in the beginning of 1999 to 16,4% at the end of 2002. Medium sized enterprises employing between 50 and 249 people accounted for 3.8% of all firms at the end of 2002.Figure 9. The structure of Lithuanian undertakings according to the number of staff (%; 1999-2002)

Data sources: Statistics Department at the Government of the Republic of Lithuania, Public Institution “Statistical Survey”

The number of SMEs decreased in 1998-2000 and 2001-2002 from 81,000 at the end of 1998 to 53,000 at the end of 2002. Simultaneously, the share of micro-enterprises in the total number of undertakings grew from 2,6% in 1999 to 18,3% in 2002. While the number of SMEs has decreased, the share of SMEs in the total number of undertakings operating nationally remained stable. At the end of 1999, the percentage of SMEs out of the total number of businesses stood at 96,5%, at the end of 2001 - 95,8% and at the end of 2002 – 95,7%. SMEs with up to 249 employees accounted for 68.8% of total employment at the end of 2002. Of this, 50.5% were enterprises with up to 49 employees.

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Figure 10. The number of operating SMEs in 1999-2002

The level of entrepreneurship, i.e. ratio between the number of registered economic entities and population increased and accounted for 4,6% in the beginning of 2002 and grew to up to 4,7% in the beginning of 2003. More SMEs were registered than liquidated in 2002. Generally, SMEs per 1000 inhabitants in Lithuania is 2-4 times lower than the EU average.Table 10. The growth dynamics of small and medium-sized enterprises in 1999 – 2002

Indicator 1999 2000 2001 2002

Number of registered SMEs (as of December 31, respective year) 140258 138693 136986 127528

Number of registered SMEs (respective year) 9830 7967 8196 5903

Number of liquidated SMEs (respective year) 6156 9354 9848 5738

Share of newly registered SMEs in the total SME sector, % (respective year) - 5,68 5,91 4,31

Share of liquidated SMEs in the total SME sector, % (respective year) - 6,67 7,10 4,19

Growth of SMEs, % (respective year) - -0,99 -1,19 0,12

Data source: Statistics Department at the Government of the Republic of Lithuania, Public Institution “Statistical Survey”

The regional distribution of SMEs in Lithuania remains uneven. The majority of SMEs are concentrated in counties that have large towns and cities as their capital. 49% of Lithuania’s SMEs operate in Vilnius and Kaunas counties, thus there is a very significant correlation between the number of SMEs in counties and the proportion of GDP accounted for by individual counties. A direct correlation, with some exceptions, can be identified between the density of SMEs and unemployment levels.

According to a survey of SMEs carried out by SMEDA and NMS in 2001, the main business development constraints include the following: low purchasing power (12%), high taxes (9%), lack of working capital (8,7%), lack of initial capital (7,6%), and lack of SME support institutions (7%). According to the survey, 78% of small and medium sized business

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entities needed external support in 2001. The need for support was mainly experienced by enterprises with 10-49 employees (81.3%) and those that had been set up between 3-5 years ago (79.7%). In 2001, legal counselling was the business area where demand for external support was highest (36.9%). Businesses also needed business support and advisory services in respect of financial management (19.2%), recruitment services (11.9%) and business management (11.6%).

Out of the total number of entrepreneurs that needed external business support, only 29.6% contacted institutions providing support within the last 12 months. The main reasons due to which the respondents did not contact the above institutions were as follows: lack of information about institutions providing support and the nature of support available (39.8%), institutions providing support pose too high requirements on a small and medium business entity seeking for support (26.4%), it is too expensive (17.9%).

Overall, despite progress made in improving the overall business environment and reducing barriers to market entry, entrepreneurial dynamism remains week and SME growth sluggish. Administrative procedures for setting up a new business still remain complex, entrepreneurs lack start-up capital as well as management and financial capacity, marketing and export skills and information. SME growth is further weakened by the relatively small domestic market in Lithuania and limited opportunities for expansion, the weak technological capacity of SMEs, problems in relation to access to finance, complex administrative regulations and their costs, and difficulties accessing suitably skilled labour. The lack of flexibility in the employment market is another key issue.

In order to address these issues and foster entrepreneurship and SME growth, long-term (until 2015) and short-term (until 2004) strategies and instruments have been developed (“On approval of strategic guidelines for small and medium business development by 2004 and of measures regarding small and medium business development for 2002–2004“) in line with the principles of the European Charter for Small Enterprises which Lithuania endorsed in 2002 and which highlighted 10 action points to help facilitate small business development.

The implementation of the principles of the European Charter requires a comprehensive and systemic approach ensuring that a small business and entrepreneurship dimension is integrated into related policies (e.g. industrial, innovation, employment, local economic development, export promotion and investment). While certain progress has been made in reaching the objectives of the Charter, further actions are needed, especially in the area of access to finance, technological capacity, and the issue of the need for improved dialogue between business and business associations/ representative organisations. More coherent and systematic actions are needed to endorse the principles of the Charter throughout other policy areas, monitor their implementation as well as to inform wider society of the results achieved.

Direct support to SMEs is delivered through a network of publicly funded business support organisation to promote small and medium sized enterprise development. SMEs in Lithuania have been the beneficiaries of publicly funded subsidised advisory services providing information, consulting and training as well as of financial services and instruments to facilitate SME growth/ help eliminate obstacles to growth. Financial instruments to promote SME development include the use of loan guarantees, the provision of micro loans and soft loans as well as the use of risk capital financing (e.g. seed funds etc.). Over the 1999 – 2003 period, a nationwide network of 20 business information centres was established in order to provide basic business information services to potential entrepreneurs and SMEs.

To create favourable conditions for innovative start-up businesses, 7 business incubators have also been established. The public institution Lithuanian Small and Medium-Size Enterprise Development Agency was established in 1995 to provide advice and training to SMEs as well as to coordinate the network of business information centres outlined above.

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While progress has been made in setting up a public business support infrastructure nationwide, the administrative capacity of the network and the quality and efficiency of services provided needs further improvement. Although the scope of and access to subsidised support services has increased (training was delivered to 8,700 businesses in the first half of 2003 (4,200 in 2002) and 12,500 businesses received consultations in the first half of 2003 (10,000 in 2002)), the effectiveness of public support services still needs further improvement in terms of informing businesses about the availability of such services, improving the quality of services provided and improving monitoring and evaluation of the impact of services provided to SMEs. While the overall role of business incubators in supporting business start-ups has been positive (approx 160 start-ups have been incubated, approx 1000 new jobs created), the incubators have generally lacked highly focused strategies to foster innovative start-ups.

Future plans include the expansion of business information centres in Lithuania and the standardisation of services on offer to ensure that all centres provide high quality basic information, consulting and training, as well as the promotion of services provided by these centres amongst SMEs. On the other hand, it is foreseen that the public business support infrastructure (LSVVPA, business incubators, business information and consulting centres) will play a major role in generating projects for structural funds, as they will assist businesspeople at regional level in developing projects.

As part of an attempt to solve the issue of access to finance for SMEs, the Lithuanian Government established a company “Investicijų ir verslo garantijos” (INVEGA – Investment and Business Guarantees) in 2001, to provide state guarantees to banks on loans issued to small and medium-sized business entities and to cover part of the interest on loans guaranteed by it. The company issued guarantees for loans received by 102 entities which amounted to 20 million litas in 2002 and 105 guarantees for 17 million litas during the first half of 2003. This shows that there is a great demand for this type of service and a need to expand financial support services to SMEs, especially micro-crediting. Table 11. Comparison of Key Lithuanian and EU Indicators Characterising the SME sector

Indicator Lithuania EU Comparison of the Lithuanian SME sector with the EU

Share of SMEs (according to the EU definition: up to 250 employees) in the total number of enterprises, %

99.4 99.8Close to EU average

Number of SMEs (according to the EU definition: up to 250 employees) per 1,000 of population

15 55Density fo SMEs is 3.6 lower than in the EU

Average number of employees in SMEs 8 4

The size of enterprises that dominates in Lithuania is larger than EU average

Average SME turnover, million euro 0.3 0.6 Revenues of Lithuanian SMEs are two times lower than in the EU

SME added value per employee, thousand euro 5.1 13

Added value generated per employee is two times lower in Lithuania

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1.3.2. SCIENTIFIC RESEARCH AND EXPERIMENTAL DEVELOPMENT (R&D)

Key statements:

Strong scientific potential of applied research in certain research areas (biotechnology, laser technology, biochemistry, chemistry, mathematics, environmental protection).

Limited national expenditure on scientific research and experimental development (only 0.6%–0.7% of the country’s GDP), while the objective set by the European Council states that R&D financing in the EU should approach 3% of GDP by 2010.

Weak potential for (and focus on) expanding scientific research and experimental development in private sector, lack of cooperation between scientists working on publicly funded research and the private sector.

The average age of scientists has increased rapidly over the past decade in part because of perception issues regarded the social status of researchers: in 2000, 55% of scientists were older than 50.

There is a universally acknowledged strong link between investment in scientific research and experimental development (R&D) and long-term economic growth, competitiveness and innovation. The Lisbon European Council meeting of March 2000 established the strategic aim: “By 2010, the European Union has to become the most competitive and dynamic knowledge-based economy in the world”. Therefore, it is clear that every country should strive to increase its research potential and to develop new high technologies and innovations, as well as to encourage their introduction and immersion into industry and business. However Lithuania as a small country is not capable of creating new knowledge in all spheres of science – it should therefore specialise in areas where it has particular expertise in order to exploit its potentially high scientific research and experimental development potential.

Lithuania`s relative progress in developing a knowledge economy was assessed using a benchmarking methodology developed by the World Bank Institute7. Using the knowledge economy index, Lithuania between 1995 and the most recent period (ranging from 2000 to 2002 depending on data availability), made progress moving from a score of 5.6 to 6.7. This higher score places Lithuania ahead of the average score for EU candidate countries (6.6) and ahead of Latvia, Romania, Turkey and Bulgaria. Based on this index, Lithuania ranks behind Visigrad Countries and Estonia, as well as the average score for EU member countries (8.12) and G7 countries (8.17).

7 For more information on the methodology, see www.worldbank.org/gdln/kam.htm .

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http://www.worldbank.org/gdln/kam.htm

Figure 11. Scores on the knowledge economy index – various countries, 1995 and 2000-02

Knowledge Economy Index

4.00

5.00

6.00

7.00

8.00

9.00

10.00

4.00 5.00 6.00 7.00 8.00 9.00 10.00

1995

Mo

st r

ecen

t

Turkey

RomaniaUkraine

Latvia

Lithuania

RussiaBulgaria

Cyprus

EUCC12

GreeceSlovak Rep.

HungaryPortugal

PolandSlovenia

Czech Rep.

Italy

Estonia FranceEU15

G7 Germany

IrelandUK

Finland Sweden

DenmarkNetherlands

Knowledge Economy Index

4.00

5.00

6.00

7.00

8.00

9.00

10.00

4.00 5.00 6.00 7.00 8.00 9.00 10.00

1995

Mo

st r

ecen

t

Turkey

RomaniaUkraine

Latvia

Lithuania

RussiaBulgaria

Cyprus

EUCC12

GreeceSlovak Rep.

HungaryPortugal

PolandSlovenia

Czech Rep.

Italy

Estonia FranceEU15

G7 Germany

IrelandUK

Finland Sweden

DenmarkNetherlands

In addition, aggregate R&D expenditure in Lithuania still remains limited. In 2001, it accounted for 0.8% of GDP, compared with 1.28 percent of GDP for the European Union and 0.32 percent for EU candidate countries on average in 2000. Given Lithuania’s relatively small GDP, the difference in R&D expenditure is particularly noticeable when absolute figures are compared. The major part of R&D expenditure is allocated to the public and higher education sectors: it accounted for 0.48% of GDP, whereas analogous expenditure in the enterprise sector accounted for only 0.2% of GDP. It has to be noted that almost three-quarters of expenditure in the business sector occured as extraordinary expenditure. It indicates that R&D activities in the business sector are not very active at the moment, however, they may become much more active in the future.

Figure 12. Expenditure Related to Scientific Research and Experimental Development, % of GDP.

The Ministry of Education and Science is in charge of preparing and executing the Lithuanian government’s R&D policy. It analyses and generalizes the practice of application of laws of the Republic of Lithuania, Government decrees related to studies at higher education institutions and on R&D-related issues; co-ordinates and implements programmes in the field of R&D studies; makes proposals for the establishment and re-organisation of higher education and research institutions etc.

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In the field of innovation and industrial innovation it co-operates with the Ministry of Economy. Lithuania’s system of scientific research and experimental development includes state scientific institutes, science and technology parks, economic entities carrying out scientific research and engaged in applied science activities. In quantitative terms, Lithuania has a well-developed network of science and study institutions. In 2002, scientific research and experimental development work was carried out by 35 higher education institutions (universities and colleges), 17 state research institutes, 9 university research institutes and 18 state research establishments.

However, the link between the scientific potential of these institutions and the business sector is not strong enough. Meanwhile the Barcelona European Council of 2002 has set an ambitious but very specific objective – financing of R&D in the EU should approach 3% of GDP by 2010, and the proportion of investment in R&D accounted for by the private sector should constitute two-thirds of total financing. Thus far in Lithuania, scientific institutions have focused on carrying out non-commercial research, rather than on applied science. According to a survey carried out by Statistics Lihuania in 1999, less than 4 percent of enterprises develop new technologies in cooperation with public research institutions: the vast majority develop new technologies in-house (54 percent) or acquire it through licenses (10 percent).

Funds allocated directly from the state budget constitute the major source of financing in scientific research and experimental development in Lithuania. The contribution of other customers, including the business sector, is much smaller than that in other EU countries. This is a consequence of the lack of interest of large business in scientific development and limited possibilities of small and medium-sized business to allocate funds to the creation of science-intensive products and modern technologies. Despite a well-developed network of scientific and higher education institutions, the framework for scientific research and studies has remained largely unchanged since Lithuania regained its independence and is now considerably outdated. It limits the possibilities of the SR&ED system to carry out research to meet the need of the private sector. The current status of physical and technical facilities does not ensure modern high-quality research.Table 12. Changes in the Distribution of R&D Expenditure.

Year 1995 1996 1997 1998 1999 2000

R&D expenditure (million LTL), where:

124.7 166.4 224.9 250.7 224.6 277.6

State budget funds, % 68.7 70.4 72.0 74.4 72.4 57.9

Funds of customers, including business sector, %

24.7 22.2 17.6 17.2 14.7 12.1

Other sources, % 6.6 7.4 10.4 8.4 12.9 30.0

Nevertheless, Lithuania has strong scientific potential in terms of conducting applied research in certain branches of science (particularly in the areas of biotechnology, biochemistry, chemistry, physics, mathematics, environmental protection) capable of meeting business needs. Scientific competence and science and business contacts in certain spheres – biotechnologies (pharmaceuticals, hormones, genetic engineering and other products of biosynthesis), mechanical engineering and electronics (mechanics, electronics, information technologies, new materials), laser technologies (lasers, medical and other equipment, measuring equipment, communications equipment), information technologies – create conditions for developing and continuously updating the manufacture of high technologies and providing hi-tech services.

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In the biotechnology sector, active institutions include the Institute of Biotechnology, the Institute of Biochemistry, Vilnius University Institute of Immunology, Vilnius University, Vilnius Gediminas University of Technology. Contemporary biotechnology in Lithuania is represented by “Biotechna”, “Fermentas” and “Biocentras”. The total number of employees in the companies set out above amounts to more than 300 people, their turnover was 45 million LTL in 2001. These companies had established trade relations with 47 countries.

Lithuania also has strengths in laser technology and has the following laser technology centres / centres for laser research: Laser Research Centre of Vilnius University, Institute of Materials Research and Applied Science of Vilnius University, Laboratory of Non-Linear Optics and Spectroscopy of Physics Institute; Optoelectronics Laboratory of Institute of Semiconductors Physics, Joint Optoelectronics Centre (Institute of Materials Research and Applied Science of Vilnius University and Institute of Semiconductors Physics). More than 10 companies in Lithuania are engaged of laser technologies production (“EKSMA”, “EKSPLA”, “Šviesos konversija”, “GEOLA”, “STANDA”, etc.). Their total number of employees in 2001 was 300 (of which 10% - Ph.D.), their combined annual turnover stood at around LTL 50 million. Most of the products sold by these companies are unique pieces of equipment in the world market, created on the basis of Lithuanian scientists’ research. 95% of laser technology products made in Lithuania are exported abroad.

The following research institutions are active in the mechanical engineering and electronics sectors: Piezomechanics Institute of the Kaunas University of Technology, Institute of Semiconductor Physics. Up to 20% of all processing industry of Lithuania can be attributed to the mechanical engineering field. A significant part of products of services sector are attributable to mechanical engineering (communications, medicine, etc.).

In the IT field, the following Universities have the best reputation and research potential: Kaunas University of Technology, Vilnius University, Institute of Mathematics and Informatics and Vilnius Gediminas University of Technology. Over 300 IT specialists work in Lithuanian research and study institutions. The volume of IT production and its contribution to Lithuanian economy is steadily increasing and constitutes at present around 6% of GDP (2002).

Recently, several Lithuanian research centres were recognised as European-level centres of excellence. These include CEBIOLA and SELITEC of Vilnius University, BIOCEL of Institute of Biotechnology, SID-APINI of Environmental Engineering Institute of Kaunas University of Technology, PRAMA of Institute of Semiconductors Physics, RECOLAR of Institute of Baltic Seashore Environmental Research and Planning of Klaipėda University.

To ensure the successful implementation of the knowledge economy strategy, a civil society forum – the Knowledge Economy Forum – was established in 2001. The forum, which was formed to address major issues facing the Lithuanian economy brings together politicians and representatives from Higher Education, NGOs, and prominent businesses in high technology industries. Additionally, the Knowledge Economy Forum, Vilnius Municipality, and Vilnius University have signed a memorandum of understanding aiming to promote the development of a knowledge economy in Vilnius. This has produced projects such as Sunrise Valley, which aims to increase the transfer of technology between universities, industries and municipalities in technology parks.̀

In 2002, a number of science and technology parks were established across Lithuania in recognition of the important role that such entities have had elsewhere across Europe in promoting technology transfer and innovation and in providing appropriate mechanisms to facilitate co-operation between the Higher Education sector, public research institutions and the private sector. The concept of science and technology parks was designed to links together the main elements in the chain that are pre-requisite to the creation of a competitive, knowledge-driven economy: Higher Education and scientific research, technology transfer mechanisms, innovation and business. Examples of Parks already in operation include „Visoriai IT Park“, Science and Technology Park “Northtown

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Technology Park” in Vilnius; science and technology parks. Knowledge-based business incubators are also being established in Kaunas, Klaipėda, Šiauliai.

The human dimension of R&D is also important. 14,980 people were employed in R&D in 2001, including 5,130 scientists (34% of the total number of employees). According to the official aggregate number of researchers, when calculated by full time equivalents, Lithuania almost equals the average of the EU countries. However, there are two problems. First, scientists are concentrated almost exclusively in the higher education (71.0%) and public sectors (27.7%), whereas the private sector and non-governmental, non-profit research organisations employ only 0.8% of all scientists. This testifies to the historic lack of a commercial-oriented R&D sector in Lithuania. Figure 13. Comparative Distribution of Researchers by Sector, 2001.

Secondly, the huge gap between the level of publicly funded scientific research in Lithuania and the level of research in the private sector can be explained by the fact that only a very small number of Lithuanian scientists have so far carried out research that could be commercialised and would stand its ground in world markets. This is determined not only by weak traditions of using R&D results in business but also by other factors linked. Firstly, the level of scientific activity amongst researchers is rather low; if it were measured by the number of published articles (ISI) (in 1999 – 158 publications per million of inhabitants), Lithuania lags behind the EU average by more than 4 times (in the EU the analogous number is 818 publications per million of inhabitants). Second is the scope and pace of retraining scientists in the public sector so that their research is more commercial focused. Added to this is the problem of ageing R&D personnel. In 2001, 53% of scientists were older than 50; in 2000, 24% of all scientists were older than 60. The issue of rapidly ageing researchers and especially scientists must be resolved in order to accelerate research into the use of high technologies in manufacturing – critical to Lithuania’s long-term economic development prospects. There is estimated to be demand for 300-400 young scientists to become researchers to satisfy minimum needs in the R&D sector to replace older scientists/ researchers that have retired. However, only 150 doctoral degrees are granted each year.

The increasing average age of scientists and lecturers has been linked to the poor perceived social status of researchers (low salaries, the weak institutional framework for research in the higher education sector). This is despite the fact that the higher education sector receives significant amounts of funding which, in relative terms, is close to the EU average. The poor social status and very slow career development of scientists, as well as the large gap between science and business, results in the emigration of an increasing number of young (as well as older) scientists to Western countries. Lithuania therefore lacks scientists with experience in applied research that could deliver training and share their experiences with others. Another problem with the research sector is that the system for organising scientific activities is regarded as inefficient. The lack of programme-based and strategic goals-oriented regulation and motivation and the failure to mobilise resources according to programmes and priorities does not create incentives for closer cooperation between those working in R&D in the public sector and business.

In Lithuania the focus of science and education should be shifted from basic research (bearing in mind that not all “basic” science in Lithuania is basic science as the term is defined in OECD countries) towards economically relevant applied research. But in small

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countries like Lithuania there is also a need for public investment in basic research and in industrial technologies. The development of basic research can and must be goal oriented, targeting economically and socially beneficial fields of technology, building up creative research capabilities, and securing the basis for technological innovation. This requires linking investment in basic science to stricter conditions and more concrete performance measures, as is done in larger OECD countries.Table 13. Assessment of Development Disparities in the Area of Scientific Research and Experimental Development in the EU and Lithuania.

Disparity Indicator Year Lithuania

EU average


Total expenditure on R&D % GDP 1999 0.52 1.92 Large

State expenditure on R&D % GDP 1999 0.5 0.73 Medium

Business expenditure on R&D % GDP 1999 0.02 1.2 Large

Researchers (full working day equivalent) / labour force, thous.

- 1998 4.90 5.28 Small

Researchers (full working day equivalent) / labour force in the business sector, thous.

- 1995 0.07 2.5 Large

Number of scientific publications per million of population

Unit 1999 158 818 Large

Budget financing to higher education

% GDP 1995 1.01 0.91 Small

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1.3.3. TOURISM

Key statements:

Lithuania’s tourism sector has significant scope for growth given Lithuania’s cultural heritage and the attractive natural environment, coastline and lakes. Some Lithuanian regions could generate substantial income and create sustainable jobs through the successful exploitation of the tourism sector

However, currently, Lithuania’s tourism potential is not being fully exploited.

In many respects, it would be helpful if tourism resources could be shared across the Baltic States given commonalities – tourism is an important sector across all three Baltic countries.

Development in the tourism sector needs to be underpinned by investment in public tourism infrastructure (which provides a basis for the creation of tourism attraction sites) and by private sector investment

With regard to training and Human Resource Development in the tourism sector, an effort needs to be made to ensure that those working in the tourism sector have the requisite skills – such as in hotel management, customer service etc.

Factors currently limiting the growth of the tourism sector in Lithuania include seasonality, the lack of leisure activities, underdeveloped accommodation services across Lithuania, inadequate qualifications of people working in the tourism sector and the need to develop clear national and regional tourism promotion strategies.

Rural tourism is already developing rapidly in Lithuania and has been identified as a potential means of helping rural economies to diversify.

Lithuania has only recently begun to exploit its potential as a tourist destination for foreign visitors and to capitalise on the potential growth of domestic tourism. Lithuania occupies a strategically favourable geographic and economic area of Central Europe and the South-Eastern Baltic Sea States. International transport links to Lithuania, as well as increasing levels of tourist visitors from neighbouring countries are important factors in the development of tourism in Lithuania. Foreign tourists primarily originate from Germany, Scandinavia, Poland, Russia and Great Britain. Moreover, historical factors have been conducive to the formation of numerous ethnic-cultural relations between Lithuania and emigrants from Lithuania to other countries (Poland, Russia, Germany, Israel, the USA, Argentina, Australia). It is also a factor influencing the development of ethnic tourism.

Lithuania’s cultural and historic assets also create favourable conditions for developing attractive tourist products. The Old Town in Vilnius, Kuršių Nerija (the Curonian Spit) and Lithuanian cross crafting are all included on the UNESCO World Heritage List. Lithuania takes part in the following international cultural tourism projects: “Baroko kelias” (Baroque Road), “Vienuolynų kelias” (Road of Monasteries), “Gintaro kelias” (Amber Road), “Kulinarinis paveldas" (Culinary Heritage), “Hanzos kelias” (Hanza Road), “Parkai ir sodai” (Parks and Gardens). 350 out of over 10,000 heritage objects are attributed to a group of objects that are of great interest to tourists, and about 110 heritage objects are

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of international tourism interest. However, many of them are not prepared for visiting or are not used for tourism purposes. The development of public tourism infrastructure using effectively cultural heritage resources should enable Lithuanian cultural and historical heritage to be enjoyed by more visitors – both foreign and domestic and will stimulate further development in the tourism service sector.

A great natural tourism potential is offered by five National Parks and 30 Regional Parks covering 7.5% of the country’s territory. One of the aims of their establishment is to form conditions for educational tourism (eco-tourism) and popularise the values of natural and cultural heritage. 254 sanctuaries protected by the State, 101 municipality-managed sanctuaries, 410 objects of natural heritage (out of which – 519 natural monuments), 194 parks can also be used for the development of educational tourism (eco-tourism) and cultural tourism. In national and regional parks, there are 15 information (visitors’) centres, good conditions exist there for the development of educational tourism infrastructure (construction of educational and recreational pedestrian paths, observation platforms and towers, camping sites, resting grounds, etc.). Via the exploitation of natural and cultural resources, it is possible to create and develop products of active leisure, educational tourism (eco-tourism), cultural tourism, ethnic tourism and rural tourism, increase the area suitable for visits, optimise the visitor flows in the protected areas in order to meet the needs of the society without prejudice to the landscape and biological diversity, protected natural and cultural objects.

Sea coast nature complex (about 720 square km), water bodies suitable for recreation and active tourism (2850 lakes of 910 square km and 760 rivers - all together of more than 76 thousand km), forests covering 30% of the country territory, curative mineral water and mud, all forms natural tourism potential. Five national parks and 30 regional parks (covering 7.5% of territory) and a unique object, Europe geographic centre, are of huge attractiveness to tourists. Creation of suitable public tourism infrastructure using natural tourism potential enables the development of active leisure tourism, enlarges adapted to tourism visiting areas, and optimises flows of visitors in protected areas.

Four major tourism centres – Vilnius, Kaunas, Trakai, and their historical region, the Baltic Sea coast and resort towns of Palanga and Neringa, Eastern Aukstaitija lake districts, forest and lake regions of South-eastern Lithuania incl. the curative spa towns of Druskininkai and Birštonas, as well as the Nemunas river basin are the regions with the greatest potential for tourism development. These regions are of importance to the development of tourism because they are located within the distance of 100 km from the major tourism centres, i.e. the large cities, and attract tourists by offering them excellent opportunities to have a rest, go on outings or a hike. Most of their territory is infertile land and tourism development is the only one way for solving acute unemployment problems in these regions. Tourism development encourages developing such activities as rural tourism, traditional handicrafts and horse breeding, recreational hunting and fishery.

The lack of public infrastructure and services is the main obstacle of usage of Lithuania's cultural and natural tourism potential to full extent. This is illustrated by incoming tourism data; the registration of local tourism is not performed yet. The number of incoming tourists is growing, but still too slow. 4,195 thousand foreigners visited Lithuania in 2002, an increase of 2.5%, compared to 2000. Export of tourism services accounted for 8% of the total Lithuanian export. The majority of foreign visitors came from neighbouring countries: Russia (29%), Latvia (28%), Belarus (16%) and Poland (8%).

In 2001, in order to better introduce the existing tourism potential, about one million litas from the state budget was allocated to the development of marketing activities, which was used for taking part in international tourism exhibitions, publishing of tourism literature, organizing tourism business missions and educational trips for the representatives of the mass media, the activities of tourist information centres abroad.

Tourism information services are provided by 31 municipal tourism centres. The activities of these centres are an important factor for developing tourism in the country but they lack tourist booklets, publications, suitable equipment, knowledge of tourism product

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presentation and proper staff qualification. Two Lithuanian tourist information centres operate abroad: in Munster (Germany) and Moscow (Russia) but their information capacity is not yet sufficient.

In 2000 the development of a unified computerized national tourist information system got underway incorporating municipal and other tourist information sources. The completion of its implementation is planned in 2006.

Both local and foreign tourists travelling in Lithuania find it rather difficult to find directions and facilities offering accommodation services or places of interest. The lack of road signs, tourism information stands and rest areas are an obvious problem when travelling in Lithuania.

Lithuania is the only country among countries of the Baltic Sea region that has no marine tourism because no infrastructure of passenger ports or yacht piers has been created yet. The infrastructure of internal water routes, piers and beaches has also not been developed. It does not allow using rivers and lakes in full extent for active recreational tourism and does not stimulate development of private service business.

The majority of existing cultural heritage sites is not prepared for sightseeing even though they could be made available for tourism by arranging expositions and by adapting them to the tourism service infrastructure. There are almost no tourism and cultural heritage sites that would be accessible to people with disabilities: there are no suitable access areas, ramps, elevators, etc.

The most rapidly growing segment of the accommodation sector is hotel accommodation: in 2002 the number of hotels and guesthouses in Lithuania totalled 225 (5,963 rooms), whereas in 1996 this figure stood at 153 (4,703 rooms). However, as many as 71% of hotel rooms are in the largest cities of the country (Vilnius, Kaunas and Klaipėda), and 9 municipal centres have no hotels at all. Many hotels are small (10–50 rooms) and cater mainly for business tourists. There is the lack of tourist class hotels, which could accommodate tourist groups at lower prices, even in the largest cities. The number of accommodation places compared to population in Lithuania is almost 9 times smaller than the EU average. It is obvious that the accommodation sector still has a large development potential. Further development of accommodation services sectors is closely linked to the development of public tourism infrastructure.

Two other segments of accommodation infrastructure are also problematic: firstly, campsites and secondly, rest houses and sanatoriums. Lithuania has only 3 campsites (864 places) and 3 tourist bases (130 places). Summer resorts are the main type of accommodation in recreational areas. However, the number of resort has been steadily decreasing. In 1997 the number of resorts totalled 281 (5,308 rooms), in 2002 - 215 (4,906 rooms). This is related to the consequences of their privatisation and termination of their activity.

Health institutions, i.e. sanatoriums, are concentrated mainly in spa resorts Druskininkai, Birštonas and Palanga. In 2001 there were 8,230 places in 33 sanatoriums. However, during the past decade the number of accommodation places in sanatoriums decreased by nearly 1,000 and the quality of accommodation services has remained poor. The most pressing problems of sanatoriums are their renovation and re-orientation of their activities towards the requirements of market conditions, as well as the implementation of marketing measures.

The sector of leisure, related to tourism, in Lithuania is the least developed in the whole Baltic region. Lithuania does not have any single permanent modern entertainment object, i.e. water attraction park, a golf court, a racecourse. The lack of entertainment discourages foreign guests from staying longer in Lithuania and reduces the competitiveness of Lithuanian tourist products, since there are fewer possibilities to attract tourists to resorts on weekends and during the off-season period.

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Lack of equipped beaches and tourist routes (water, cycling routes), sports recreational facilities are also underdeveloped. Consequently, the lack of this infrastructure does not increase the flow of tourists and does not foster the development of tourism service business.

An important factor determining the quality of tourism services is professional labour resources. Weak practical skills are the main drawback of specialists due to the poorly developed framework of practical training and the absence of forms of imitation training at training institutions. The lack of managerial knowledge among tourism business representatives is also a common phenomenon.

Rural tourism is the area facing the most dynamic growth, especially in the spa towns of Druskininkai and Birštonas. Currently, there are almost 297 farmsteads (3,430 places) and about 20 new farmsteads offering tourism services. Admittedly, the majority of these accommodation sites are open only during the summer season, they are not adapted (or only partially adapted) to the needs of disabled people and almost half of them are located in the lake district of Eastern Aukstaitija.

Another large and unused potential of tourism development is manor houses, water mills or windmills, which belong to the heritage properties. They can be adapted for accommodation services. 20% of the 790 estates are State-owned, 38% belong to private persons and 42% are of mixed ownership. The National Program of Manor Houses Renovation and Preservation points out the significance of Manor house renovation and adaptation to tourism needs.Table 14. Assessment of Development Disparities in the Tourism Sector in Lithuania and EU Member States (data of 2001).

Disparity Indicator Lithuania

EU Assessment of disparity

Number of accommodation places in hotels

Number of places/1,000population

2.8 25 (average)

Large

Number of nights spent by tourists

Number of nights per capita

0.28 from 0.8 to 20.0

Large

Revenue from incoming tourism

EUR per capita 176 from 235 to 1,740

Medium

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1.3.4 AGRICULTURE, RURAL DEVELOPMENT, FORESTRY AND FISHERIES

Key statements:

The share of GDP accounted for by agriculture, forestry and fisheries has been steadily declining over the past decade.

The high quality of land resources and the natural environment creates favourable conditions for increasing agricultural productivity (which is still low) and pursuing non-traditional agricultural activities such as eco-farming and alternative business activities such as rural tourism.

The agricultural sector’s potential is limited by the small average farm size (measured according to land area or the number of animals or the farm, etc). There is therefore an urgent need for sectoral consolidation

More positively, the consulting network in rural areas is relatively well-developed.

Vocational training programmes have been developed to improve the efficiency of agricultural activities and to help diversify the rural economy into alternative economic activities. Rural communities are generally evolving and changing rapidly. Entrepreneurial initiative and creativity in rural areas at local level has the potential to accelerate the process of structural change.

The Lithuanian food industry has been successful in establishing market niches in the EU Common Market (particularly in the meat and dairy sectors). However, consolidating on these strengths will depend in large part on the number of processing companies able to meet EU veterinary and sanitary requirements. While a number of large dairy companies already meet EU standards, most companies in the meat processing sector do not

Most of Lithuania’s forests are State-owned (71%). The structure of the private forestry sector (29%) characterised by a large number of small forestry holders) is unfavourable to intensive development in the forestry sector.

There is overcapacity in the fishing industry. The Lithuanian fishing fleet is too large particularly once EU quotas are introduced upon EU accession.

Additionally, the fishing fleet does not have the necessary equipment for preserving fish quality and older vessels are responsible for polluting the environment. The fishing fleet therefore needs to be modernised in order to improve fishing techniques so that only those species allowed under fishing quotas are caught. Veterinary and sanitary requirements also need improving. Working safety requirements are currently inadequate and need improving.

Role of Agriculture in the National Economy

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In the context of rural development, multifunctional agriculture plays an important economic, social, ethno-cultural and environment-protection role.

The share of GDP generated in agriculture, hunting, forestry and fisheries, shows a trend of steady decline. Although during the period 1994-1998 agricultural production fell, since then there has been a productivity increase in this sector. (The total value-added, generated by an agricultural employee, grew by 10.5% in 2000 and by 8.4% in 2001, based on 1995 prices.)

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Table 15: Share of GDP generated in agriculture and related sectors, %.

Economic activities 1995 1996 1997 1998 1999 2000 2001

Agriculture, hunting and forestry

11.7 12.2 11.7 10.2 8.3 7.7 7

Fisheries 0.1 0.1 0 0.1 0 0.1 0

Land use and land reform

On 1 January 2003, the total area of agricultural lands used for agricultural purposes constituted 3369.3 thousand ha, or 51.6% of the total area of the country. The area occupied by forests constituted 2009 thousand ha (30.8% of total country’s area). Drained lands constitute 3.0 million ha, 2.6 million ha of which have been drained using draining systems. Considerable investment is required for the operation of draining systems, their reconstruction and renovation. Otherwise farming activities would be significantly impaired. Table 16: Land use in Lithuania, 1 January 2003

1998 1999 2000 2001 2002 2003

Thousand ha

% Thousand ha

% Thousand ha

% Thousand ha

% Thousand ha

% Thousand ha

%

Agricultural land

3356 51.4 3373 51.6 3371 51.6 3370 51.6 3370 51.6 3369 51.6

Forests 1975 30.3 1972 30.2 1979 30.4 1998 30.6 1997 30.6 2009 30.8

The process of land reform based on the restoration of property rights to land, forest and water bodies – started in 1991. Up until 1 January 2003, 726 requests were submitted to restore property rights to 4.17 million ha of land and forest in the rural areas. Up to this date, property rights have been restored to 3.4 million ha. In total, property rights have been restored to 84.05% of the area claimed by the requests. (This also includes the restoration of rights by giving a plot in another place or by paying a compensation.) In order to speed up the land reform process, decisions have been taken providing for the deadlines to submit the claims and property-proving documents.

Although the process of property rights restoration is not over yet, already the next stage of land use is being planned – reform of land use by consolidating land plots. In this way, preconditions will be created for the formation of efficient land use. Consolidation of land plots as well as the possibility for foreigners to acquire agricultural-purpose land plots in Lithuania, provided by specific legal acts, should activate the land market and form conditions for the development of competitive farms.

In order to establish the need for land consolidation in Lithuania, the first pilot land consolidation project in Lithuania was carried out in Dotnuva, District of Kėdainiai. The project was implemented between 2000 and 2002 - the main focus was on the reallocation of land plots and the formulation of the main principles of legal basis required for that. The project results prove that land consolidation in Lithuania is possible and necessary. For that aim, the preparation of the draft Law on Management and Administration was begun; one of the main aims of the Law will be to regulate the process of land consolidation in Lithuania. Furthermore, in order to prepare adequately for the upcoming land management activities related to the improvement of agricultural

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structures as well as implementation of environmental requirements and development of rural infrastructure, a new Danish-Lithuanian pilot project was launched in October 2002: “Land consolidation – a tool for sustainable rural development”. The new project, along with simple territorial reallocation of land plots, also seeks additional objectives, including the fostering of local initiatives and the setting of related rural development strategy, as well as preparation for Lithuania’s membership in the European Union. Furthermore, it is planned during the project to test the provisions of the draft Law on Land Management and Administration related to the registration of land consolidation agreements and project implementation.

In 2002, around 500 thousand ha of land in Lithuania is abandoned and was not used for agricultural production. Parts of this area are suitable for non-traditional non-food and fodder crops, reforestation, while the other parts should be put to agricultural use.

A trend is observed during the recent time that the number of farmers, registered according to the new registration procedure in force since 2000, is not changing significantly. The number of agricultural companies fell from 1995 to 2001 by almost four times (from 2611 to 667). The main reason for such decrease is insufficient competitiveness caused by obsolete equipment, high production costs and lack of investment. Most of individual farms are of semi-subsistence type, do not have possibilities to expand and become competitive, therefore their number lately has been decreasing by 10.0% a year.

Although the average size of registered farms is close to the EU average, taking into account the number of all the above-mentioned farms and the area occupied by them, the average farm size in Lithuania in 2001 constituted 4.5 ha. Small farms are a major problem hindering the development of agricultural productive sector. Support to farms possessing economic viability should allow them to specialise and get bigger, thus forming conditions for the increasing competitiveness.Table 17: Data on farms, end of 20018.

Number of farms

Used land, thousands of ha

Average farm size, ha

Farmers’ farms 29,200 504.0 17.2

Agricultural companies 667 129.4 194

Individual farms 244,000 602.8 2.47

Total 273,867 1236.2 4.5

The subjects of the mentioned groups have the possibility to strengthen their positions through the establishment of co-operatives. Their rate of establishment in the agricultural sector of the country is not high so far. At the end of 2000, there were 371 co-operative enterprises in the agricultural sector. A large part of the established co-operatives have very few members (up to 10).

Hence, the small average farm size and a big number of small uncompetitive farms is the major obstacle to the development of agriculture.

Situation in rural areas

8 The data used include that of Department of Statistics from 2002, Ministry of Agriculture from 2002, Register of Land and Real Estate from 2002.

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Rural areas in Lithuania are considered all territories which do not fall under the category of urban territories or territories of urban-type settlements9. The rural areas make up 97.4% of the total area of Lithuania and the rural population - 33.1% of total population.Table 18: Population of rural areas in Lithuania (yearly averages)

Year Population Population density

Total (thousand)

Rural (thousand)

Rural (%) Lithuania Rural areas

1998 3549.3 1161.0 32.7 54.3 18.25

1999 3524.2 1157.1 32.8 54.0 18.19

2000 3499.5 1153.9 33.0 53.6 18.14

2001 3481.3 1151.1 33.1 53.3 18.10

200210 3475.6 1149.4 33.1 53.2 18.07

At the beginning of 2002, the average density of population in rural areas stood at 18.0 inhabitants per square kilometre11. The density of rural population is usually higher in the districts with higher agricultural potential or in the districts near larger cities.

The trend of an ageing population is common to the whole of Europe, however it is a more acute problem in rural areas than in towns. According to data from February 2003, the share of population between 15 and 59 years was lower in rural areas (56.2%) compared to urban areas (64.4%). At the same time the share of population over 60 years was significantly higher in rural areas (23.9%) compared to urban areas (18.1%). Demographic structure of rural population has a negative impact on further sustainable rural development.Table 19. Age structure of population, %.

Year Urban areas, 0-14

Rural areas, 0-14

Urban areas, 15-

59

Rural areas, 15-

59

Urban areas, over

60

Rural areas, over

60

2001 18.9 21.3 63.9 55.1 17.2 23.6

2002 19.0 20.6 64.2 55.6 17.7 23.8

2003 17.4 20.0 64.4 56.2 18.1 23.9

According to a survey of February 2002 (see Table 22), the employment in the sector of agriculture, hunting, forestry and fishery was 17.4% compared to the total number of employed in Lithuania. Taking the trend of employment from

9 When determining rural and urban territories, the Law on Territorial-Administrative Units (1994-07-14, No. I-558) is applied, namely – the Article defining the concept of living localities in the territory of the Republic of Lithuania.10 Population at the beginning of 2002.11 Source: Lithuanian Department of Statistics, 2002.

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1995, when it was in average 23.8% (19.9% in 2000, 17.1% in 2001) the permanent decrease of this share is evident. However, looking at the employment of rural population by activity sectors, agriculture remains as principal activity among rural population (50.7% of total rural employment)12. The industry and construction sectors cover 11.6%, services – 34.6% of total rural employment. The over dependency of rural population in terms of income from agricultural activities is a weakness of rural sector having a negative impact on the sustainable rural development.Table 20: Employment by sector of economic activity13.

1998 2001

Rural areas Urban areas Rural areas Urban areas

Thous. % Thous. % Thous. % Thous. %

Total 556.8 100.0 1040.8 100.0 416.8 100.0 1044.0 100.0

Agriculture, hunting, forestry and fisheries

307.4 55.2 28.7 2.7 211.4 50.7 27.4 2.6

Industry 60.0 10.8 279.5 26.8 48.2 11.6 261.1 25.0

Construction 16.8 3.0 85.2 8.2 12.9 3.1 80.8 7.7

Services 172.6 31.0 647.4 62.3 144.3 34.6 674.7 64.7

According to the survey data of the Lithuanian Department of Statistics, there were 70.2 thousand unemployed people in the rural areas. The trend of increasing unemployment is observed both in rural and in urban areas. In rural areas, the unemployment grew from 11.1% in 1998 to 14.4% in 2001 (in urban areas – from 14.4% to 18%).

Table 21: Unemployment level.

1998 1999 2000 2001

Rural areas 11.1 9.0 12.6 14.4

Urban areas 14.4 16.5 16.7 18.0

Many rural inhabitants lack initiative and support. This is also evidence that young farmers face structural difficulties in setting up agricultural holdings. Many rural people lack the entrepreneurial initiative and skills to take up alternative activities. However, bucking this trend is the growth of rural tourism. At the end of 2000, there were 200 entities providing rural tourism services in the Tourism Services Register, on 1 January 2003 – 284 entities. According to the data of the Rural Tourism Association, there are in fact 600 homesteads providing services of rural tourism. Most of them are established in the south-eastern and western regions of Lithuania. These regions have a

12 Data according to a survey carried out by the Lithuanian Department of Statistics in February 2002.13 Source: Lithuanian Department of Statistics, 2002: “Lithuanian Village”.

very high potential in terms of both natural and cultural heritage resources for further development of tourist activities in rural areas. Development of tourism in rural areas would be aided by the reconstruction and restoration of objects of rural ethno-cultural heritage, proper management of objects of ethno-archaeological heritage and their adaptation to the infrastructure of ethnographic tourism.

Income and expenditure of rural inhabitants

According to surveys of household budget, the average living level in the countryside is significantly lower than that of the urban areas. In 2001, the average disposable income per person in the urban areas was 455 LTL, in the rural areas – 311 LTL.Table 22: Dynamic of average disposable income in 1996-2001 (per one household member in a month, LTL).

1997 1998 1999 2000 2001

Rural areas 298.4 336.3 327.1 311.0 310.9

Urban areas 403.1 463.5 475.2 464.9 455.5

A large share of income of the rural population is of in-kind type. Their income in money constitutes only 2/3 of disposable income and is almost two times less than in the urban areas. The main source of income of rural population is income from labour, i.e., wages and income from non-hired labour. In 2001, it constituted 58% of all the income. A big part of the income of rural population is made up by the income from individual agricultural activities (42%).

An analysis of consumer expenditure shows that the part of expenditure on food in the total consumer expenditure is coming down from 1994. In 2001, expenditure on food formed 42% of household expenditure in the country. This share in the urban areas constituted 38%, in the rural areas – 54%. Differences in the structure of consumption expenditure is also influenced by the fact that urban dwellers spent 2.4 times as much for the living space and communal services as rural dwellers.

Figure 14: Structure of consumption expenditure.

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On the basis of the data on employment and family income, the weaknesses of the Lithuanian countryside are the following: a) unfavourable age structure of the population; b) high dependency on income from agricultural activities and low levels of such income; c) high unemployment level among the rural youth; d) significant gap between the family income levels in rural and urban areas.

The level of education plays an important role in the rural development process. The education level is significantly lower among rural population. The data by the Lithuanian Department of Statistics of 2001 show that in the group of 1000 inhabitants 658 urban inhabitants have higher, technical or secondary education, compared to 453 rural inhabitants. The level of higher education is three times lower among rural population. Although Lithuania has a wide agricultural training and consulting network, it does not solve the problem of human resource development in the countryside.Table 23. Number of population within the categories of education, per 1000 of inhabitants, 200114.

Higher education

Technical intermediate

level education

Secondary education

Basic education

Primary level education

Urban population 161 211 286 132 172

Rural population 55 156 242 187 284

Rural communities have been more active in Lithuania recently. Currently there are 300 of them. A union of Lithuania rural communities is operating. Local partnership groups (prototypes of local action groups) are being created. Although this movement is gathering tempo, it has to be said that most of the rural inhabitants still lack initiative, self-confidence, ability to participate in a constructive way in the formulation and adoption of decisions related to the territorial planning of their living areas.

Engineering infrastructure

A significant remaining problem in rural areas is related to functioning of earlier established water management systems. Those represent the large-scale drainage systems which are interconnected by water conducting canals including a large number of hydraulic structures. These systems installed during last decades are covering an area of 3.01 million of ha including not only agricultural land, but also rural settlements, forests, other recreational and public territories. They do not comply with environmental standards, as the water collected from contaminated territories is not decontaminated. Possible disturbances in the functioning of water collectors and lead-away channels pose the risk of flooding of large areas. Significant investment (around LTL 80 million a year) is needed to renovate and improve them according to environmental protection standards.

Livestock and Poultry Sector

Primary production.

Lithuania has favourable climatic conditions, fodder recourses and long traditions in animal rearing, meat and dairy production and has created a basis to foster a comparative advantage of livestock production. The livestock sector is considered as a priority sector in whole agricultural economy. The share of gross agricultural output (livestock and poultry) was 19% of the gross agricultural output in 2001 m. The dairy production totalled 1729.8 thousand tonnes of milk contributing nearly 20% to the total gross agricultural output and 43% to the total livestock production output.

14 Source: Lithuanian Department of Statistics, 2001.

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However, the productivity of sector is low in comparison with the EU countries. Majority of livestock holdings are small in size. In February in 2003, from the total number of 233,480 cattle herd owners, 200,687 had 1 to 5 livestock heads. More than 70% of milk is supplied to the dairies by small producers (1 to 5 cows) and the people aged 58-74 years predominate in this group.

As the result of State investment support during last years some specialised dairy farms have been strengthened, the quality of row milk and the yield have been increased significantly (average yield in 2001 is 4863 kg per cow a year.) However the scale of this improvement is not sufficient. The major problems in the primary sector are the following: low efficiency of production and difficulties in complying with quality, hygiene, environment and animal welfare standards. Preconditions for the restructuring of dairy farms will be laid by the early retirement of farmers from the commercial agricultural production, as well as measures of investment into agricultural holdings and fostering the establishment of young farmers.

Processing.

The dairy industry has been undergoing restructuring over the past few years. There are currently 3 large groups of dairies, 4 medium size and 6 small size dairies are processing milk. 19 dairies (including some branches of dairies) have already been granted the right to export dairy products to the EU market. This allows dairies to keep a high share of export. However, the remaining problems in many dairies are related to marketing, quality and environment management systems, as well as to improvement of hygiene, animal welfare.

Although the meat industry is undergoing restructuring, the market is predominant by rather small size industries, some larger industries are under-exploiting their capacities. The number of enterprises granted with EU veterinary certificates is modest (9 meat processing companies, February 2003). There are around 350 slaughterhouses and meat processing enterprises in Lithuania. They are divided into 4 groups as A, B, C and D lists.

The A list is comprises 20 meat enterprises, which meet the veterinary and hygiene requirements. 7 combined high capacity meat establishments (fresh meat, meat products, meat preparation), 9 high capacity meat products establishments, 1 wild game meat establishment and 2 poultry meat establishments comply with all these requirements. At present there are 9 meat enterprises approved as exporters to EU. The enterprises from the A list could slaughter 35 per cent of pigs and 45 per cent of cattle and process about 20 per cent of domestic meat production fully used its capacity.

The B list has 168 high and low capacity slaughterhouses and processing enterprises and 10 poultry meat establishments. They have declared to be ready to conformity to the EU requirements at the date of the accession.

The C list is made of 20 enterprises, which requested transitional period for modernization.

It is expected, that the D list (about 150) will have to stop their activity. They will not conform to the EU veterinary and hygiene requirements.

The major problems of the sector are: high production costs, low efficiency, difficulties in meeting EU veterinary, hygiene, environment and animal welfare standards. A number of small processing industries have already invested in modern technologies complying with EU requirements. The number of modern industries should be increased significantly before 2007.

Crop husbandry sector

Primary production

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The climate conditions and natural soil productivity are favourable to cultivating cereals, fruit and vegetables, flax, rape, sugar beat and other crops predominant in this region. Ecological and sustainable farming has also good perspectives taking the fact that the pollution of soil, water and air is rather modest.

The total crop area made up 2.15 million of hectares in 2001. Grain crops made up the largest proportions of the total crop area (44.3%) in 2001).Table 24. Statistics of Crop Sector, 2001.

Tota

l cr

ops

Cere

als

Prot

ein

crop

s

Flax

Rape

Suga

r be

at

Pota

to

Fiel

d ve

ge-

tabl

es

Fodd

er

legu

mes

Oth

er

Area,thou-sand ha

2146.0 915.2 34.7 4.2 36.4 26.5 102.2 21.1 37.3 959.5

Yieldt/ha

2.56 1.51 0.97 1.78 3.32 10.3 14.1 37.1

50% of grain products are currently used for the feedstuffs, about 19% are being consumed by humans. It is expected that grain consumption for food should go down. However, increase in livestock production caused by the growing demand for dairy and meat products will support overall demand for grain supply. In parallel to grain crops there should be increased demand of protein crops for feedstuffs as well as rather stable demand for rape, flax, potato and sugar beat.

Lithuanian region and climate are favourable for horticultural activities (vegetables cultivated in the field and under cover, fruit and berries). However, the main obstacles for smooth development of the sector are the following: lack in storage capacities, outdated vegetable growing technologies, low level of producer’s co-operation in sharing special equipment and performing common marketing activities.

The crop farms, which have invested in modern technologies, have already reached the yields comparable to those of EU countries. However, the average productivity of crop farms is rather low. All crop husbandry branches are facing problems related to outdated technologies and high production costs. Farms are lacking specialised knowledge and investment capacities to update production equipment, to use high quality seed and plant protection products.

Processing.

The remaining problems in processing of crop products are related to the modernisation of processing and marketing chain in grain and fodder industry, primary flax processing and fruit and vegetable industry. The majority of industries are facing problems of old technologies, inadequate storage and handling capacities, preparation, packaging and handling of products in the marketing chain.

According to data from the Lithuanian Department of Statistics as at 31st December 2001, there were 18 enterprises in Lithuania engaged in the preparation, processing and preserving, they process 5-7% of the fruit and vegetables grown in Lithuania. Their total number of employees stands at 600, the turnover is 39 million LTL (29 million LTL comes from the sales in the home market). All of the companies are privately-owned. 5 of them are of larger size and have from 50 to 200 employees, 7 of them have up to 10 employees, 6 have from 10 to 50 employees. Of all the 18 enterprises, only 3 have introduced technologies, which meet the EU standards. Other

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enterprises are small, their premises do not comply with hygienic norms, the equipment is physically and morally obsolete. In order for their production to meet the requirements of hygienic norms and to be competitive in local and foreign markets, technological equipment will have to be modernised and investment be made into the reconstruction of premises.

Out of 30 grain processing enterprises of the country, 7 are of the large size. The latter work profitably (profitability stands at 4.8%), they have introduced management systems according to ISO 9000 standards, the enterprises of combined fodder have already received permits in line with EU requirements for this activity. However, further modernisation and improvement of marketing of these enterprises is hindered by the lack of financial resources. This lack is partly caused by high intervention purchase prices of grain, this exerts a negative impact on the enterprises’ competitiveness. The main goal of the support from EU Structural Funds to grain-processing enterprises is to modernise and rationalise the grain processing, improve the marketing, raise the competitiveness of the enterprises and increase the value-added generated in the sector.

In 2002, 9 primary processing enterprises were engaged in the purchasing and processing flax straw. Out of them, 4 enterprises still use obsolete technological equipment, this leads to inferior quality of flax fibre. The enterprises lack resources to modernise their productive activities. It is planned, using the financial support, to reform and modernise at least 4 primary processing enterprises of flax by investing into technology and quality management systems.

Table 25 : Assessment of problem level of various fields in the sector (3 – high level of problems, 2 – average, 1 – low).

Primary production

Processing Quality of the products

Marketing

Cereals 3 2 1 2

Rape seeds 3 1 1 2

Flax15 3 2 3 1

Fruit and vegetables 3 3 3 2

The main problems in the sectors of livestock and crop husbandry are low technological level, inefficiency of production, high production costs, non-implementation of environmental, hygienic and animal-welfare standards, underdeveloped marketing. The most problematic fields include primary production of milk and meat, processing of meat; primary production of cereals, flax, fruit and vegetables, processing of cereals, flax, fruit and vegetables.

Markets for the agricultural commodities

The main export markets for agricultural products are the European countries. Taking the I-III quarters of year 2002 66.5% of exports of Lithuanian agricultural products went to the countries of the European Free Trade Association (EFTA), the Central Europe Free Trade Association (CEFTA), and Baltic Free Trade Agreement (BFTA) ( in comparison to 58% in I-III quarters of year 2001). In I-III quarters of year 2002 the foreign trade results were improving to compare with the same period of 2001 (despite the increase of trade deficit , the export share to the EU countries was increasing).

15 Primary processing of flax.

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In 2001 the dairy products accounted for the largest share - about one third (29%)- of the total agricultural and food export. Meat and meat products accounted for 2.7% , grain – 3.4%, fish and fish products – 4.0% of the total agricultural and food export.

Taking into account these trends, Lithuanian food industry will be able to have the niche in the EU Common Market. However, to compete successfully in domestic and external markets, the Lithuanian food industry requires restructuring and modernisation. There is a need of investments in capital and human resources to comply with quality, hygiene, food safety and environmental requirements.

Environmental protection and organic production

Agrarian ecosystems covering the largest part of Lithuania territory have the most impoverished biodiversity. Recent changes in land use, reduced use of agrochemicals, and an increase in fallow land has provided an opportunity for meadows and scrub systems to develop. The major environmental issues related to agriculture actually are: control of soil erosion, reduction and control of pollution of surface and ground water by nutrients, protection of biodiversity, and promotion of ecological agriculture.

In 2000, the Code of Good Agriculture Practice has been published. A lot of investment will be required to implement the Code in meat and dairy farms, especially in respect of manure handling facilities and equipment.

The issues of environment quality in the agricultural sector and rural areas in 2004-2006 are tackled by the measures “Environment protection” of the Rural Development Plan which provides for various support forms (programme of arable land, programme of target protected territories, programme of landscape management, programme of meadows management, programme of ecological agriculture, programme of rare stocks, programme of barren land, demonstration programme) and by the measure “Improvement of the quality of environment” of this Single Programming Document (under the Priority of Social and Economic Infrastructure).

Forestry

Most of Lithuania’s forests are owned by the State (71%), while the structure of private forest plots (29%) – i.e., a large number of small plots – is not conducive to the intensive development of forestry. On 1 January 2003, privately-owned forests in Lithuania covered 586 thousand ha, and the average area of a private forest plot constituted 4.5 ha. The expansion of forest-owners’ co-operatives and other organisations is slow. Lithuanian Association of Forest Owners now unites only 1.5% of forest owners.

The forest production in 2001 contributed by 0.6% to the GDP, while this contribution together with the wood industry was 3.6%. The export of timber and its products in 2001 made 10% of the total export value of the country. In recent years, Lithuania annually produced about 5 to 6 million m3 of timber. The timber preparation increases from year to year following the increasing areas of matured wood. The natural timber increase in all the forests of Lithuania constitutes 12 million m3 per year, around 60% of this increase is felled. Commercial forests occupy 71.7% of the total area of forests, the sanctuary, special-purpose (ecosystem protection and recreational) and protective forests – 28.3%.

Currently employment in state forest holdings is around 7,000, in private holdings – 3,000 (without considering wood and furniture industry, which employ an additional 40,000) employees.

In addition to wood products, Lithuanian forest are important for non-wood products, such as mushrooms, berries, medicinal herbs, game meat, furs, antlers, hunting trophies, Christmas trees, etc. Especially significant are mushrooms due to high export opportunities.

Presently, the resources of petty timber are not used in a sufficiently effective and rational way. By raising the consumption of such timber in the internal market, conditions

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would be formed to intensify the felling for the purpose of forest growing, which in its own turn would improve the structure of the forests, their productivity, resistance and overall status. The biggest part of exported timber if formed by pulp trees, and their potential use in the home market is limited. In the recent years, the annual export volumes of pulp trees has been almost 1 million m3. The main reason for this is the inadequate development level of Lithuanian timber industry which does not possess the capacity to process the petty timber generated by the Lithuanian forests.

Forest cover areas with low soil productivity. Therefore forestry and activities related to the forestry provide rural dwellers with alternative job opportunities.

The structure of the private forest sector is not favourable to the intensive development of the forestry. Private forest owners lack support, experience and specialised knowledge which are necessary in order to improve the economic and ecological value of forest.

Fisheries

Products from fisheries make up about 0,1 % og gross domestic Product in the country (Products from fish processing and from High Seas fishery included in GDP of Food industry part) and this makes 15 % of general agricultural output.

The Fishing Fleet of Lithuania caught close to 152 thousands of tones of fish and shrimp in the Atlantic Ocean and the Baltic Sea in 2002 which is almost three times more than in 1995.

There are 71 large vessels (trawlers and netters) fishing in the EEZ of Lithuania and the EU countries of the Baltic Sea. The annual catches of this fleet are about 10 thousand tones of fish. The overall length of a vessel is 18 –30 meters and tonnage is 70 – 200 GT.

Over 100 small vessels fishing in the coastal area and in the Curonian Lagoon. Overall length of such a vessel is 4 –17 meters.

25 medium and big Lithuanian fishing trawlers (within the overall length of 30 – 120 meters) fishing in the North and Central Atlantic including NAFO and NEAFC Regulatory Areas, EEZ of Mauritania and Norway (Svalbard Area). The catches of this fleet make up to 140 thousand tones of fish per year. Due to more favorable economic conditions, 8 of them had been fishing under the flag of third countries from 1995 to 2001, however before the accession to the EU they had to be reregistered in Lithuania. Therefore from 2001 catches of fishing fleet of Lithuania has increased significantly.

Table 26: Catches by Lithuanian fishing enterprises, tonnes.

1995 1996 1997 1998 1999 2000 2001 2002

Total catch 57137 89828 56627 69458 43884 45331 153527

151487

North West Atlantic (NAFO)

980 1585 1785 3107 3370 4047 7596 10946

North East Atlantic (NEAFC)

29805 28434 11391 4825 11269 11128 21357 22057

South East Atlantic (Mauritanian EZ)

10800 36730 25680 45804 16400 18100 111100

106434

Baltic Sea (offshore, in-shore and Curonian lagoon)

13571 21254 15877 13846 10793 9713 11120 9902

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Of which:

Cod

4147 5521 4694 4187 4371 4721 3852 2964

Baltic herring

3708 4257 3330 2368 1313 1198 1639 1537

Sprat 4799 10165 6018 5132 3117 1682 3135 2800 Flounder 194 330 624 749 571 618 1137 1081 Other 723 981 1211 1410 1421 2352 1312 1520Inland waters 267 288 378 365 402 347 353 398

Aquaculture 1714 1537 1516 1511 1650 1996 2001 1750

Resources of main commercial fish –cod and herring-are decreased in the Baltic Sea therefore the annual catch limits are being reduced respectively. The resources of Eastern Baltic cod due to very intensive exploitation and bad hydrological conditions are especially declined, while Lithuanian fishermen in the Baltic Sea are particularly oriented towards catching this species of fish (unlike their Latvian and Estonian counterparts). With quotas for cod catches coming down, the income of the fishing fleet are not adequate for the profitability of the business. In 1999-2000, the average expenditures per one Baltic Sea fishing vessel constituted 90-115 thousand EUR, the average income per vessel – 105-115 thousand EUR. Income for cod constituted on the average 75-81% of a fishing vessel’s income, and in the case of some fishing companies – 90-100%. The profitability of cod fishing constitutes 22-24%. Fishing of other species is of low or negative profitability due to relatively high costs and low prices; therefore, Lithuania does not fully utilise its fishing quotas for Baltic sprat. Many vessels are not adapted to the fishing of small pelagic fish, do not have the facilities for keeping frozen fish (there are no refrigerator vessels), fish is caught in small amounts, therefore the fishing as such becomes not efficient.

Table 27: Efficiency indicators of fishery by pelagic trawls in the Baltic Sea by Lithuanian, Swedish and Finnish fishermen.

Indicators 1999 2000

Lithuania

Catches, in tonnes

per GRT 2.25 1.68

per KW 1.25 0.93

Sweden

Catches, in tonnes

per GRT 14.9 13.4

per KW 5.3 4.5

Finland

Catches, in tonnes

per GRT 10.6 11.9

per KW 2.0 2.4

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The inadequate utilization of quotas is also caused by poor demand, because the industry of canned fish products is not adequately developed – there are only 4 factories of canned fish which mostly export their production to Ukraine and Russia. Parts of the quotas are transferred over to EU for financial compensation. The following parts of the quotas, remaining to Lithuania after the transfer to EU, are utilized: in the case of cod – 98-100%, in the case of sprat – 40-70%, in the case of Baltic herring – 40-60% (the latter, however, in 2003 was utilised fully already by the end of October) , the remaining quota for salmon only in 2002 was utilized fully (99.9%).

The vessels fishing in the Baltic sea are old, uneconomic – they use a lot of fuel, do not have modern equipment for preserving fish quality while transporting, hygiene and sanitary conditions are not adequate. 59% of vessels were built 26 or more years ago, 10% - more than 30 years ago, 3% - more than 45 years ago. Many of the Lithuanian fishing vessels in the Baltic Sea are adapted to the catching of cod, but the resources of the latter have very much decreased.

The state of vessels fishing in the Atlantic Ocean is considerably better, they have modern navigation and fish-seeking equipment, are better served. However, their average age is 22-24 years, therefore they are much worn. 15 vessels possess numbers of veterinary inspection.

In 2003, the construction of the landing-place for the Baltic Sea fishing vessels in the Klaipėda Seaport was finalised: including quays, engineering networks, start the operation of ice generator (production capacity – 20 tones of ice in 24 hours), the sorting machine of small fish, ice storage facility (capacity of 100 tones), 100 thermo-containers for the transporting of fish. At present, the new port still does not present good sanitary conditions for the landing of fish, lacks premises for first sale of fish and storage, the control of first sale is not adequate. Fish is sold by separate agreements with primary wholesalers, producers’ associations are not yet in place, therefore, there are no conditions to apply price support mechanisms.

The fishing business in Lithuania is concentrated in the only seaport Klaipėda. Fishermen are united by associations and active – this forms preconditions for the creation of producers’ organisations.

Fish processing industry is a fairly important field within Lithuanian food industry. Fish production volumes and the industry capacities have been continuously increasing. 68 thousand tones of fish products were produced in 2002, in 2000 – 47 thousand tones and in 1998 – only 21.1 thousand tones. In recent several years, the number of fish processing companies has significantly decreased: from 110 in 1999 to 68 in 2002 due to the reason that a major part of such companies was not in compliance with hygiene and sanitary requirements could not compete, the Russian crisis also has had a negative impact on some of them. Reduction tendencies in the number of companies so far remain due to their inability to conform to the more severe requirements set for fish processing. Some of enterprises are under-exploiting their capacities. 5 new modern companies however have started their activities. 13 companies meet EU standards and possess EU veterinary numbers allowing them to export their products to the EU. Hazard Analysis and Critical Control Points (HACCP) system has been introduced in 24 fish processing companies, in 26 companies the HACCP is under the process of development.

Contrary to the neighboring Estonia and Latvia, Lithuanian fish processing industry has been mostly using imported raw materials (about 75 per cent). Although a part of companies have increased their production capacities and exports, the fish and fish products import – export balance still remains negative, as Lithuania lacks fresh high quality fish, local fisheries resources concist of several species some of which have been used inefficient. Fish caught by Lithuanian fishermen and supplied to Lithuanian companies for processing and direct consumption make up 8 – 12 thousand tones or only 25 per cent of gross demand. In 1999 – 2002, fish imports were 51 – 71,7 thousand tones and exports – 28 – 63,8 thousand tones (re-exports amounted up to 29 – 34,1 per cent).

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Fish and fisheries products make up to 7 per cent of the value of entire amount of foodstuffs exported by Lithuania.

A major part of products produced by fish processing industries is delicious surimi products (crab sticks, fish fingers, etc) - about 34 per cent, frozen fish and frozen fish fillet – 23 per cent, canned fish – 12 per cent. Those products are subject to exports. Products of other groups, such as salted, smoked, dried fish and culinary fish products are supplied to the Lithuanian market. The main task of the support from FIFG to fish processing enterprises is to modernise and rationalise the processing, improve the marketing, raise the competitiveness of the enterprises and increase the value-added generated in the sector. The major problems of the sector are: high production costs, low efficiency, difficulties in meeting EU veterinary, hygiene, environment and animal welfare standards.

Out of 30,000 natural rivers and streams (almost 64 thousand km), only 13 thousand km are not regulated. Out of them, there are 147 rivers and streams or their stretches (4443.3 km) which are important from the ichthyologic point of view and have 69 dams impassable or hardly passable for migrating fish (salmon, sea trout, vimba, eel, etc.). 29 fish ladders should be constructed in those places, 3 fish ladders should be reconstructed, reconstruction works should be carried out 24 major dams hindering for the migrating of the fish, and 13 minor obstacles should be removed.

Inland waters constitute about 4% of the country’s area. In 2002, 2055 tonnes of fish was caught and farmed in the inland waters. Aquaculture products are cultivated by 17 major companies and more than 50 farmers. 95% of the farmed fish is carp. The annual volumes of fish farmed has remained largely unchanged over the last 5 years - the changes amount to 5% at most. Export to Latvia, Poland, Hungary accounts for 35% of the whole volume of production. The contribution of the inland waters fisheries into the total production of fish is not sufficient. The potential possibilities of breeding and farming trout, pike-perch, pike, peled whitefish, crayfish and of supplying them to home market and abroad are not used. The profitability of aquaculture companies is low (only 2-3%) due to the use of obsolete and inefficient technologies. This prevents the owners and managers from investing into modern fishing equipment, reparation and modernisation of hydro-technical equipment of water ponds, timely prevention of fish diseases, rearing of new species of fish.

A series of changes in the fishing industry are likely to occur after Lithuania’s accession to the EU. Lithuanian vessels will loose the possibility to fish current amounts of fish in the NEAFC (North-East Atlantic Fisheries Commission) Regulatory Area. Cod stock are depleted and therefore fishing with trawlers in the European economic zone is prohibited. The economic viability of fishing depends on political, ecological and biological factors beyond the control of the enterprises concerned. There is a need to reduce losses of fishermen in case of unforeseeable circumstances and technical restrictions. Table 28. Development disparities between Lithuania and EU in the agricultural and rural development sector.

Disparities Index Year Lithuania EU average Level of disparities

Agriculture in GDP VAB/GDP, % 2000 6.916 1.7 Average

Employment in agriculture, forestry and fishery

% of total employment

2000 19.9 4.3 Considerable

16 Source: Lithuanian Department of Statistics, 2001.

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Farm structure Average farm size, ha

2001 4,517 18.1 Considerable

Food industries complying with the EU hygiene standards

Sectors complying18

2002 Dairy, fishery

Considerable

Share of rural family income used for food

% 2000 56.2 17.0 Considerable

17 Average farm size established as the average of all types of agricultural holdings (family farms, agricultural companies, household plots).18 Sectors where 50% and more of products are being produced in industries complying with EU hygiene standards.

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1.3.5. TRANSPORT

Key statements:

Lithuanian roads need upgrading in order to cope with increasing volumes of traffic and congestion which are outpacing efforts to upgrade existing and build new road infrastructure. This leads to deteriorating traffic safety conditions, increased waste in transportation time and increased levels of congestion.

These trends are responsible in part for the fact that the number of people killed in traffic accidents in Lithuania is almost 1.7 times higher than the EU average in relative terms.

The lack of high-quality physical infrastructure also causes a situation where Lithuania, a sea state crossed by two major international European-level transport corridors, does not fully exploit its potential in terms of transit and tourism.

Lithuania’s railway network is currently under-utilised in terms of rail freight. Up to twice as much rail freight per year compared with current levels could be transported. However, such flows of cargoes are not achieved due to the unsatisfactory condition of the railway infrastructure and outdated rolling-stock.

Klaipėda Seaport is not adapted to the servicing of passengers which hinders the development of sea tourism. Investment in infrastructure development is therefore needed to maximise Klaipėda Seaport’s potential

Transport is an important part of the economic and social infrastructure of the Republic of Lithuania. Its role is to satisfy the needs of both the travelling public and companies in transporting cargoes and passengers. Since 1996, the share of GDP in Lithuania generated by the transport sector has been increasing and in 2002 transport accounted for 9% of GDP. The transport sector currently employs about 75,000 people, who account for 5% of Lithuania’s working population. The transport sector exerts a direct influence on Lithuania’s economic development via international and local trade and tourism and by helping to create favourable conditions for business development. The development of a modern, efficient and integrated transport system also reflects the underlying principles of the Single European Market and the free movement of goods and services.

The growth of the national economy, leading to higher standards of living, and the creation of new jobs would be impossible without an effective transport system and adequate transport infrastructure, providing the opportunities to exploit the potential of local and international market.

The density of the network of the Lithuanian transport infrastructure is sufficient; the technical parameters however do not satisfy the increasing demands of traffic flows and do not correspond to the level of transport infrastructure development in the EU. The country’s territory is crossed by International Multi-Modal Trans-European Transport Network Corridors approved at the Second (held in Crete) and the Third European Transport Conferences (held in Helsinki) used for transporting major cargo flows:

The first North-South Corridor (highway Via Baltica and railway line Tallinn- Riga-Kaunas-Warsaw).

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IX East-West Corridor branches IXB (Kiev - Minsk – Vilnius – Kaunas – Klaipėda) and IXD (Kaunas – Kaliningrad).

The railway junction in Klaipėda Seaport, international airports of Vilnius, Kaunas and Palanga and the inland waterway Kaunas – Klaipėda form an inseparable component of the Multi-Modal Transport Corridors constituting the TINA network19.

A very important element in the development of multi-modal transport in Lithuania is the establishment of logistical centres and their incorporation into the network of logistical centres which is currently being created in the continental Europe, including the Baltic Sea Region. It is planned to create logistical centres in the administrative-industrial centres, exploiting the opportunities of the corridors I and IX and the Klaipėda Seaport in the EU market for transport services.

In parallel with the development of multi-modal transport, the aspect of modal transport development is also important. Therefore, it is necessary

Road Transport and Road Infrastructure

The total length of Lithuania’s road network (including streets in cities and towns) is 76.6 thousand kilometres. According to the Law on Roads (11 May 1995, No. I-891), roads are grouped into the state roads (21.3 thousand kilometres) and roads of local importance.Table 29. Structure of Lithuania’s Network of State Roads as of 1 January 2003.

Type of surfacing Length (km) Total

Main roads National Regional

Cement concrete 84.6 – 1.4 86.0

Bituminous concrete + blacktop surface

1,657.4 4,778.6 5,554.0 11,990.1

Cobble 0.20 3.6 19.5 23.3

Gravel 0.00 81.8 9,148.4 9,231.42

Total 1742.2 4864.0 14,727.4 21,330.6

At the beginning of 2003, the density of state roads per 1000 population was 6.15 km, and per 1,000 km2 – 326.4 km. The density of roads with improved surface (asphalt / concrete) per 1000 population is 3.46 km, per 1.000 km2 – 185 km. Lithuania’s road network is spread in a sufficiently balanced manner, there are not counties where road length would be insufficient; however, the roads with improved surface are not evenly spread.

The Inland Transport Committee of the United Nations Economic Commission for Europe awarded Road Category E to some of the most important Lithuanian roads. However, the majority of them were hardly reconstructed during the past decade; therefore their technical categories are often considered low. In 2001 there were 228 kilometre-long sections (or 14%) on E roads of the country, which failed to comply with the requirements set to these roads.

19 On the initiative of the European Commission and in accordance with the criteria and priorities of the Decision of Parliament and Council 1692/96/EC, the process of Transport Infrastructure Needs Assessment for Central European countries (TINA) was started in March 1996.

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Nearly 1.3 million vehicles were registered in Lithuania at the end of 2001, including 1.1 million of personal cars (since 1996 their number has increased 1.5 times), 110 thousand cargo-carrying vehicles and 15 thousand buses. 704 carriers were granted licenses to transport passengers on long distance and international routes at the end of 2003 and licences granting the right to carry cargoes on international routes were issued to 3341 carriers. Table 30: Number of transport vehicles in Lithuania (thousands).

Personal cars Buses Freight vehicles Total number of transport vehicles

1997 882.1 14.9 93.7 1024.9

1998 981.0 15.2 99.5 1129.8

1999 1089.3 15.6 96.6 1233.6

2000 1172.4 15.1 98.6 1317.7

2001 1133.5 15.2 100.4 1280.1

The share of passengers carried by road vehicles in the total number of passengers has been stable during the past five years and constitutes 97%, while the share of freight transport by roads has decreased from 60% in 1998 to 50.1% in 2002. In 2002, about 80% of freight was carried through international transport corridors. Freight flows increased especially (1.6 times) through the international highway “Via Baltica”: from 6.29 million tonnes in 1998 to 9.86 tonnes in 2002.

With the growth in the number of vehicles traffic is becoming heavier. In 2002, as compared with 1997, it increased by 15.2% on the main motorways of Lithuania, and in individual road sections it reached 15 thousand vehicles per 24 hours. At the same time the traffic speed, the weight of cars and pressure on their axes has increased. Serious problems related to traffic jams caused by both the increase in the number of private vehicles and the increased volumes of transport emerged. Surfaces of most main motorways and roads of the country cannot withstand the increased pressure which results in cracks, surface roughness and other defects and appearance or ruts posing a threat to traffic safety, especially when the surface of the road is wet.

Table 31: Growth of average transport intensity on the national and regional roads (level of 1997 = 100%).

1997 1998 1999 2000 2001 2002

Traffic intensity 100.0% 107.2% 105.8% 102.2% 106.7% 115.2%

Survey results show that the length of the Lithuanian road network is sufficient; however, its technical condition fails to meet the growing transport traffic needs. Taking into account the importance of European Transport Corridors, the European Union and international financial institutions give priority to the strategic development of Trans-European Corridors and grants loans and subsidies for that purpose. However, during the past decade the main part of main and national roads have not been reconstructed during the last 10 due to financial constraints.

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A big impetus for the economy of Lithuanian regions and the development of tourism is the development of regional infrastructure. One of the main activities here is the paving of gravel roads, improvement of traffic conditions and introduction of environment protection measures. These measures are aimed at improving the accessibility to the inhabitants of regions of district centres, with other inhabitants and to agricultural, business, industrial and administrative centres.

In 2000 a three-year programme of asphalting gravel roads was completed and nearly 1,000 kilometres of gravel roads were laid with asphalt. This part on the state roads has decreased from 49% to 45%. In 2001 a new programme for gravel roads was commenced, which provided for laying about 630 kilometres of gravel roads with asphalt, however, due to the lack of funds its implementation is carried out unsatisfactorily.

According to data of 2002, in Lithuania are 1,547 bridges and viaducts. In assessing the technical condition of bridges, one of the main factors is the exploitation duration of the bridge following its construction or repairs (measured by years). The largest number of bridges (68%) was built from 1960 to 1990. Currently about 43% of the area of bridges have not been repaired for 25 and more years.

Looking at the numbers of traffic accidents and their casualties, one can not that the number of accidents in 2002 has dropped by 5.5% in comparison to 1998. In the process of implementation of Highways and Via Baltica projects, financed from international financial institutions and Traffic Safety Fund, the Safe Traffic Programme was created and implemented in 1997. The aim of the programme is to get rid of “black spots” on the country’s roads. These investments have had a big effect on the reduction of the number of accidents in 2000 and deaths caused by them. However, during the last two years, the number of traffic accidents has grown again. Because of higher maximum speeds on the main national-level roads, the accidents that occur there carry graver consequences than those happening elsewhere: in 1998-2002, 25% of all the traffic accidents occurred on the national-level roads, and the number of deaths in these accidents constituted 60% of the total number.

Table 32: Road traffic accidents and casualties, 1998-2002.

1998 1999 2000 2001 2002

Road traffic accidents 6445 6356 5807 5971 6090

Number of deaths 829 748 640 704 697

Number of the injured 7667 7696 6960 7103 7491

Assessing the traffic safety in the context of the future enlarged EU, Lithuania’s situation remains unsatisfactory. However, one must emphasise at the same time that the above-presented trends, facts and figures allow to consider Lithuania as one of the most suitable countries for the international transit.

Railway Transport

The total length of Lithuanian railways is 1,695.8 kilometres, including 648.3 kilometres (38.1%) of two-track railways. 98.7% of the railways are built to the Russian standard gauge (1,520 mm) and 1.3% (21.8 km) branch-line from the Polish border to Šeštokai is of the European standard gauge (1,435 mm). 461 bridges with a total length of 12.2 km and one 1.3-kilometre long tunnel form an integral part of Lithuanian railways. The density of Lithuanian railways is about 26.0 kilometres per 1,000 km2. Two electrified

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sections (Naujoji Vilnia - Vilnius - Kaunas and Vilnius - Trakai), with a total length of 122 kilometres, are used only for carrying passengers by local electric trains.

The most important Lithuanian railway lines that run in the north-south and east-west directions are included into the Trans-European railway network. The total length of IX Multi-Modal Transport Corridor on the territory of Lithuania is 539.4 kilometres; including 418.8 kilometres of the line of IXB Corridor Šumskas – Vilnius - Klaipėda and 120.6 kilometres form IXD Corridor Kaišiadorys – Kaunas - Kybartai. The total length of I Multi-Modal Transport Corridor Warsaw – Kaunas – Riga – Tallinn - Helsinki on the territory of Lithuania is 334 kilometres, 193 kilometres of which is one-track railway and 141.2 kilometres – a two-track railway. The branch line Gaižiūnai - Šiauliai (122.9 kilometres) belongs to IXB and I Corridors and is one of the main railway lines.

The present railway transport sector of Lithuania, along with that of many other Central and Eastern European countries, is rather backward in technical, economic, technological and organisation terms in relation to the modern interacting railway transport systems of EU Members States. The project speed of passenger trains on the main railway lines of Lithuania is 120 km/h; that of freight trains – 100 km/h. However, due to the poor state of infrastructure (delayed capital reparation of railways, telecommunications, signalling and electricity equipment that has been in use for 30 years) the speed in separate stretches is limited to 40 km/h.

The main transit flows in the East-West direction are between the ports of Klaipėda, Kaliningrad and Russia and other CIS countries. The flows of railway passengers and related activity indicators have been in decline for several years now. The number of transported passengers fell from 12.2 million in 1998 to 7.2 million in 2002 (in 1998 – 12.2 million, 1999 – 11.5 million, 2000 – 8.9 million, 2001 – 7.7 million).

A decrease in production activity caused by the economic reforms in the countries of Central and Eastern Europe affected Lithuanian railways too. However, in later years, like in many European countries, the amount of freight transported by Lithuanian railways increased and in 2002 freight transportation accounted for 36.7 million tonnes, including 56.7% of transit freights, 25.6% of export and import transports, and the remaining part (17.7%) were services provided to the domestic market. The existing density of the railway network, i.e. 26 km per 1,000 km2 would allow to handle up to 50 million tonnes of freight per year but this level cannot be reached mainly due to the unsatisfactory condition of the railway infrastructure: there is a need to renovate the tracks and to modernise the signalling and telecommunications systems.Figure 15: Transportation of freight by the railways of Lithuania.

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Water transport and the Sea Port

The northernmost ice-free Klaipėda Seaport on the eastern Baltic coast is a key junction in IXB transport corridor linking motor roads and sea routes in the East-West direction. The Port can receive ships up to 245 meters long and with the draught up to 10.5 meters. The recent trend is that ships of greater tonnage are being served.Table 33: Dynamics of ships coming to the Seaport of Klaipėda and the terminal of Būtingė, 1998-2002.

1998 1999 2000 2001 2002

Total number of ships 8155 6917 7253 7323 7356

Of them: cargo ships 4761 4052 4748 4487 4390

Gross tonnage of cargo ships, thousands of tonnes

34825.5 31711.0 36531.0 33450.4 37544.5

Klaipėda Seaport is actively competing with other Baltic Sea ports and is the fourth port on the Eastern Baltic Sea coast according to the quantity of transhipped cargoes (according to 2002 data, 11.0% of the total amount of cargo) and falls behind Ventspils, St. Petersburg and Tallinn ports. Compared to 1998 (15.0 million tonnes) the port increased its cargo handling volume to 19.7 million tonnes by 2002 (excluding Būtingė terminal). About 44.0% (8.67 million tonnes) of all the cargo is transit. In the port the total of 6.8 million tonnes was loaded onto the ships and 1.87 million tonnes unloaded. About 70% of all the cargo is transported by railway and 30% by road transport. Figure 16: Loading of cargo in Klaipėda Seaport.

Over the last eight years, intensive modernisation works have taken place at the seaport; however, part of the infrastructure is still not in line with modern requirements. The main infrastructure improvement works have included the reconstruction and construction of quays, reconstruction and development of the railway network of the port and the deepening of the seaport waters. In 2002, the project for the reconstruction of Klaipėda Seaport entrance was completed which had as its main aim the ensuring of safe and effective carriage of cargo through the Klaipėda Port. During the project, the entrance

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into the Port was deepened to 14 metres (external channel to 14.5 metres), 1,400 tonnes of ship wreckage near the northern pier were removed.

In order to be able to accept deep-gauge ships of PANAMAX type (up to 60-70 thousand tonnes), the waters of the Klaipėda Port are being further deepened, the quays are being reconstructed.

During the modernisation of Klaipėda Port infrastructure, it has been necessary to improve the interaction of the port with other modes of transport (road and railway networks) by investing into the facilities to transport freights to the port via two railway bypasses of the Klaipėda City (Northern and Southern) which do not cross the central part of the City, and via three new road access routes (Northern, Central and Southern).

Klaipėda Seaport is also used for tourism purposes. 107.7 thousand passengers arrived in or departed from Lithuania by sea ferries and sea lines in 2002 – as compared with 1998, the increase is 1.4 times (1998 – 76.1 thousand passengers, 1999 – 78.1 thousand, 2000 – 105.7 thousand, 2001 – 101.2 thousand). A more rapid growth of passenger flows is hindered by the underdeveloped quality of services, the small number of passenger lines, services being not adapted to the needs of the disabled. Therefore the infrastructure of Klaipėda Seaport is gradually being modernised for the purpose of serving passengers and the development of sea tourism.

The total length of inland waterways in Lithuania is 843.3 kilometres. 435.7 kilometres are used for transportation of passengers and goods. The inland waterway along the Nemunas River in the sector Kaunas - Jurbarkas - Klaipėda and river port of Kaunas are included into the European Priority Network of Inland water ways of international importance (TEN-T). Also, the inland waterways Kaunas - Klaipėda and the waterway along the Curonian Lagoon have been assigned the United Nations inland waterway Routes E41 and E70 with link Kaunas through Klaipėda Seaport with international navigation routes and via Kaliningrad region – with the inland waterway system of Western Europe. Main flows of cargoes and passengers are handled by temporary ferry ports between Klaipėda and Neringa. Table 34 : Transportation of cargo and passengers via Lithuanian inland waterways.

1998 1999 2000 2001 2002

Transported cargo, thousand tonnes

1338.3 796.7 852.4 543.3 515.0

Transported passengers, thousands

1563.6 1728.3 1299.9 1323.6 2890.2

The role of Lithuanian inland waterways in the overall transport system does not bear big influence due to the following reasons: short navigation period, shallow waterways, seasonal change in water level, limited number of navigation routes, obsolete fleet inland water vessels not adjusted to carry different types of cargo and passengers, lack of modern infrastructure.

One of the main development priorities related to inland waterways is the development of tourism. Currently about 30 private tourist ships serve passengers in the Curonian Lagoon and the section between the Nemunas River mouth and Sovetsk (Tilžė). Passenger navigation services in the Curonian Lagoon, Druskininkai and Trakai Lake are gradually renewed. However, Kaunas winter port, Kaunas passenger pier, Kaunas Lagoon passenger pier, Nida and Uostadvaris pier which have a tourism potential do not comply with the present day requirements, their infrastructure is not developed, there are neither roads leading to them nor parking lots or other necessary elements of infrastructure there.

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The development of the infrastructure of inland water transport would require the creation of a uniform inland waterway system from Kaunas to Klaipėda ensuring the average navigation depth of 150-170 cm and 50 m wide. This would form conditions for developing the passenger cruise shipping along the whole length of the Nemunas River. All of this would significantly contribute to the development of rural tourism, promotion trade services and would improve communication between different locations.

Air Transport and Airports

Lithuania currently has 4 international airports, 3 of which (Vilnius, Kaunas and Palanga) are included into the TEN-T network.

Vilnius Airport is the most modern and largest airport in Lithuania situated 6 kilometres from the city centre. However, compared with regional airports of Western Europe, it is of an average size. The runway of Vilnius airport is 2,500 metres long and 50 metres wide. In terms of capacity, it is able to handle about 32 aircraft and 700 passengers per hour. This airport handles the majority part of international flights in Lithuania and is the largest in terms of passenger transportation. In 2002, the total number of incoming and outgoing flights at Vilnius airport was 17,124; it handled 635 thousand passengers and 5.1 thousand tonnes of cargoes.

Kaunas Airport is situated 13.8 kilometres North-East of Kaunas. Its runway is 3,250 meters long and 45 metres wide. The capacity of the airport is 6 aircraft and 200 passengers per hour. Kaunas airport serves mostly cargo flights; the major part of freight is transit freight. In 2002, the total number of incoming and outgoing flights at Kaunas airport was 3,957 aircraft; it handled 19,891 passengers and 8.5 thousand tonnes of cargoes (58.9% cargoes transported by air). Its future prospects are related to the development of charter cargo flights and to the activities of Kaunas free economic zone.

Palanga Airport is situated 7 kilometres north of Palanga and about 28 kilometres north of Klaipėda. The total length of the runway is 2,000 metres; its width is 40 metres. The capacity of the airport is 6 aircraft and 200 passengers per hour. In 2002, Palanga airport served 4,730 aircraft, 45,971 passengers (since 1998 this number has increased by about 1.42 times). The activities of Palanga airport, first and foremost, focus on passenger service and promotion of the development of resort services and tourism, as well as meeting the needs of rapidly developing Klaipėda region. Table 35: Activity indicators of international airports.

1998 1999 2000 2001 2002

Vilnius Airport

Number of incoming and outgoing planes serviced

16711 18185 17277 18362 17124

Incoming and outgoing passengers, thousands

462 480.8 521.5 584.2 635

Loaded and unloaded cargoes, thousand tonnes

5.26 4.96 5.6 4.94 5.08

Kaunas Airport


5090 5592 4190 4409 3957


27.3 26.4 19.2 20.1 19.9

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3.96 4.61 7.12 9.52 8.48

Palanga Airport


4904 5306 4722 4562 4730


38.3 37.6 39.3 45.7 46


0.26 0.0 0.06 0.28 0.09

The infrastructure of Lithuanian airports and air space control systems are rather well developed, however, the present capacities are not used to the full extent. It is necessary to improve the security equipment of airports and adapt their infrastructure to the requirements of ICAO.

Local Traffic and Transport Infrastructure

In 2001, the number of automotive vehicles in Lithuania stood at 326 motor vehicles per 1,000 of the population. It is realistic that this indicator will reach 350-450 motor vehicles per 1,000 of the population over the short-term, and therefore, inadequate development of road and path network produces a negative effect on traffic conditions, traffic jams are created during peak hours, and all this results in extra motor vehicle air pollutant emissions and extra time loss. Table 36. Number of automotive vehicles per 1,000 / population in Lithuanian Cities 1995-200020.

City Year

1995 1996 1997 1998 1999 2000 2001

Alytus 171 215 235 302 333 384 357

Marijampolė 321 453 425 544 586 537 540

Šiauliai 165 186 219 265 289 339 306

Klaipėda 246 272 309 341 377 418 398

Panevėžys 201 225 248 272 298 351 324

Kaunas 235 241 256 263 287 333 323

Vilnius 191 201 226 244 270 310 320

Lithuania 199 219 248 277 310 336 326

20 Source: “Transport and Communications”, Lithuanian Department of Statistics.

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Table 37. Number of Vehicles in Lithuanian Cities (December 2001, in thousands)21.

Motorcycles

Buses Motor vehicles

Cargo buses

Commercial vehicles

Total vehicles

Alytus 0.55 0.49 25.48 0.19 3.05 32.59

Marijampolė 0.33 0.31 32.14 0.28 2.99 39.86

Šiauliai 0.59 1.53 42.02 0.39 45.48 54.66

Klaipėda 0.41 1.53 86.76 0.38 6.74 99.85

Panevėžys 0.71 0.57 40.26 0.44 5.10 52.55

Kaunas 0.83 2.53 119.43 1.22 13.73 147.72

Vilnius 2.56 3.96 180.17 2.63 25.84 232.04

Lithuania 38.74 20.14 1069.36 11.91 148.3 1384.87

The percentage in major Lithuanian cities stands at 48.6% (the highest in Vilnius - 17%) of total vehicles. In 2002, motor vehicles prevailed in the transport flow on Lithuanian suburban roads amounting to 74.4%.

One of the most significant indicators of city transport system functioning is transport flow speed which is an integral indicator in cities and depends on the following factors:

technical road parameters, grade, roadway condition, traffic organisation measures (speed restrictions, prohibitions, special speed

reduction measures), traffic lights at crossroads and on pedestrian crossings, urban environment – density of crossroads and pedestrian crossings, type of road

occupancy, pedestrian traffic intensity, transport traffic intensity, flow structure, occupancy rate of traffic lanes, type of crossroads and pedestrian crossings (one level, different level), roadway occupancy by parked motor vehicles, taxi or public transport vehicles at

stops, throughput of streets and crossings.

In Lithuanian cities, beside the network of the main streets, there are a large number of secondary roads in low road occupancy blocks where speed limit on an empty road presently is only 30-35 km/h. Such roads reduce general possibilities for use of the city road network and force transport vehicles to use only primary, better maintained roads which results in their complete overcrowding. Low speed of transport vehicles on the streets increases environmental pollution causes higher emission volumes, noise levels, and in cases of stopping before crossroads – emissions reach the maximum quantities.

One of the main problems in our cities is that the current density of city road networks does not provide conditions necessary for vehicle self-regulation and optimal use of the network. This means that lines of certain roads of primary importance do not have any links with the main network within 1.0-1.4 km distance, which results in concentration of transport flows on a considerably smaller network and transport vehicles travelling longer distances, thus increasing emission volumes.

21 Source: “Transport and Communications 2001”, Lithuanian Department of Statistics.

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In order to improve the management of traffic on city streets (especially in the major cities), it is necessary to apply new technologies: construction of multi-level crossings for motor traffic and multi-level pedestrian crossings, modern ways of regulating the traffic in the crossings using the traffic lights, their combination into traffic regulation systems, introduction of traffic calculation detectors on the streets.

Part of existing road covers (both asphalt and gravel) are of a very poor quality, some of them are just unpaved roads, and thus, the noise levels and motor vehicle emissions also increase considerably. Such roads are excluded from the used road network and function only as approach roads to existing attraction objects. In a number of cases, main roads (especially in major cities) are too narrow which causes big traffic jams during peak hours. Furthermore, existing crossroads of the main road network are overcrowded during peak hours, as in most cities they do not have extra traffic lanes before the crossroads, and thus, their passage capacity is reduced.

One of the main tasks in improving the ecological situation in cities is to identify underlying factors which cause traffic jams and prolong journey length. The main factors currently include existing urban structure of cities, distribution of the living areas and jobs.

All Lithuanian cities are planned in compliance with general urban principals and are not adapted to sufficiently rational and economic passenger transportation. Multi-storey residential blocks separated from job sites, separate industrial and utility territories, which currently are in an ambiguous situation, are the main forces restricting transportation to one direction during peak hours. When developing the transport infrastructure in cities, it is essential to provide for measures which would reduce the need for transport concentration by balancing job sites and places of residences and forming poly-functional zones, integrated building.

The percentage of city passenger transportation by particular means of transport varies considerably from one Lithuanian city to another. Table 38. Public Transport Journey Structure in Lithuanian Cities.

City City buses Private buses Taxies

Vilnius 97.1 1.5 1.4

Klaipėda 47.0 25.0 28.0

Panevėžys 77.0 0 23.0

Šiauliai 78.9 4.4 16.7

One of the main elements in forming transport in cities is maintenance of the city public transport priority in general city transport systems.

However, public transport is currently totally unattractive to consumers – passengers. Bus and trolley-bus fleets are outdated and incapable of ensuring convenient and fast way to reach the target destination. This problem could be resolved through upgrading of the trolley-bus and bus fleets, introduction of modern real-time information systems for the purpose of informing the passengers, widening of roads and marking a special traffic lane for public transport or by granting it a priority to pass crossroads on intensive-traffic roads. Major cities should promote development of trolley-bus lines as an ecological (environment-friendly) vehicle, i.e. line modernisation, implementation of new lines and upgrading of the trolley-bus fleet.

A very important problem in both the central parts of the cities and the multi-storey residential blocks with high density of population (more than 150 inhabitants per hectare)

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is the parking of vehicles. In most of the areas the parking space was calculated on the assumption of the automobilisation rate of 179-180 per 1000 population – these numbers are currently surpassed even twice. One of the solutions is to foster non-motor transportation, developing relevant infrastructure for this purpose. Such measures could be applied in smaller towns. The best conditions should be formed for the pedestrians, bicycles, public transport followed by the personal cars.Table 39. Assessment of Transport Sector Development Disparities between Lithuania and the EU22.

Disparity Measurement Unit Year Lithuania EU aver-age

Assess-ment of

Disparity

1. Share of workforce in the transport sector

% of the total working population

1999 5,1 4,1 Small

2. Share of transport in GDP

% of GDP 1999 8,3 4 Large

3. Share of investments into the transport infrastructure in GDP

% 2000 1 1None

4. Transportation of freight

Tonne-kilometres per capita

1999 5188 7970 Medium

5. Transportation of passengers

Passenger-kilometre per capita

1999 10908 12750 Medium

6. Density of roads km/ km2 2000 1,15 1,16 None

7. “E” category roads % of the total length of roads

2000 2,0 1,5 Small

8. Personal vehicles Number/1,000 population

2000 315 469 Medium

9. Number of casualties in traffic accidents

Number of casualties/

100 thous. population

2000 18,4 10,8 Large

10. Density of railway lines

km/1,000 km2 2000 29,2 48,3 Large

11. Electrified railway lines

% of the total length of lines

2000 6,4 50 Very large

22 Comparison of seaport and airport indicators is problematic because they are determined by geographical location and types of cargo handled; as a result their simple comparison cannot reflect the actual situation.

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1.3.6 ENERGY

Key statements:

The strategic objectives of the energy sector and the policy framework to achieve these objectives are set in the National Energy Strategy approved by the Lithuanian Parliament.

The energy sector is characterised by well-developed infrastructure and lower than EU average energy consumption levels. There is a high level of dependency (except in oil and oil products) on a single supply source from Russia / former CIS countries, which does not create the necessary pre-conditions for sustainable development. There are also no physical links to alternative sources of power supply such as EU power networks and natural gas grids.

The electricity sector is currently characterised by over-capacity with supply significantly exceeding demand. However, this will change imminently with the decommissioning of Ignalina Nuclear Power Plant.

Improving energy consumption efficiency is one of the best means of ensuring that the energy sector remains sustainable and that the environmental impacts of energy consumption are kept to a minimum.

The energy sector is one of the most important sectors of the Lithuanian economy. It accounts for approximately 14% of the industrial workforce. The physical assets of energy companies account for about 25% of all the assets of Lithuanian enterprises and the purchase of imported energy resources accounts for a high proportion of imports into Lithuania. The energy sector encompasses the following interrelated sectors: electricity, centralised heating, oil, natural gas, coal and local fuels, renewable energy sources. These are provided by energy companies involved in the extraction, production, conversion, transfer and distribution of energy sources.

Lithuania has inherited a large and well-developed energy infrastructure, which was originally intended by the Soviets to not only serve Lithuanian domestic needs but also to serve export markets. To upgrade the energy sector will require significant investment over a long period. Currently, Lithuania’s energy sector is undergoing transition from centralised management to a market economy characterised by the privatisation of some facilities. While this process has already commenced, the further privatisation of state-owned assets in the energy sector is envisaged. Lithuania has a well-developed system of transmission and distribution of natural gas, a large and sufficiently modern oil refinery (the only in the Baltic States) and several large power plants, including the Ignalina Nuclear Power Plant that has two large reactors, with 1.3 GW capacity each. On the other hand, electricity networks, gas and oil pipelines are connected only to the Russian energy networks and all sources of primary energy are imported from the countries of the CIS, which has led to the large dependency on a single source of supply.

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Table 40. Assessment of Development Disparities in the Energy Sector in Lithuania and the EU Member States.

Disparity Indicator Year Lithuania EU averag

e23


Average total energy consumption per capita

TOE 2000 2.04 3.68 Medium

Total final energy needs per capita

TOE 1998 1.27 2.51 Large

Generation of electricity per capita

KWh 2000 3,264 6,482 Medium

Final electricity needs per capita KWh 1997 1,821 5,488 Large

Share of renewable energy resources in the total energy balance

% 1998 6.2 5.8 Medium

Energy Strategy

The last National Energy Strategy approved by the Lithuanian Parliament on 10 October 2002 sets the strategy and policy and gives forecasts for the development of the energy sector for 20 years period. Following the Law on Energy of the Republic of Lithuania the National Energy Strategy must be revised and updated every five years.

The following Strategic Objectives for the energy sector have been set in the Strategy:

1) to ensure a reliable and secure energy supply at least cost and with minimum environmental pollution, as well as constantly enhancing the operational efficiency of the energy sector;

2) to liberalise electricity and natural gas sectors by opening the market in accordance with the requirements of EU directives;

3) to privatise energy enterprises subject to privatisation in the natural gas transmission and distribution and power sector, as well as to continue privatisation of oil refining and transportation enterprises;

4) within the terms agreed with the European Union, to develop and start performing a set of measures facilitating the implementation of the European Union environmental directives in the energy sector, as well as to ensure compliance with nuclear safety requirements;

5) to ensure that 90-day stocks of crude oil and petroleum products are built up by 2010 according to the agreed schedule;

6) to prepare for the decommissioning of the reactors of the Ignalina NPP, the disposal of radioactive waste and the long-term storage of spent nuclear fuel;

7) to integrate the Lithuanian energy systems into the energy systems of the European Union within the next 10 years;

8) to further develop regional co-operation and collaboration with a view to creating a common Baltic electricity market within the next five years;

23 European Commission. Energy in Europe. 1999 Annual Energy Review. Brussels, 2000. Eurostat, Energy and Environmental Statistics. Brussels, 2002. EU Energy and Transport Data. Book of Statistics 2001.Luxembourg, 2001.

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9) to pursue an active policy of integration into the Western and Central European electricity markets and ensure that conditions conforming to the Energy Charter, EU legislation and practices are applied to the transit of energy resources through Lithuania;

10) to increase the efficiency of district heating systems;11) to achieve that the share of the electricity generated in the combined heat

and power operation mode would account for at least 35% in the electricity generation balance at the end of the period;

12) to strive for a share of renewable energy resources of up to 12% in the total primary energy balance by 2010;

13) to improve energy sector management, i.e. strengthen institutions in the sector, improve the skills and knowledge of specialists of those institutions.

The National Energy Strategy also provides the principal directions for a revised National Energy Efficiency Programme (see section “Energy efficiency and renewable energy”). It explicitly states: “The State will seek to promote the modernisation of energy facilities in existing buildings and the improvement of their insulation, the increase of energy efficiency in industry, transport and other sectors of economy as well as the increase of use of the EU structural and other support funds for the implementation of energy efficiency projects and measures.”

Electricity

At present the total installed electric power generating capacity is 6,557 MW, which exceeds the local demand three times (maximum load of the electric power system is 1,779 MW), and the main source of electric power is the Ignalina NPP, which generates cheaper electric power than thermal electricity plants using organic fuel. During the last five years it generated 76-86% of the total electric power of the country. Therefore, the choice of length of exploitation of the Ignalina NPP, which should depend on its safety and economic indicators, will have a powerful impact on the development of the electric power system of the country during the next ten years. The National Energy Strategy (Zin., 2002, Nr. 99-4397), approved by the Decision of the Parliament of Lithuania of 10 October 2002 No. IX-1130, stipulates that the first reactor of Ignalina NPP will be closed before 2005 and the second – by 2009.Table 41: Lithuania’s electricity balance, GWh.

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Total production 29363 18707 14122 10021 13898 16789 14861 17631 13535 11425 14737

Ignalina NPP 17000 14638 12260 7706 11822 13942 12024 13554 9862 8419 11362

Public TPP 11910 3527 1244 1563 1275 1917 2001 3108 2734 2254 2589

Industrial TPP 115 72 38 34 50 56 68 74 79 109 85

Kruonis HAP 159 187 266 378 548 474 478 447 304 375

Kaunas HEP 326 300 381 438 357 315 277 391 388 313 285

Small HEPs 12 11 12 14 16 11 17 26 25 26 41

Net import -12750 -5303 -2732 1099 -2678 -5159 -3525 -6082 -2682 -1336 -3964

Own needs 2205 1760 1574 1572 1541 1683 1563 1684 1586 1385 1519

HAP loading 225 263 372 517 748 647 654 615 426 517

Network losses 1714 1686 2204 1981 2008 1779 1585 1519 1330 1281 1416

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Other energy companies

804 561 657 683 799 904 805 939 779 800 874

Final needs 11890 9172 6692 6512 6354 6516 6736 6753 6543 6197 6447

Industry 5220 3655 2764 2795 2705 2704 2777 2620 2407 2318 2347

Transport 231 137 93 102 96 90 89 81 75 76 91

Agriculture 2592 1797 703 574 521 475 426 413 226 188 197

Households 1836 1796 1557 1541 1544 1637 1720 1793 1886 1767 1817

Trade and services 2011 1787 1575 1500 1488 1610 1724 1846 1946 1848 1995

The planned decommissioning of Unit II of the Ignalina NPP results in additional costs to the electric power sector, which are caused by transition from nuclear to organic fuel used to generate electric power, costs of increasing the efficiency of the existing thermal power plants and the implementation of environmental protection measures, as well as investments to build new power plants and alternative sources of electric power generation, the increased expenditure on the import of organic fuel (oil, gas).

Heat

District Heating (DH) takes approximately 60% market share of the Lithuanian heat market covering up to 90% of the heat demand in big cities and about 40% in rural areas. Heat losses in networks are still considerable. Two fuel types, natural gas and heavy fuel oil, are mainly used for heat production. Heat production capacity as well as huge district heating networks are typically oversized and need repairs and better insulation. In many cases, the reassessment of DH feasibility is needed, especially in those districts where disconnections of DH consumers from the network were considerable. Number of substations have been renovated and reconstructed, and this process is going on all the time. However pipe works including controls are not in most cases in acceptable level.

75% of residential buildings in Lithuania are heated by using district heating systems. Lithuania uses a modern method of district heating, however, due to economic, technical and social reasons it is not effective enough and requires restructuring. Therefore centralised heat generation enterprises are to be modernised, where appropriate, it is necessary to install combined heat and power plants instead of boiler-houses, to encourage the use of local and renewable resources and household waste, and to adapt ecologically clean technologies for heat generation.

Meanwhile, district heating is supplied at relatively high cost level, which, combined with restrictions contained by this product, in some cases creates an incentive to switch to other energy sources (e.g. natural gas). This threatens to induce a random process of consumer disconnection from the DH network. In turn, this process would compromise the sustainability of DH supply. DH is associated with high fixed costs and the cost efficiency of DH therefore depends on high heat consumer density. The possible deterioration of the DH market may also undermine the potentials for Combined Heat and Power (CHP) production, which is an important element for obtaining environmental goals in the energy sector. The financial support to this vital sector is needed from EC funds to increase its efficiency and reliability, simultaneously improving environmental issue.

Natural Gas

Currently the share of natural gas in the gross balance of primary energy accounts for about 28%. It is imported from a single source – the Russian Federation. 2,58 billion m3 of gas consumed in the country was imported and 0.47 billion m3 of gas was delivered to Kaliningrad region in transit in 2000. The capacity of gas-pipes, which enter Lithuania (6 billion m3 of gas per year) exceeds the present consumption considerably.

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Lithuania does not have its own resources of natural gas. Gas supplied by Russia across Belarus via the Minsk – Vilnius gas-main fully satisfies the domestic demand. The Lithuanian gas supply network is also connected to the Latvian gas supply network, but this linkage is not functioning at the moment. In addition, there is a second gas-main to Belarus which is presently not being used. Lithuania’s gas main is not connected to West European gas networks, therefore it does not have an alternative option to ensure natural gas supply. In order to establish market relations in the natural gas sector and develop a common market, there are plans to connect Lithuania’s gas system to the Polish (West European) gas system. The gas pipeline between Lithuania and Poland would give a opportunity of expanding possibilities of supplying gas not only to Lithuania but also to Latvia and Estonia.

The natural gas networks on the Lithuanian territory are managed and operated by the joint-stock company “Lietuvos dujos” (“Lithuanian Gas”). In 2002, 34% of the shares of “Lietuvos dujos” owned by the state were purchased by the consortium of Ruhrgas AG and EON Energie AG. The use of natural gas is not limited and will not be limited by the technical possibilities of supplying it from Russia. However, some of gas pipelines are old and even now the pressure of gas transported through them should be limited. Therefore there is a need to renovate them in the future. Further increases in the consumption of natural gas will be also limited by the reliability of supply which is insufficient at the moment.

From the technological and ecological point of view natural gas is the most efficient organic fuel whose world resources are extremely abundant. Having in mind the ample resources of Russian gas enterprises, tendencies of its export to the West, technical facilities for its supply that have already been created and ever stricter environmental requirements, natural gas in Lithuania is the most viable kind of organic fuel.

Oil and Oil Products

Oil products play a significant role in the balance of primary energy in the country – 2.2 million tonnes of oil products were consumed in different branches of economy in 2000, which accounted for about 30% of total consumption of primary energy. Lithuanian has the Oil Refinery, which is the only one in the region of the Baltic States and whose annual processing volumes are 7-8 million tonnes of oil import-export via the Baltic Sea terminal, with its capacity equalling 6 and 8 million tonnes. It also has one of the most modern terminals for transhipment of oil products in Klaipėda which was reconstructed in 2001 and whose capacity amounts to 7 million tonnes. At present Lithuania has all technical possibilities to import oil and oil products from different countries. In this way Lithuania essentially diversified the possibilities of supplying oil products and technically is protected from possible supply disruptions from a single country.

Indigenous resources of oil are not abundant. The current extraction level of 0.3-0.5 million tonnes of oil per year is expected to be maintained during several coming decades. Therefore in the immediate future and in the longer run the sector of oil and oil products will remain dependant on import of oil and partly oil products. Oil products will remain the reserve fuels in both thermal power plants and large systems of district heating.

It is forecast that the consumption of light oil products will largely increase in the transport sector and in 2020 will amount to about 2.0 million tonnes per year. Available transportation, processing, storage and distribution equipment is sufficient to satisfy the demand for light oil products.

With Lithuania’s integration into the EU, stricter quality requirements will gradually be introduced for oil products. After Lithuania joins the EU the quality of oil products used in the country will have to comply with the minimum requirements of European standards.

Energy efficiency and renewable energy

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Energy conservation and efficiency as well as promotion of the efficient use of local, renewable and waste energy resources by producers and consumers are among the main objectives of the energy policy defined in the Law on Energy of the Republic of Lithuania. In a view to enhancing energy efficiency, the law provides that the imported, produced and sold household appliances, using electric or other kind of energy, must be marked with energy efficiency indication labels. In a view of ensuring the efficient use of energy resources, the imported, produced and sold hot water boilers and heat generators must meet the established efficiency requirements. The boilers with the nominal thermal capacity of at least 0.4 MW and other facilities using energy recourses must be checked on energy efficiency.

The Government by its Resolution No 1121 dated 19 September 2001, approved of the revised and updated review of the National Energy Efficiency Programme and the main directions of its implementation for 2001-2005:

1) drafting the regulations and regulatory - technical documents for the implementation of the National Energy Efficiency Program;

2) building renovation and modernization of energy systems in the buildings;

3) using renewable, local and waste energy resources;

4) more efficient use of energy in production processes;

5) information, education and consultation activities.

Upon the instruction of the Government the Minister of Economy, by its order No 319 dated 26 October 2001, approved the revised and updated National Energy Efficiency Program and the main measures of its implementation for 2001 – 2005.

The implementation of the program includes the activities addressing the issues of conservation of energy resources and energy, use of local, renewable and waste energy resources and their financing as well as the development of the energy conservation strategy. The technical regulation on new hot-water boilers fired with liquid or gaseous fuels and the technical regulation of inspection of efficiency of heat generators and insulation of heat and hot-water distribution in non-industrial buildings in compliance with the EU directives were approved by the Orders of the Minister of Economy and the boiler testing laboratory was accredited. 13 technical regulations on energy efficiency and indication by labeling of consumption of energy and other resources were prepared and legally established in compliance with the EU directives. State Non Food Products Inspectorate and State Energy Inspectorate are the institutions, which must, within their competence, take all necessary steps to ensure that the appliances and generators, which get into the market and are used there, are in compliance with the requirements of these regulations.

The energy audits of residential houses, public buildings, kindergartens, schools, hospitals and etc. are carried out. Training courses on energy auditing and energy management are organized. Development and updating of the regulatory and design documentation for renovation of residential houses and public buildings as well as reconstruction of their heating systems is in progress. The investigations on the energy efficiency enhancement were carried out in the companies of furniture trade, light industry and metal processing; programs, project studies, technical regulations and standards for the efficient use of energy resources and energy as well as the use of local and renewable energy resources were worked out.

About 25% of all the dwelling space (20,400 thousand square metres, or approximately 8 thousand houses) is made up by houses of precast concrete. The construction of living houses of precast concrete was started in 1959. First-generation houses of precast concrete were built in 1959-1975, the second generation – in 1966-1992. The third and fourth generation of such houses was built during 1980-1995. Around 96% of flats and

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other rooms in the houses of precast concrete have been privatised and belong to their dwellers, the other 4% is owned by municipalities.

Houses made of pre-cast concrete show signs of physical dilapidation and have technical flaws. At present, in order to implement one of the principle requirements of “Energy and heating conservation” for the buildings, the following renovation works are applied to the blocks of flats: reparation of roofs and improvement of their heating isolation properties, modernisation of heating units and hot water preparation equipment, weather-stripping or changing of windows, reparation of seals between the blocks. These works are usually pursued on the initiative of the owners of the flats, the Central project management agency, companies of house maintenance and providers of heating.

Presently, there exists a legal basis for the provision of state and municipal support for the renovation of blocks of flats, as well as an institutional infrastructure for it. The financial sources for such investments are the own means of the owners of flats and other rooms, state-supported credits provided through the Central project management agency and using the World Bank loan for the implementation of projects of developing dwellings’ energy efficiency, state subsidies provided to the communities of the owners of blocks of flats who implement energy efficiency boosting projects via the Central project management agency (the aid covering up to 30% of the costs), community support funds formed using the municipal financial resources, credits provided by house maintenance companies and interested persons.

During 1996-2002, a demonstration project of Energy Saving / Dwelling was carried out. During its implementation, a necessary organisational environment for the successful renovation and blocks of flats and the implementation of energy-saving measures was created: engineer-consultants were trained for the preparation of investment projects, a network of consulting centres was established in order to assist the owners of dwellings at all the stages of project implementation, a wide programme of publicity was carried out. In this period, 450 credit contracts were signed, and the total sum of investment into the renovation of blocks of flats was 43 million LTL.

According to preliminary data, the total area of rooms of the institutions of education and science constitutes 6.6 million square metres. Almost 55% of schools were built during 1960-1980, 18% of schools were built before 1940. According to the disposable data, the schools are renovated every 27 years on the average. The buildings of 13% of the schools have been in use without renovation for 40 years. Therefore, the actual wear and tear of these buildings is more than 26%. The buildings of almost all the schools are inefficient in terms of energy consumption and use – the thermal resistance of the walls constitutes 0.7-0.9 m2/KW, the windows are not hermetic, the roofs are not of good quality, heating systems are inefficient.

High energy consumption and inefficiency of energy systems are the main problems in the exploitation of administrative buildings of public institutions (total area – 3 million square metres) and hospitals (total area – about 1.6 million square metres). In 2002, the Government of Lithuania signed an agreement with the North Investment Bank on the improvement of energy efficiency of the buildings of state institutions and organisations. Using this investment project, some hospitals and other buildings of state institutions will be renovated.

Following the arrangements made for the use of renewable energy sources in Lithuania, the boom in construction of power plants operating on biomass, hydro energy, geothermal energy and solar energy is observed. The total capacity of the completed projects on the use of local and renewable energy resources in the country is 350 MW. The implementation of the projects for the use of wind energy is under consideration. In pursuance of the assignment of the Strategic Committee of the Government of the Republic of Lithuania, the Zoning Scheme for Construction of Wind Power Plants in Lithuania” is being prepared, taking into account the wind energy potential, technical possibilities of connecting to electricity transmission networks and environmental requirements. The analysis is carried out to define the possibilities of using the streaks of

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the most effective rivers, including the Nemunas and the Neris, for the development of hydro energy. The development of the national scheme of hydro energy resources is underway, also dealing with the migration routes of protected and promoted fish species.

In 2001, the energy generation from renewable energy resources amounted to 708 ktoe. accounting for 9% of the country’s fuel balance. There is a considerable potential for further enhancement and increase of the use of local and renewable energy sources.

The determination of the national waste energy resource potential as well as the analysis of its use possibilities was carried out. The Program for the assessment of the national waste energy resources and determination of the economic and technical possibilities of their use was drafted and considered with the institutions in 2002. This Program and the plan of implementation of its measures for 2003-2006 will be approved in the established order The use of such resources will enable companies to utilize about 5 TWh of the heat emitted to the environment per year. Through different technical measures, the companies currently consume about 1 TWh of waste energy.

The Law on Electricity of the Republic of Lithuania provides that the state encourages consumers to buy electricity produced using the renewable and waste energy resources. In case of the uniform sale price of electricity, the market operator must give priority to the producers using local fuel as well as renewable and waste energy resources. In pursuance of the requirements of this law and the European Parliament and Council Directive 2001/77/EC on the promotion of electricity produced from renewable energy sources in the internal electricity market, the Ministry of Economy prepared the Procedure for the Promotion of the Purchasing of the Electricity Produced Using the Renewable and Waste Energy Resources, which was approved by the Government. Pertaining to this Procedure, the purchasing of the electricity produced from renewable and waste energy sources in the facilities with the installed total capacity of all generators being at least 20 MW is encouraged. National Control Commission for Prices and Energy determined the average purchase prices of the electricity produced using renewable and waste energy resources, which may be differentiated by mutual agreement, as well as the conditions of their application: for hydro power plantss – 20 ct/kWh; for wind power plants – 22 ct/kWh; for power plants generating electricity from biofuel – 20 ct/kWh.

Promotion of production and use of biofuel in the country is stipulated by the Law on Biofuel of the Republic of Lithuania. It provides that local self-government institutions, within their competence, shall promote production and use of biofuel within their territories. In pursuance of the provisions of the Law on Biofuel, five technical regulations establishing the technical requirements for production, trade, quality and use of biofuels and biological oil were approved. Besides the Rules of Trade in Oil Products, Biofuel, Bio-oil and Other Combustible Liquid Products in the Republic of Lithuania and the Procedure for Carriage and Storage in Fuel Containers of Oil Products, Biofuel, Bio-oil and Other Combustible Liquid Products were approved.

The State Strategic Waste Management Plan approved by the Governmental Resolution No 519 of 12 April 2002 highlights that the use of waste shall be promoted in pursuance of the following priorities: waste recycling and energy generation from the waste. The municipal waste management plans and all regional waste management systems that are now in the process of development must contain the measures for the collection of biodegradable waste and for the gradual development of their recycling, including the generation of biogas in special industrial facilities. The efficiency of the recycling technologies of such biodegradable waste depends on the scope of production and the existence of a large energy and biogas user in the vicinity of the facilities.

Environmental Issues in the Energy Sector

In the sphere of energy Lithuania will adhere to all international environmental conventions that it acceded to, the National Environmental Strategy, the Strategy of Environmental Approximation to the EU and the National Strategy for the Implementation

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of the Framework Convention on Climate Change, as well as the requirements of EU environmental directives.

According to the currently disposable information and the implemented technical-economical analysis, one can maintain that, after the closure of both reactors of Ignalina NPP, the lowest expenditure on the development and functioning of the electricity system and greater reliability of electricity supply can be achieved by modernising the Lithuanian PP – the main source of electricity – by installing additional gas turbines, smoke cleaning systems and using at least two kinds of fuel, also by modernising Vilnius and Kaunas thermal power plants, Kaunas hydroelectric Power Plant and by building several additional thermal power plants, whose capacity should depend on the actual increases in the demand for electricity.

Priority environmental investments in the energy sector should embrace the sector of atmosphere, first and foremost, with regard to the implementation of EU requirements and other international obligations in the sphere of environmental pollution after the assessment of implications of decommissioning of the Ignalina Nuclear Power Plant.

Liberalization and privatization of the energy sector

In 2001 the reform of the Lithuanian electricity sector has been completed. AB Lietuvos Energija was reorganized according to the project of the reorganization approved by the Government on 25 October 2001 by separating its electricity generating, transmission and distribution and supply activities as well as non-core activities. On 1 January 2002, the newly established joint stock companies Lietuvos Elektrinė (Lithuanian power plant), power plant Mažeikių Elektrinė, distribution companies Rytų Skirstomieji Tinklai (East Electricity Distribution Company) and Vakarų Skirstomieji Tinklai (West Electricity Distribution Company) started their activities, while AB Lietuvos Energija continues with its activities in the area of electricity transmission.

Reorganization will be followed by privatization of energy generating and distribution sectors. At present, the state holds about 86 per cent of shares in electricity companies, which are to be privatized by attracting strategic investors meeting the European and transatlantic integration criteria. For the implementation of the privatization process, a consultant was selected in a tender, namely CA IB Corporate Finance Beratungs Ges.m.b.H. The programs for privatization of distribution network companies was prepared in the 2nd quarter of 2003 and they are to be privatized at the end of the year. A power plant AB Mažeikių elektrinė will also be privatized in 2003.

The secondary legislation necessary for the implementation of the Law on Electricity was approved by the Governmental Resolution of 5 December 2001 and orders of the Minister of Economy of 18 December 2001 and 29 December 2001, regulating the operation of the electricity sector under new conditions of a competitive electricity market. The developed legal base is in full compliance with the legal rules of the EU.

The electricity market in the country shall be established in stages, by gradually giving the right of regulated third party access to the grid and the right to conclude direct electricity purchase contracts with producers having electricity supply licenses for the following eligible customers:

from 1 January 2002 the status of an eligible customer was granted to the customers having consumed more than 20 million kWh of electricity in 2001 for one site (having the same address) of consumption; actually this accounted for about 20% of the total country’s consumption. from 1 January 2003 the status of an eligible customer was granted to the customers having consumed more than 9 million kWh of electricity in 2002 for one site (having the same address) of consumption; such customers comprise 25 companies with actual electricity consumption making over 26% of the total country’s consumption. from 1 January 2004 the status of an eligible customer will be given to the customers who are granted the status of an eligible customer in accordance with the

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level of opening-up of the domestic electricity market defined by the Government every year. no later than from 1 January 2010 the status of an eligible customer will be granted to all customers.Regarding the internal energy market, Lithuania’s legal basis provides no obstacles to the early electricity market opening – for all customers by July 2007.

The energy regulator (electricity and gas sectors), the National Control Commission for Prices and Energy (Commission) is established. The new Law on Energy, adopted by the Seimas on 16 May 2002, clearly states the new functions of the Commission, its rights and obligations as well as defines the new principles of the energy sector regulation.

In the area of price regulation the methodologies for setting the price caps of electricity transmission and distribution services and of public electricity tariffs as well as other documents necessary for the implementation of the Law on Electricity were approved. The Commission prepared and approved, after public discussions, the Procedure for Regulation of Electricity and Reserve Capacities for Producers and Suppliers Having more than 25 per cent of the Market Share, the Price Regulation Procedure for Balancing Energy, the Procedure for Price Calculation of the Energy Produced using Renewable and Waste Sources, the Procedure for Granting the Status of an Eligible Customer and etc.

The Commission will monitor the licensing activities and price application as well as exercise supervision over the compliance with the activity transparency principles.

When the new companies AB Lietuvos Energija, AB Rytų Skirstomieji Tinklai and AB Vakarų Skirstomieji Tinklai were registered in early 2002, the Commission set the price caps of transmission and distribution services for a three years’ period, while specific prices were set by the companies.

The Licensing Division established at the Commission in 2001 has already granted one electricity transmission, 7 distribution, 7 public suppliers’ and 14 eligible suppliers’ licenses. The Commission will monitor the licensing activities and price application as well as exercise supervision over the compliance with the activity transparency principles.

All the electricity prices calculated following the methodology approved on 12 November 2001 do not take into account the benefits and “social tariffs” applied to individual groups of users i.e. do not provide for cross subsidies. There are no price distortions in electricity and gas sectors other than lower tariffs for customers in the region of Ignalina NPP. Following the harmonization of the rules of law, price distortions no longer exist and a transparent pricing mechanism is in force.

As regards the gas sector, Lithuania plans to pursue implementation of the provisions provided by Directive 98/30/EC on Internal Natural Gas Market. With the adoption of the Rules of the Natural Gas Transmission, Distribution, Storage and Supply on 5 February 2002 the legislative alignment in this sector has been completed. These rules define the procedure and conditions of the transmission, distribution, storage and supply of natural gas as well as the procedure for the use of the natural gas system.

The present legal system of Lithuania provides all preconditions for opening of the natural gas market in Lithuania at a higher pace than presently required by EU directive concerning common rules for the internal market in natural gas. In the year 2002 two external gas suppliers, Gazprom and Itera International, supplied natural gas to Lithuania. At present, however, the situation has changed, and Gazprom is the sole natural gas supplier to Lithuania. In the said context we could draw a conclusion that gas supply conditions are going to become worse in the current year, and there exists no real natural gas market in Lithuania.

As regards the natural gas sector, in 2002 a consortium Ruhrgas AG and E.ON Energie AG, being a strategic investor, acquired 34 per cent of the shares in AB Lietuvos Dujos (gas company) from the state. At present the Government carries on negotiations with a

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potential natural gas supplier for the remaining 34 per cent state-owned shares of AB Lietuvos Dujos, which are planned to be sold this year.

In the area of price regulation on 21 May 2002 the National Control Commission for Prices and Energy (Commission) approved the new wording of the Methodology for Calculating of Natural Gas Prices providing transmission, distribution prices caps for eligible customers and gas price cap for non-eligible customers. As of 1 January 2003, new gas transmission, distribution and consumption prices have been introduced to the regulated customers. According to the methodology, based on the gas consumption level gas customers are divided into 7 categories. Gas companies set the prices not higher than the established price cap. In the middle of 2002 the Commission for the first time set price caps for natural gas for three years period. According to the Law on Natural Gas the price caps shall be revised every year, based on the inflation rate, coefficients of efficiency set by the Commission, volumes of gas consumption and other factors not related with company’s activities. In May 2003 the Commission lowered the price caps for natural gas. After revision of price caps, the natural gas company must recalculate transmission and distribution prices, with regard to the decision adopted by the Commission. The Commission reviewed natural gas prices for captive customers recalculated by AB Lietuvos Dujos and confirmed that price caps are not exceeded, separate customer groups are not discriminated. New natural gas prices were approved and will become effective as of 1 July 2003.

In the area of licensing during 2002 the Commission received 13 applications to issue licenses for distribution and supply of natural gas. Abiding by the Law on Natural Gas the licenses for gas supply activity had been issued exclusively for the gas supply activity to the regulated customers. In June 2002, The Parliament amended the Law on Natural Gas and the licenses became obligatory not only for the companies supplying gas to the regulated customers but also for the companies supplying gas to eligible customers. In the natural gas sector has already granted 1 gas transmission, 5 gas distribution, and 10 gas supply licenses. The Commission will monitor the licensing activities and price application as well as exercise supervision over the compliance with the activity transparency principles.

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1.3.7 ENVIRONMENT

Key statements:

Only about 14% of waste water is treated according to EU requirements; the quality of drinking water is inadequate which is caused by the poor condition of the pipes (increased iron content, turbidity, etc.), by the pollution of underground water in areas of intensive farming and through the natural features of underground water (e.g., increased fluorine content).

The level of pollution emitted by stationary and mobile pollution sources has significantly decreased over the last decade. Nevertheless, the majority of companies fail to comply with EU standards relating to ambient air protection established to regulate and limit pollution emissions by companies.

The lack of infrastructure, inadequate production capacities and failure to implement the “polluter pays” principle has led to inefficient waste management.

Water Protection

A total of 980 million litas was invested in environmental protection between 1992 and 2001. This amount includes about 508 million litas or about 52% of state budget funds, about 287 million litas or approximately 29% of loans provided by international financial institutions and 185 million litas or 19% of grants. Almost all the investments were used for the construction of urban waste water plants. As a result of these investments, only 2% of waste water is currently drained off into the environment without treatment. I.e., a total of 168 million m3 of polluted waste water was collected in Lithuania in 2000, 24 mln. m3 (14%) was treated according to the European Union requirements, 141 million m3

(84%) was treated insufficiently and 3 million m3 (2%) was discharged without treatment. During the implementation of national and EU requirements, a big investment is still needed to modernize and construct modern waste treatment plants, to develop the systems of waste collection, to install equipment of drinking water improvement and to develop the distribution networks.

Lithuania’s water resources include territorial waters of the Baltic Sea, the Curonian Lagoon (about 413 km2), as well as surface inland and underground water bodies. There are about 22.2 thousand rivers and streams and the total length of their river-beds is about 76.8 thousand kilometres. The total area of lakes amounts to over 914 square kilometres, and they cover 1.5% of the total land area of Lithuania. There are 1,159 reservoirs larger than 0.5 hectares and their area amounts to 238 square kilometres. Lithuania possesses big resources of underground water. The potential exploitable resources constitute 3.2 million m3 of water per day.

In 2000 surface water abstraction in Lithuania amounted to 3,578 million m3, of which 93% was used to produce electricity (surface waters). In 2000, 5% of water was abstracted from underground water and 95% from surface waters. In 2000 a total of 242 million m3 was used for other purposes than energy, of which 44.2% was used for household needs.

Though all the centrally-supplied water in Lithuania is abstracted from the underground sources where the quality of the water is relatively good, a large part of Lithuania’s population still uses poor quality drinking water. The main problem is the increased concentration of iron in drinking water. Iron concentrations recommended by the EU are exceeded in 64 towns of Lithuania. The poor condition of pipes has a crucial effect on the quality of drinking water (iron concentration, colour and turbidity). About 60% of the

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water supply system equipment is outdated, installed 20-70 years ago or is of low quality. To resolve this problem about 955 kilometres of pipes, or 21% of the total network, should be renewed.

In the territories of north-western Lithuania, the concentration of the fluorine in the underground water sources (horizons) used for the centralized provision of drinking water, exceeds the normative levels. Fluorine is harmful to human health (especially that of children), and about 100 thousand people drink water with increased fluorine concentration.

An especially serious problem related to drinking water exists in the countryside where the inhabitants use the water from shallow underground sources which are susceptible to pollution and often do not comply with the requirements to the drinking water. Such water is consumed by about 1 million people who extract the water from their wells. About 50-60% of the examined wells do not comply with the requirements set to drinking water according to their nitrate content, bacteriological contamination and other parameters. The situation is further complicated by the fact that due to economic-technical reasons exploitation of the centralized water supply systems is being terminated in rural areas, and the number of people using wells is increasing.

Pollution of surface water bodies still poses the most pressing water protection problem. As little as 14% of city effluents is treated in Lithuania according to the EU requirements, while the condition of effluent management systems in rural areas is even worse.Figure 17: Emissions of Nb, Pb, BDS from point pollution sources.

Along with the pollution by urban and rural waste water, a big part of surface water pollution is caused by agricultural sources, pollution from surface waste water and industrial pollution. For this reason, investment only into the reduction of pollution from household waste water does not solve the problem of surface water pollution.

One of the main problems of the quality of river water is its pollution with biogenic and organic matters. The amount of biogenic materials in river water is demonstrated by the concentration of common nitrogen and common phosphorus. The most common nitrogen compounds in Lithuanian rivers are nitrates, but there is also ammonium nitrogen, which is toxic to the water fauna. The changes in the concentrations of these materials depend on the biochemical processes occurring in the water. Higher concentrations of biogenic materials cause eutrophication processes and the worsening

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of ecological conditions in the water. In order to achieve better ecological state of water it is necessary to reduce water pollutions with these materials. One can judge on the amount of organic matters in the water on the basis of the indicator of biochemical consumption of oxygen (BOD7). The main sources of river water pollution in organic materials are the waste water of industry, households, animal husbandry farms and dissipated pollution. With high values of BOD7, chemical and microbiological quality of river water deteriorates, and this bears a negative impact on the biological diversity of the water.Figure 18: Trends in the changes of medians of Nb,Pb and BOD annual concentrations.

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Figure 19: Concentration of organic and biogenic matters in river waters in 2001.

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Protection of Ambient AirData prepared and submitted to the United Nations and the European Union institutions show a decrease in the amount of pollutants emitted by stationary pollution sources in Lithuania. The emissions in 2000:

The amount of sulphur dioxide (SO2) is about 75% smaller than that discharged in 1980;

The amount of nitrogen oxides (NOx) is about 70% smaller than that discharged in 1987;

The amount of carbon dioxide (CO2) is about 62% smaller than that discharged in 1990;

The amount of ammonia (CH3) is about 32% smaller than that discharged in 1990.

The amount of NOx, volatile organic compounds (VOC) and carbon monoxide (CO) discharged from mobile pollution sources decreased by about 34% in 1996 to 2000.

Though the number of vehicles used in Lithuania increased, this percentage reflects the decreasing amount of petrol consumed in the transport sector, which decreased by 42% during the specified period.

The reduction of the volumes of the main pollutants emitted from stationary sources is related to the decrease in production volumes, reduced use of fuel (including oil and coal products) and the introduction of new technologies in the energy sector and the industry as a whole. Though the number of road vehicles is increasing, the emission of pollutants into the atmosphere has come down due to the overall reduction of the volume of consumed fuel.

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Figure 20: Changes in the emissions of pollutants from stationary and mobile sources.

With the pollution of the atmosphere reduced, the quality of ambient air in the cities and industrial centers has improved significantly. Because of centralized heating, the ambient air in Lithuania is characterized by small concentrations of sulphur dioxide. After the use of petrol with lead supplements was prohibited in 1998, the concentrations of lead in the air have decreased significantly.Figure 21: Average and maximum concentration of NO2 in Lithuanian cities and industrial centres (μg/m3).

During the last five years, a small trend of increasing concentration of nitrogen dioxide is observed in Kaunas, Klaipėda and Kėdainiai. In Naujoji Akmenė, the fluctuations in the concentration of this pollutant have been within the same bounds.

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Figure 22: Changes in the concentration of NO2 in selected cities of Lithuania.

The emission into the atmosphere of greenhouse gases has also decreased to a significant extent. The emission of carbon dioxide during this period has decreased by almost three times.Figure 23 : Emissions of carbon dioxide into the atmosphere in 1990-2000, millions of tonnes / year.

However, the other factors remain relating to the negative impact of vehicles on the air quality (particularly in the large cities): the fleet of motor vehicles and public transport vehicles which is “ageing” due to economic and social reasons; the absence of conditions

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for the use of bio-fuel, especially in public transport and commercial transport that services towns; inefficient organisation of traffic in the large cities.

It is possible to distinguish the following reasons behind the unsatisfactory sulphur content of heavy fuel oil used for energy generation and the failure of economic entities to comply with the ambient air protection standards established for such pollution sources:

heavy fuel oil produced by “AB Mažeikių nafta” constitutes the main part of heavy fuel oil consumed in Lithuania. The average sulphur content in heavy fuel oil used is 2.3%; unfavourable economic and social conditions for purchasing and using oil with a low sulphur content; “AB Mažeikių nafta” needs large investments to be able to produce heavy fuel oil that complies with the EU requirements; there are no possibilities for all economic entities concerned to use alternative low pollution fuel.The reason for non-compliance of petrol terminals operating in Lithuania with the requirements set by the EU and national legislation to limit the amount of VOC discharged into the ambient air during storage or filling of petrol: before 2001, when all the terminals were built, there were no specific technical requirements for storage and filling of petrol at the terminals aimed at limiting the amount of VOC discharged into the ambient air.

Waste Management

On the basis of the data of the state waste accounting system and assessments made by experts, in 2001 about 4 million tonnes of non-hazardous and about 111 thousand tonnes of hazardous waste were produced in Lithuania. Its distribution is shown in the table below:Table 42. Types and amounts of waste (data of 2001).

Types of waste Amount, thousand tonnes

Processed

1. Municipal waste: 1046

Recyclables:

- paper/cardboard 78 80

- glass 45 48

- plastic 15 14

- metals 830 13

2. Construction and demolition waste

146 113

3. Street sweepings 89

4. Sludge from waste water treatment plants

261

5. Sludge containing hydrocarbons 48 45

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Figure 24: Generation of hazardous waste in 1992-2001.

Figure 25: Volumes of municipal waste during 1992-2001

Figure 26: Recycling of plastic, glass and paper during 1998-2001.

Most non-hazardous waste (around 2.5 million tonnes) is disposed of in landfills. Around 276,000 tonnes of waste is recycled, around 116,00 tonnes – incinerated for cogeneration, around 803,000 tonnes – exported and around 43,000 tonnes – imported..

Waste management in Lithuania causes numerous environmental problems the solution of which requires significant financial resources and efforts. Most of the landfills presently in operation do not comply with elementary environmental-protection and sanitary-hygienic requirements. Large number of landfills is caused by the weakly-developed network of municipal waste collection, especially in smaller towns and villages. The infrastructure of waste sorting and collection and primary preparation of recyclable waste is not created.

There is a lack of biodegradable waste processing technologies in Lithuania, the method of waste incineration to generate energy and produce bio-gases in special plants has not as yet been introduced. A proper infrastructure for managing hazardous waste has not yet been created for the detoxification of a large part of hazardous waste, including old pesticides makes the situation dangerous. Moreover, areas polluted with oil products and

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other hazardous substances, some of which pose a threat to the society and environment, have not been fully identified and cleaned.

The main cause of these closely interrelated problems is the unrealised “polluter pays” principle, which must ensure that costs of waste disposal, collection and recycling of secondary raw materials should be covered from the tax for waste management collected from waste owners, as well as the principle that the manufacturer should be held responsible for the impact of the product on the environment.

Pollution of the Environment with Radionuclides

The Ignalina Nuclear Power Plant is the main potential source of environmental pollution with radionuclides.

During the exploitation and decommissioning of the nuclear reactors, radioactive materials might penetrate into the environment. Due to a sufficiently high culture of the nuclear power plant’s exploitation, the pollution of the environment with radionuclides has not been significant. The biggest problems arise managing radioactive waste and used nuclear fuel. The present storage facilities do not ensure long-term storage. In preparation of the eventual decommissioning of the NPP and in pursuance of the provisions of the Strategy of Radioactive Waste, essential readjustments of the waste storage system are being implemented, storages for radioactive waste are being planned. In order to reduce the potential damage to the environment, the Government has decided that the decommissioning of the NPP will be implemented via the immediate disassembling of the reactors.

In the Maišiagala radioactive waste storage (in use until 1989), there is about 120 m3 of radioactive waste of medical, scientific, industrial and military organisations form Lithuania, Kaliningrad district and partially Belarus, their total activity constitutes 51015 Bq (out of it – 4.21015 Bq of tritium and 21015 Bq of particularly toxic and long-living plutonium).

Protection of Biodiversity, Natural Resources and Landscape; Protected Areas

The system of state-protected areas in Lithuania covers 755 thousand hectares, i.e. 11.9% of total area of the country. It consists of 4 state nature reserves and 2 cultural reserves, 5 National Parks (including one historical National Park), 30 regional parks (including one historical regional park), 254 state reserves and 10 municipal reserves, and 410 protected natural landscape objects (of which 159 natural monuments), over 202 forest genetic reserves and a storage of genetic seed resources.

The main features of Lithuanian system of protected areas is the complexity and integrity. The system covers not only unique objects and complexes, but also those intrinsic to Lithuania, ecosystems of all the types, rare species plant, animal and fungus species of national and international importance and their habitats. The systems integrate the protection of natural and cultural heritage; implement the principles of sustainable regional development.

Currently, privately-owned plots make up 40% to 60% of the protected areas. Many of the owners of such private plots do not have proper knowledge in order to maintain the adequate level of protection of landscape and biological diversity.

At present, National and Regional Parks are not adapted for active visits: flows of visitors have not been properly regulated, adequate conditions for leisure are not in place in respective places, problems of environment pollution with municipal and other kinds of waste are not solved, there is a lack of resources for the implementation of the foreseen protective measures and management activities, documents regulating fields of activities and priorities are not prepared or obsolete. Due to these reasons, the natural and cultural landscape suffers, a danger arises for species of plants and animals and their habitats.

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Out of the species, listed in the Annex II of the Habitats Directive (92/43/EEC), for the preservation of which special protected areas shall be set up, Lithuania has 39 animal species, 12 plant species and 2 moss species. Concerning the habitats important to the European Union, the protection of which shall be pursued via the set up of special protected areas – Lithuania has 53 of these, 15 of which are priority habitats. Out of the species listed in Annex I of the Birds Directive (79/409/EEC), for the protection of which protected areas shall be established, Lithuania has 55 such species. About 40% of the preliminary-selected habitats and territories important for the bird protection are outside the current network of protected areas. Therefore, the system of protected areas in Lithuania will be expanded in the process of the creation of NATURA 2000 network.

Intensive erosion of the Lithuanian Baltic Sea coast and the protective fore-dune ridge of the beach due to the unbalanced use of the coastal landscape and the protective regime will in the long run render recreational conditions more difficult, as it destroys the landscape and, unless properly managed, may lose the function of protecting the settlements from the sea. During the recent years, the problem of coastline erosion has been made worse by infrastructure works (e.g., dredging) at Klaipėda Port.

In the last decade, the scope of activities on the Baltic seashore has increased (reconstruction of the Klaipėda Seaport, construction of the Būtingė oil terminal, development of recreational infrastructure, construction of living houses), several years repeated storms have occurred. Because of the conjunction of these negative factors, without active measures of seashore protection, the volume of sea silts are increasing, erosion and abrasion of the shores is intensifying. These processes are observed in separate parts of the Curonian Spit, which is protected as a territory of the UNESCO list of cultural and natural heritage and as a national park, at the lower part of the shore. This leads to the loss of territory, which is valuable in terms of recreation and the preservation of landscape, biological diversity and cultural heritage, and to the deterioration of recreation conditions. Damages to the protective dune ridge pose a danger to the forests and populated territories of the seashore.

In the post-war period, after about 115 thousands of homesteads were removed along together with the vegetation, and about 80% of the country’s territory was drained, the predominated feature of the landscape are drained plains measuring about 20-50 km2

with islets of forests and other forms of vegetation. Draining of lands, rectification of rivers have essentially altered the landscape structure, weakened the ecological stability, and annihilated a large part of former natural habitats. This has contributed to the decline in the cultural identity of the country.

At present, the recreational resources of river valleys, lakesides are not properly exploited; there is a lack of infrastructure. It is necessary to restore the value of ecologically degraded areas, foster the re-naturalisation of riverbeds. The development of such ecologically-sensitive and aesthetically-valuable territories is not sustainable at the moment, they are not managed in an appropriate way.

Natural resources (berries, medicinal herbs, reeds, etc.) are used irrationally. When building houses in cities and towns green plantations suffer, protection of genetic resources of plants and animals is not ensured. The following tables provide the number of fauna and flora species in Lithuania.Table 43: The number of plant species in Lithuania.

Systemic category Number of known species

Angiospermous (Flowering plants)

1328

Gymnospermous (Coniferous plants)

3

Club mosses 7

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Horse tails 8

Ferns 21

Mosses 320

Liverworts 106

Horn-flowered mosses 3

Total 1796

Table 44 : Estimated number of fauna species in Lithuania.

Taxonomic category Number of identified species

Mammals 70

Birds 321

Reptiles 7

Amphibia 13

Fishes 96

Cyclostomata 3

Insects ~15000

Arachnids ~200

Molluscs ~170

Rotatoria 300

Porifera 6

Crustaceans >80

The following table presents the land use in Lithuania.Table 45: Land fund by land-use categories24.

Land-use categories Area

1000 ha %

Agricultural land 3488.7 53.4

Forest land 1998.4 30.6

Other wooded land (bushes and shrubs)

82.8 1.3

Roads 131.0 2.0

Urban territory 187.3 2.9

24 Source: State Stocktaking of Lithuanian Forests, 1 January 2001.

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Water 262.1 4.0

Swamps (Bogs) 146.2 2.2

Other land 233.5 3.6

Total 6530.0 100

The total volume of timber accumulated in the forests, amounts to 371.7 million m3. Lithuanian forests are characterised by a great variety of species and combinations of different types of trees. The greatest area of forests is occupied by pine, fir and birch.

About 10,000 tonnes of fish is caught in Lithuanian fishing waters. Spawning areas are lost on account of too intensive fishing and building of dams. The resources of valuable commercial and migrating fish are on the decrease due to pollution and eutrophication of water bodies.

Sapropel is one of the most viable mineral resources. The formation of sapropel is especially related to eutrophication of water bodies. Its extraction must be co-ordinated with cleaning of lakes by combining extractive needs with environmental works. Re-cultivation of lands damaged while extracting mineral resources and the implementation of peat-bog fire prevention measures in the lands belonging to the State Fund are insufficient.

Preventive measures

An especially significant attention should be accorded to the introduction of control, monitoring and management measures, which could reduce and, most importantly, control the emission of pollutants into the environment. The introduction of such measures would especially reduce and limit the pollution of the environment. This would present possibilities to protect the environment and, in case of accidents, assess its status and to eliminate it in a fastest way possible.

Environmental education of the society

The implementation of the policy of informing and educating the society encompasses the provision of information to the society in the following ways:

Society presents its inquiries to the Ministry of Environment and receives responses through the information representative of the Ministry (active society) – includes communication via telephone and direct contacts with the interested persons, through the Ministry’s INFO e-mail and in written form. The Ministry of Environment, on its own initiative, co-ordinating the projects of environmental education, provides information to the society through its press service, Ministry’s information representative. This includes work with the media, spreading of online information, publications, library funds, projects of environmental education and information, expositions, commemoration days, etc.The implementation depends directly upon the financing.

Despite a more active work with the society, the efficiency of environmental education, collaboration with NGOs, society’s environmental training has to be improved.

In order to prevent grave infringements of environmental requirements and to better inform the society, it is necessary to prepare wider preventive actions and to co-ordinate them. These includes yearly actions of environment tidying, grass and stubble burning, “Salmon 2003”, set up of environmental information centers in protected territories, etc.

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Spatial planning

In 1994, the preparation of spatial planning projects of Lithuanian border regions was begun. The aim of such actions is to formulate state policy on the spatial development of border regions. Development and feasibility studies have been prepared for the border regions of Lithuania-Latvia-Belarus (in Lithuania, it includes the districts of Ignalina and Zarasai) and Lithuania-Poland (districts of Vilkaviškis, Marijampolė, Lazdijai and city of Druskininkai). They present an integral part of the mentioned projects. Spatial development projects will have to be prepared for all the border regions of Lithuania. These projects, together with the General Spatial Development Plan of the Republic of Lithuania, will form the main provisions for spatial planning of the country.

In order to provide the General Spatial Development Plan of the Republic of Lithuania (approved in 2002) and other documents of spatial planning with the required information and data concerning the planned territories, also to record the provisions of such documents in digital (computerised) format, an information system of spatial planning was created and introduced, encompassing the Register of Spatial Planning Documents and the Bank of Spatial Planning Documents. The Register of Spatial Planning Documents now contains over 12 thousands of spatial planning documents, while the Bank of Spatial Planning Documents has over 140 databases reflecting separate territories or the specific regulations set for these territories.

The preparation of spatial planning documents at the level of the Counties and municipalities is proceeding very slowly (with minor exceptions, including Vilnius, Kaunas, Klaipėda, Panevėžys and some other cases).This poses serious problems when justifying investments in specific territories and their compatibility with the principles of sustainable development.

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Table 46: Disparities in development between Lithuania and the EU in the sector of environment.

Unit of measurement

Year Lithuania EU average Assessment of disparity

Average concentration of common phosphorus in river waters

mg / l 2001 0.241 <0.025 Medium

Average concentration of organic substances in river waters (according to BOD7)

mg / l 2001 3.2 <2.0 Small

Municipal waste generated per year

kg / person 1999 190-300 370 Medium

Taxes for the pollution of water by nitrogen emissions

euro / t 1999 97 5600 (Germany);

2660 (Denmark)

Large

Taxes for the pollution of water by phosphorus emissions

euro/t 1999 328 46000 (Germany);

14620 (Denmark)

Large

Average tariff for cold water Lt / m3 1999 1.34 1.30 – 7.84 (Austria, 1996);

4.82 (Denmark,

1996)

Medium

Average tariff for water waste Lt / m3 1999 1.25 4.30 (Finland,

1997)

Medium

Investment into environmental protection in the public sector (all sources)

mln. Lt / year 2001 81.6 848 (Finland)

Large

Investment into water sector from the State Budget

mln. Lt / year 2001 25,6 26,64 (Finland)

Small

Share of expenditure per member of household for cold and sewage water

% / month 2001 2-4 2-7 Small

Area of protected areas % 2001 11.9 14 Small

Part of territory covered with forests

% 2000-2001

31 35 Medium

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1.3.8 HEALTH CARE INFRASTRUCTURE AND SOCIAL INFRASTRUCTURE

Key statements:

Health care indicators in Lithuania are improving although mortality rates for some illnesses still significantly exceed the EU average.

The sector is characterised by an extensively developed hospital network. However, hospital infrastructure fails to meet EU requirements. There is lack of modern medical technologies. There is an uneven distribution of healthcare institutions and specialists between the different regions of Lithuania;

There is also a relatively high proportion of inpatient services in the healthcare sector compared with outpatient services.

The professional qualifications of medical professionals are quite high and further improvements have taken place in recent years. However, there are limited administrative and managerial capacities in the health sector.

Against a backdrop of an ageing society, the issue of insufficient social services which seek to restore people’s ability to look after their health and integrate into society is becoming an increasingly important issue.

Health care infrastructureThe health of the Lithuanian population and the conditions of its maintenance determine to a large extent the stability of the country’s economic development and society’s well-being. Health issues influence quality of life, the size and productivity of labour resources, and death rates amongst middle-aged people – loss of human capital. Improving levels of health amongst the Lithuanian population and ensuring good levels of healthcare is an important pre-condition of sustainable economic growth and development.Population and its health status

Figure 27. Population by Sex and Age in 1989 and 2001.

The political and economic changes of the last decade in Lithuania have had a big effect on Lithuania’s demographic situation. Lithuania’s population is slowly declining, mainly

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due to emigration and the negative natural growth of the population. The birth rate has been declining in Lithuania for a significant period, but this process was especially noticeable over the last decade: in 2001, the average birth rate per 1000 population was 9.1 (in 1994 it was 11.4, in 1998 – 10.4). Because of the low birth rate, the natural growth of the population has already been negative for seven years, it stood at –2.5 per 1000 population in 2001 (1.9 bigger negative rate than in 2000). In the population age structure, during 1989-2001, the part of children up to 10 years of age fell from 15.5% to 11.6%, while the share of people over 62 years of age grew from 15.7% to 19.3%. From 1995, changes in life expectancy and most mortality indicators have been positive. Average life expectancy in Lithuania has been rising and has approached the level of other Central and Eastern European countries. The health status of the population, which determines the size of the workforce and its productivity, becomes very important in an ageing society. Falling mortality rates result in improvements in one of the health indicators, i.e. average life expectancy. In 2001, the average life expectancy in Lithuania was 77.4 years for women and 65.88 years for men. Lithuanian average life expectancy is close to the European average, and is bigger than in the neighbouring Baltic States, but falls significantly short of the EU average. (According to 1998 data, the average men’s life expectancy in the EU was 74.9 years, women’s – 81.2 years.) With the population of the country ageing, the need for health care services increases. Table 47: Dynamics of the main indicators of health status of the society in 1995-2001.

In Lithuania, the total mortality (from all causes: heart and cardiovascular diseases, including heart ischemia and heart strokes, malignant tumours, etc.) is decreasing. The structure of deaths is similar to that of developed countries and has not changed for a long period of time. In 2001, the causes of 87% of deaths were diseases of the cardiovascular system, malignant tumours, traumas and poisonings. In 2002 cardio vascular diseases caused 54 % of death cases. This indicator for the group older than 64 years reaches 67.8 %. Both the general and standardised death indicators are rather high. In 2000, the standardised death rate (according to the European standard) of men was 1320, of women – 672 (per 100 thousand population). The men’s death rate being almost twice as high as that of women was caused by especially high death rate of young men (15-44 years of age) from traumas and poisonings. The death rate from cardiovascular diseases in Lithuania is almost twice as high as the EU average; in the case of traumas and poisonings the death rate figure is almost three times as high as the EU average.Indicators of infant health care are improving in Lithuania: the perinatal infant mortality rate is decreasing and approaching EU levels. (In 2000, this indicator in Lithuania was smaller than in the Central and Eastern Europe countries.) In 2001, compared to 1992,

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the infant mortality rate fell more than twice: from 16.5 to 7.8 per 1000 live births. (EU infant mortality rate is 5.2 per 1000 live births.)During the recent years, the morbidity from numerous infectious diseases has been falling in Lithuania: infectious diseases, except for the infectious diseases of infants, are a relatively rare cause of death and form only 1.3% of all the death causes. The morbidity rate from tuberculosis is decreasing: in 2001, fewer cases of this disease were registered – 63.9 per 100,000 population (in comparison with 79.6 cases per 100,000 population in 1998). This was caused primarily by the preventive inoculation and introduction of new diagnostic methods of infectious diseases.Malignant tumours mostly affect the elderly, hence it is to be expected that the increasing average life expectancy can lead to the growth of the number of people having oncological diseases. In 2001, there were more than 60 thousand people ill with cancer. The use of psycho-active substances is further spreading in Lithuania, the number of drug-addicted persons is increasing, and the number of AIDS cases is growing. From 1991 to 2001 the number of drug addicts in Lithuania increased by 7.6 times (from 15.3 to 117.2 cases per 100,000 population). A concern is that young people start taking drugs and develop dependency. Over 11% of registered drug addicts are teenagers between 15 and 19. The use of intravenous drugs is closely related to the high risk of HIV and hepatitis.The latest Lithuanian and foreign researches show that human health to a great extent depends on the quality of the environment. The data of conducted research demonstrates that the knowledge of the Lithuanian population about the preservation and strengthening of health is superficial. Many people (45.5% of males and 51.5% of females) underestimate the importance of prophylaxis. It is proven that the increased morbidity and mortality from heart-cardiovascular and oncological diseases, suicides and accidents, the incidence of the main risk factors (low physical activity rate, obesity, smoking) is to a large extent determined by the way of life. Research on nourishment shows that people do not know enough about healthy nutrition, therefore their nutrition is not balanced leading to the risk of chronic diseases.System of health care institutions, their technical facilities and technological progress The Lithuanian system of healthcare services is characterised by extensive development of hospital infrastructure which, however, does not fully meet the EU quality requirements; an underdeveloped level of primary healthcare (out-patient services, general practitioners, medical care of the family), uneven distribution of healthcare institutions and specialists in the regions; a relatively big share of in-patient services in the overall total of the healthcare services. These shortcomings hinder the efficient use of resources of the healthcare system.Although in recent years the hospitals have started to work more efficiently, their main efficiency indicators are below the international ones. Therefore a reform of the healthcare system is being carried out in the country, in order to ensure even accessibility of healthcare services of adequate quality. In order to reduce the weaknesses of the healthcare sector, the strengthening of the chain of primary healthcare is taking place along with the formation of the general practice (GP) services. The structure of services provided is being changed by reducing the number of hospital beds, paying greater attention to the prophylaxis of diseases. (Over ten years, the number of in-patient beds decreased by 14 thousand and was 92.4 per 10,000 population at the end of 2001).The main trends of recent development of the health system are: decentralisation of outpatient health care; formation of the family doctor institution; extension of rights of municipalities in health care sector; reduction of number of beds; greater focus on prophylactics. Nevertheless, the main drawbacks of the present system, that hinder to assure the safety of health care services and effective utilisation of resources, are:

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relatively large share of in-patient services in the total amount of health care services;

relatively high concentration of health care institutions in the largest cities and lack of specialists in the periphery;

continuity of treatment not fully ensured when patients are transferred between profiles and institutions;

the condition of majority of buildings and medical equipment is insufficient.

Government of the Republic of Lithuania by resolution No.335 of March 18, 2003 has approved Health Care Institutions' Restructuring Strategy. The main objectives of the Strategy are: 1) to improve quality and accessibility of health care services and 2) to optimise the structure and volumes of health care services that would meet patients' needs. This will form conditions for the development of private initiatives and creation of additional jobs in the health sector, especially in rural areas.

The Strategy forms a basis for a Health Care Institutions’ Restructuring Programme, which will set out specific implementation measures, responsible institutions and implementation timeframe. The Health Care Institutions’ Restructuring Programme will be implemented during 2003-2008.

Restructuring of health care institutions will be implemented along the following main lines:

first – development of outpatient services, primary health care being the priority (on a priority basis, development of the general practice (GP) activities; focus on the development of GP in rural areas; increase in the volume of examinations and treatment services at outpatient health care institutions; more attention to prevention of diseases).

second – optimisation of inpatient services and development of alternative forms of activity (optimisation of volumes and structure of inpatient services, matching them to patients’ needs and intensifying of the treatment process; development of day inpatient care and day surgery services; development of consulting by specialists at inpatient institutions on outpatient basis).

third – development of medical nursing and long-term/palliative treatment services, with a focus on the improvement of health care for the elderly.

Restructuring will be implemented in various ways: by merging, re-profiling, splitting etc. of institutions or their structural divisions. The network of hospitals and the variety of services provided in each hospital will be based on disease incidence rates, resources (physical, financial and human) of health care institutions, and institutions’ cost-effectiveness indicators.

It is foreseen, that implementation of the Strategy by the year 2008 will lead to a reduction in number of beds in inpatient health care institutions by 20 % from 30,555 in 2002. The average duration of time of staying in hospital will be reduced from 10.8 days (in 2002) to 8 days.

On the other hand, the greater economic efficiency of the system and higher quality of the services are followed by modernisation of medical equipment in hospitals and centres of the major cities, which possess scientific research centres and highly-qualified medical professionals (continuing medical education both in Lithuania and abroad) ready to provide complex healthcare services. Lithuania inherited the physician human resources dominated by specialists. Although the physician human resources in Lithuania have undergone substantial reform since 1990, real change to the structure has been slow. Physician resource structure in Lithuania and their distribution is unequal. The common features of the physician human resources in

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Central and Eastern European countries, the mal-distribution of physicians by gender, regions and specialities are also found in Lithuania. In 2000 the geographic distribution of physicians in Lithuania was very unequal, with the majority working in urban areas, while in rural settings the numbers were lower. The percentage of physicians in cities has remained constant at about 65% over the last 20 years. A shortage of physicians was observed not only in rural areas, but also in some remote municipalities, in addition, 15 percent of physicians were more than 60 years old.

It is notable that the number of physicians during the decade has changed insignificantly and is close to the EU average: in 2001, there were 14,031 physicians in Lithuania, or 40.4 per 10,000 of population. The reform of health care sector and the development of primary health care services (family doctors) have increased the demand of general practitioner doctors. Since 1993 the number of licensed general practitioner doctors has increased almost 9 times and was 897 on 1 January 2002. Nevertheless this is half the required number and these specialists feel the need for the retraining facilities. In general, physicians faces the constant need for training to develop their skills and to deepen their knowledge due to he implementation and use of new, modern technologies providing health care services.The changes in the number of medical staff and in-patient beds are provided in Figure 22.Figure 28: Numbers of medical staff and in-patient beds during 1995-2001.

Currently, the state of most of the buildings and technical equipment of the healthcare institutions is not adequate and does not meet the requirements of the EU. The modernisation of healthcare institutions and their medical equipment is the necessary precondition in order to ensure high quality of diagnostic research and treatment. That would shorten the time of patients' examination and the time of in-patient treatment, which would lead to lower costs and lower patient risks.Lithuania has been rapidly implementing new technologies during recent years. The implementation of expensive new technologies has been driven by the integration of the Lithuanian market into global markets, rapid advances of these technologies and the possibility to access the latest medical literature further expanded by the development of the Internet and increasingly applied telemedical practice. On the other hand, the general computerisation level of the institutions of the healthcare system still is rather low, its technological infrastructure is mostly composed of old equipment, and information technologies are rarely used in the provision of healthcare services. The providers of healthcare services have mostly created their own information systems in response to the need of a certain concrete information. In many smaller hospitals, especially those of the rural areas, the only computerised organisational units are their accounting divisions.

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Table 48. Assessment of Development Disparities in the Health Sector in Lithuania and EU Member States.

Disparity Year LithuaniaEU

average

Assessment of

disparity

Mortality rate per 1,000 population LT-2002 EU-2001 11.8 9.9 Small

Birth rate per 1,000 population LT-2002 EU-2001 8.6 10.7 Small

Infant mortality rate per 1,000 of live births LT-2002 EU-2001 7.7 5.1 Large

Average life expectancy LT-2002 EU-2000

Women 77.6 81.3 Medium

Men 66.2 75 Large

Average 71.9 74.9 Medium

Standardised mortality from cardiovascular diseases at the age of 0-64 per 100,000 population

2000 116 49.4Large

Standardised mortality form traumas and poisoning per 100,000 population

LT-2001 EU-2000 158 40.6 Large

Standardised mortality from suicides per 100,000 population 2000 44.3 10.9 Large

Standardised incidence of tuberculosis per 100,000 population 2001 63.8 10.1 Large

Number of in-patient beds per 100,000 population

LT-2001 EU-2000 924 596 Large

Number of hospitalisations per 100 population 2000 24 18 Medium

Social infrastructureSystem of Social Care Institutions

When it comes to elderly and disabled people, it is difficult to draw a distinction between health matters and social services. The key objective of social services is to restore the person’s ability to take care of himself/herself and integrate them into society by creating conditions which do not degrade human dignity when the person is unable to do take care of himself/herself. Social services are also provided for preventive purposes as part of educational and outreach work in the community to prevent the emergence of potential social problems. Social services aim to promote people’s activities and initiative to enable them to lead a fuller life.

The establishment of market economy conditions led to the emergence of population groups for whom social services are especially important: they include elderly people, people with disabilities, children and social risk groups. Social services are especially needed in rural areas because about one quarter (23%) of the rural population are people over 60 and older who are the main recipients of social services.

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At the end of 2001, Lithuania had about 500 social services institutions of different types (institutional services, temporary shelters, day care, mixed social services, etc.) serving different social groups. Social institutions provided services to more than 20 thousand people, and a further 7.3 thousand received services at home. The majority of the recipients of social services (57%) use institutional services, 25% receive home services and only for 18% of recipients are services provided at community care institutions. Survey results show that as many as one third of residents at certain institutional services could live in the community. Therefore, when assigning social services to people, municipalities should offer them community-based or home services first rather than immediately referring them to residential institutions.

It is aimed to reduce the number of institutional services by assessing the actual need and providing home help or community-based (day care) services which are more effective, less expensive and ensure greater independence for people. When determining the need for the provision of social services, municipalities take into account regional peculiarities and provide those services that are most needed by the people in their communities. However, the distribution of the network of social services in municipalities is very uneven and the same applies to the financial possibilities of developing it. The number of community-based social services is insufficient. Institutional social services for different groups of clients are mostly developed without creating alternative intervention programes within the family or other home-oriented services. Dominance of institutional social services without alternative forms like day care or short-term care, influence passive social assistance. Social services recipients cannot play an active part in the community or actively seek ways of helping themselves.

Development of social services, especially home help and community-based services, is also strongly related to the help for families. It also enhances the possibilities for members of families to return to the labour market, if they are presently inactive or working reduced hours due to caring responsibilities. It may also in itself create more jobs by outsourcing the female domestic tasks and thus accelerating women’s labour market integration by transferring some domestic care tasks to the market.

The reform of social services provision was launched in 2002. The final goal of the reform is to create the best possible conditions for increasing self-reliance of the recipients of services and encouraging them to actively seek the ways of self-help through the provision of necessary social services based on needs assessment. The reform aimed to ensure an acceptable level of protection for the elderly and most vulnerable groups and the development of the social protection system as specific tools for tackling poverty and the reintegration of individuals and families in exclusion situations into society and work.

One of the main objectives of the reform is expanding the market for providers of social services by way of supporting and developing the efforts and initiatives of NGOs, private persons and communities. This objective will be implemented by creating legal, administrative and financial conditions to involve more active NGOs into an overall social services system on a legal partnership basis.

The number of county care homes has remained the same for the last few years, but the number of municipal care homes for elderly people has been rapidly growing. Residential care services for elderly people are currently provided in 54 municipalities, there are nearly 12 places in institutional services per 10,000 population in Lithuania (in 1990 this figure was 6 places).

The number of people with mental disabilities has been increasing over the recent years, hence the increased need for social services for this population group. At the end of 2001, there were 22 institutional services for adults with mental disabilities functioning at the county level and having 5,277 residential clients, of which 1,579 or 30% needed intensive care. State care institutions are too large and do not conform to the modern concept of social care, they operate in remote areas and some of them are established in old and unsuitable buildings whose renovation would require large investments. The majority of state care institutions are overcrowded, they have up to 550 residents and the living

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premises and living conditions often do not meet basic safety and health requirements. This is why no new county care institutions are planned and the existing ones are being restructured by reducing the number of residents and improving their living conditions. The large need for referrals to institutional care services is determined by the fact that the network of social services in municipalities is poorly developed: there are only 3 homes for independent living established by municipalities and NGOs and day services to disabled children and adults are provided by just 34 day centres.

The social economic crisis, new economic relations, objective errors in the reformed social and other kinds of public infrastructure have had an impact on the process of rehabilitation and integration of the disabled. During the latest decade, the following has been created: for the physically disabled – a model of medical rehabilitation, for persons with the impaired development (intellect) – a model of development, employment, independent life and social services, for the blind and vision-impaired – a network of services ensuring the process of development of skills for independent life. The state programme of usage of sign language has been approved and is being implemented, and social service institutions for the people with physical disabilities have appeared and are developing.

The rehabilitation process applied in the country is not comprehensive – only the medical rehabilitation model is working actively, while the other chains are underdeveloped. It is necessary to ensure the continuity of the rehabilitation process, including professional and social rehabilitation in pursuance of the principal aim – employment. The centralised system of social service provision, now operating in the country (in centralised institutions, the financial allocation per one disabled person is up to 1,500 LTL per month), meets the needs of only a small part of the demand, while the network of social services, employment, development, encouragement of independence for the people with disabilities at the community level (the costs per one disabled person in a daytime employment centre is 500-800 LTL) is only in the formation stage.

Community service centres are established on the basis of collaboration between public organisations of the disabled and the municipalities. Their establishment during 1992-2002 was financed from the State Programme of Medical, Professional and Social Rehabilitation and Integration of the Disabled. Analysing the situation in terms of the kinds of disability, one can see that the gravest situation is faced by the disabled children (over 13 thousand) – preschool institutions, school classes, development centres are not adapted to their needs; also totally disabled people (8,917), the people in the I group of disability (over 26 thousand) – lack basic social services, institutions for development and employment, people with impaired movement functions and having no capacity to serve themselves (around 70 thousand people with impaired movement functions, over 27 thousand people with psychic disabilities, people with complex disabilities) – they cannot use public transport, as the physical environment is not adapted to their needs.

Using the financial resource of the State Programme of Medical, Professional and Social Rehabilitation and Integration of the Disabled, programmes of the organisations of the disabled and public institutions are supported aimed at meeting the specific needs of the disabled, medical, professional and social rehabilitation in all the country. The programmes target the people with gravest disability (disabled children, fully disabled, people with the I-II groups of movement, seeing, hearing, psychic disability). They aim to aid them through the programmes of social services, professional rehabilitation, employment, adaptation of the environment, development, formation of skills for independent life, medical rehabilitation, communication and information accessibility. The financial means from the state programme currently is one the biggest sources from which new alternative institutions are being established at the community level – development groups in pre-school institutions, integrated classes for the disabled children, centres of daytime activities, social services and social support, homes of independent life.

During 9 years, 81 classes of integrated school development has been established and financed attended by 1,500 disabled children, as well as 135 daytime employment

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centres, 14 centres of family support, 4 living homes for the adults with impaired intellect. The Library of the Lithuanian Blinds was built and equipped which is now used by 2,700 blinds and visually-impaired people, the printing facilities of the Braille script were modernised, the blind and the deaf are being provided with rehabilitation equipment, the development centre of the blind and visually-impaired has been reconstructed, flats and public environment are being adapted (in 1998-2001, over 700 flats were adapted for the people with movement and self-serving disabilities), the environment, wards, sanitary equipment are being adapted, transport, assistants’, interpreters’, readers’, helpers’ services are being provided, the raising of qualification of the specialists working with the disabled has been started, new jobs are being created (for instance, in 1992, 10% of the blind worked in open society, on 1 January 2000 – 55%), and so forth. Alongside, the Programme created jobs both for the disabled and for the healthy. In 1999, 843 people worked in the Programme (of which 350 disabled), 2,211 people worked in the enterprises of public organisations (of which 840 disabled); in 2000, 1,143 people worked in the Programme (of which 675 disabled), 2,270 people worked in the enterprises of public organisations (of which 826 disabled); in 2001, 1,076 people worked in the Programme (of which 605 disabled), 1,905 people worked in the enterprises of public organisations (of which 629 disabled). In order to ensure the integration of the disabled into the society, the state funds only are not sufficient, and the need for resources is only partially met. Therefore, it is sought to attract other sources to the financing of the Programme (funds, municipalities, donors). In 1999, the implementers of the programmes used 8,446.17 thousand LTL from additional sources, in 2000 – 8,792.64 thousand LTL, in 2001 – 7,726.03 thousand LTL.

An important issue is the adaptation of the information environment to the needs of the disabled. Currently, this adaptation process is reflected by applying subtitles to a one-off TV broadcast, partially by the adaptation of school programmes and manuals, efforts of NGOs to provide compensation equipment aimed at improving the accessibility of the information. The Programme of Usage of Sign Language is implemented since 1998. On the basis of the Programme, sign language interpreter centres are being established, Braille literature is published for the people with visual disabilities, sound recording of books are produced, state-funded Library of the Blinds is functioning and providing professional services to the visually-impaired, etc. The Information Society Development Committee under the Government of Lithuania has prepared the concept of adaptation of information environment to the disabled which will guide the adaptation of the information environment to the needs of the disabled.

Fitness and sports are one of the most essential factors promoting good health of the society and rehabilitating and integrating the disabled into the society. The concept of sports for the disabled is related to the policy, which seeks to extend the benefit of sports to embrace an ever-larger circle of the disabled people. The disabled have fewer possibilities to go in for sports and they cannot exercise regularly, however, the same rights to go in for sports must be guaranteed to them as to other members of society.

Table 49. Assessment of Development Disparities in the Social Sector in Lithuania and EU Member States.

Disparity Year Lithuania EU average


Share of the working disabled people, % of the total number of the disabled

2000 (Lithunia), 1996

17 42 Large

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(EU)

Social services to the disabled, % of total sum allocated to social protection

2000 (Lithunia), 1998 (EU)

19,0 28,2 Large

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1.3.9. EMPLOYMENT AND UNEMPLOYMENT

Key statements:

The main challenges faced by the Lithuanian labour market include high unemployment levels (especially among young people), low activity rates (especially among males between the age of 25 and 54) and the high percentage of the population employed in agriculture, hunting, forestry and fisheries - which significantly exceeds the EU average

The average level of educational attainment amongst the Lithuanian labour force is relatively high compared with the EU average. However, there is evidence of a mismatch between qualifications, vocational education and training provision and the skills needs of employers/ labour market requirements

Skills levels among young people are lower than among the older population linked in part to the high drop-out rate during and at the end of basic education, particularly in the immediate post-transition period

There is a low rate of adoption of flexible forms of working such as part-time employment by Lithuanian employers

The level of self-employment in Lithuania – a useful indicator to assess the degree of entrepreneurship - lags that of many EU-15 countries

Population and Labour Force

Data from the latest population census showed that between 1998-2001 the number of inhabitants in Lithuania dropped by more than 5%. This process was caused by the emigration and the natural negative growth of the population. The number of working-age population (15-64 years old) decreased from 2.5 million to 2.1 million.25

The labour force decreased from 1.84 million in 1995 to 1.76 million (903,100 men and 856,800 women) in 2001. This resulted in a reduction in economic activity rates which declined from approx. 76% to 70.5 % in the 15-64 years age group over the period 1995-2000. This figure slightly exceeded the average EU rate in 2000 (69%). However, the rate of labour force activity was further decreasing, at 69.4% in 2001 and 69.3 % in 2002. The male activity rate was lower than the EU average both in 2001 (74.3 % and 78.3 %) and in 2002 (73.6% and 78.4%), while the female rate was higher in Lithuania (66.5% and 60.2% in 2001; 65.8% and 60.9% in 2002). According to age groups, in Lithuania, there is a relatively low activity rate of young people (aged 15-24) of both genders if compared to the EU average (30.9% in 2002 in Lithuania comparing to 47.7% in the EU). However, the activity rate for both the prime age (25–54) and the older age (55-64) groups is higher than that in the EU: in 2002, activity rate 25-54 was 88.5% in Lithuania and 82.8% in the EU, and activity rate 55-64 was 46.9% in Lithuania and 42.8% in the EU.

The present data show that the average adult education of both genders in Lithuania is fairly high. According to the 2001 labour force survey, 33.3% (respectively 30% of men

25 According to the data of the census, the 2002 indicators of the labour force, number of employed persons and others were recalculated. However, the indicators of 2001 and especially those of earlier years have not been recalculated. It is therefore not possible to compare the indicators of 2002 with the previous ones. Taking into account the fact that this part of the SPD does not include indicators from 2002, the situation analysis is based on the data from 2001 and earlier years.

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and 36.1% of women) have a higher than secondary education26, 30.9% (33% of men and 29% of women) have a secondary education, and 18.3% (22.1% of men and 15.1% of women) have a basic education27. This rate approximates the EU average. However, there are significantly more young people without basic education in the age group of 15-24 years (21%) than in the age group of 25-49 years (1%). This was caused by the growing number of young people dropped out the education system at an early age following the change in the social-economic environment. Most of these drop-outs enter the labour market without any qualifications. In addition to that, most of older workers have too narrow and specialised qualifications acquired previously and under-developed general capacities. For these reasons, competence of major working population does not meet the current labour market needs.

Education of the Lithuanian labour force is fairly high, but the level of youth education is lower than that of older people. This situation has occurred due to a relatively high part of young people leaving schools without having completed basic education programme; this situation has been caused by the change in the social-economic environment. The urgent Lithuania‘s issue is the high “drop-out” rate during the basic education period and at its end.

Employment Trends

In the period of transition to the market economy, rapid changes occurred in the structure of the economy which had an effect on employment tendencies. In the first half of the tenth decade, the working population decreased by 200,000. (slightly more than 11%), and GDP dropped by 40%. In 1998, the number of the employed amounted to 1597,6 thous. (823,3 thous. men and 786,3 thous. women), and in 2001 – to 1460,6 thous. (725,2 thous. men and 735,4 thous women), i.e. was further decreasing.

In 2001, the general employment rate28 in Lithuania stood at 57.2 %. It was lower than the average EU rate, i.e. 64.1%. The male employment rate was 58.5%, female was 55.9%. The difference is more apparent in the employment of men and women of a younger age, which shows that Lithuania‘s youth tend to engage in work activities at an older age. The decline in employment rate stopped in 2002, in particular for men (59.6%; for male – 62.3% and for female 57.2%).

Employment by sector

The beginning of the transitional period saw major changes in employment according to sectors. In 1990, prior to the commencement of economic reforms, the bulk of population worked in the industry (30%), agriculture (18%) and construction (12%). During the first year of economy restructuring, the number of workers considerably decreased in the industry and construction sectors. Employment in agriculture grew until 1996 up to 24.1%, and then it started to go down. The largest surplus of jobs was noted in the service sector. In 2001, agriculture, forestry and fisheries accounted for 17.1 % of the employed (21.2% of men and 13.1% of women), industry and construction 27.2% (33.3% of men and 21.2% of women) and services – 55.7 % (45.1 % of men and 65.7% of women). In comparison with the EU, the biggest difference is in the agriculture sector, the share of which in the employment structure exceeds that of the EU by 4 times. Employment in the service sector remains rather low if compared to the average EU rate (70.4% in 2001)

Employment by profession

26 Including special secondary education.27 Approximately, half of persons with secondary and ¼ with basic education have acquired professional qualifications.28 I.e. the number of 15–64-year old employed persons as part of the population within this age group.

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In 2001, 24.5% of the employed were specialists and technical workers (15.2% of men and 33.6% of women), 17.6% – qualified workers and craftsmen (men 24.7%, women 10.6%), 14.1% – agricultural workers (17% of men and 11.2% of women), unskilled workers accounted for 8.7% (7.9% of men and 9.4% of women). Only 17.3% (9.2% of men and 25.3% of women) of the employed were office workers, sales and service providers. Office and service sector workers currently account for a lower share of the employed than that in the EU member countries.

Employment in the Private Sector

In the last decade, the employment structure according to the types of ownership changed considerably. The share of the private sector in the overall employment structure increased from 22 to 66.4% over the period 1990–2001. The process of privatisation had a major influence on the changes in the ratio between the private and public sectors.

Self-employment

In 2001, 81.4% of the employed was formed of hired workers (77.7% of men and 85% of women), 15.4% – the self-employed (men 19.9%, women 11.6%), 3.2% – unpaid family business workers (2.8% of men and 3.5% of women). One in eight self-employed persons is an employer as well, and the remaining persons are engaged in one-person business. The highest number of self-employed persons are in the field of agriculture, in which they account for 58%, whereas in the industry 2.0%, construction 4.8%, and in the service sector 5.2%. The number of self-employed in all these sectors is lower than that of the EU, where 52% of people employed in the sector of agriculture, 11% – in the industry and 13% in the service sector are self-employed. The low number of self-employed persons indicates the environment unfavourable for own business development. The population employment surveys show that conditions for independent work tend to deteriorate: over 1997 – 2000, the number of self-employed persons dropped by 33,000 (13%), and over 2001 – by 28,000 (12%).

Part-Time Employment and other flexible forms of employment

In 2001, 9.8% of the employed worked part time, of this number 41.2% were men and 58.8% – women. Thus, this kind of employment is less popular in Lithuania than in the EU, where there is around 18% of such workers. The difference is particularly large in the case of Lithuanian women: only 11% of them work part time, whereas in the EU – around 34%. Part-time employment varies in different sectors of the economy. Around 20% of agricultural workers, only 5% of industry workers and the same percentage in construction and 9.4% of service workers work part time. In comparison with the EU, part-time employment is under-developed in the area of services (in that of the EU 22% work part time).

Although lagging behind the levels of the EU, the part-time employment in Lithuania is probably the most widely-practiced non-traditional employment type. At the same time, such flexible forms of work and work organisation, as tele-working, flexible working hours, rotation of jobs, etc., are not being widely applied. The unfavourable legal, social and economic environment, lack of specific legal provisions (in spite of the fact that from 1 January 2003 the new Labour Code creates legal preconditions for the development of flexible working forms) does not promote application of flexible work organisation forms. This partially impedes the adaptation of the labour force to structural and economic changes.

Situation of women in the labour market and gender equality issues

In Lithuania, considerable attention is paid to gender equality issues. A number of legal documents have been prepared for this purpose and institutions have been established to assist in implementing the gender equality principle and equal opportunities in the labour market. However, there still are numerous problems in this respect.

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Although the unemployment rate among the women is lower than among the men (according to the date of Population employment survey, 2002 12.9% and 14.6% respectively), , other indicators show that there still are barriers for the women’s integration into the labour market: lower level of employment (57.1% and 62.3% respectively), significantly smaller number of self-employed women , disparities in salaries (33% more women than men work for the minimal wage). The issue is especially serious in respect to the women of older age and those returning to the labour market after a lengthy break. In 2002, the women’s employment level in the age group of 55-64 years was 34.1%, while the employment level of men in the same age group stood at 51.5%. One has to admit, however, that currently it is hard to get employed both for the women and for the men of older age.

For the women raising children, maternity and family obligations are the main obstacles in keeping a job or looking for a new one. On the other hand, the problem of qualification renewal after the maternity leave is not solved.

There are much fewer women starting their business than men. Although increasing numbers of women start their businesses, they encounter numerous problems in this field: they find it hard to become equal business partners with male businessmen since they treat businesswomen sceptically, as well as other problems (lack of business skills, dearth of information). However, the data from the research of SME conditions, carried out by the Department of Statistics and the Ministry of Economy, reveal some positive trends: for instance, the share of women in the total number of enterprise leaders is increasing – in 2000, it was 29.2%, in 2001 it was 40%.

Unemployment

Economic recession, economy restructuring and privatisation conditioned high and structurally unfavourable unemployment rate: high youth and long-term unemployment, distinctive territorial differences in unemployment rates. According to the survey data, major part of the labour force is incapable to adapt to the market changes and their competence do not meet the requirements set by employers.

Unemployment

The economic recession which started at the end of 1998 caused a rise in unemployment rate from 13.3% to 17.4% in 2001. In the same year, the average of unemployment rate in the EU was considerably lower (7.6%). The rate of male unemployment stood at 19.9 %, and the female rate at 14.7 % (Population employment survey, 2001). The decline in unemployment rate appears in 2002 when it was 13.8%. The difference between male and female unemployment rates has slightly decreased: unemployment rate for male was 14.6% while that for female 12.9% (Population employment survey, 2002). The EU unemployment rate was 7.7% in 2002.

Youth Unemployment

Just like in other countries, the rate of youth unemployment is higher than the total. According to the population employment survey data, the average annual youth (until 25 years of age) unemployment rate in 2001 was 31.1 % (36.1% of male and 24.1 % of female). This rate greatly exceeds the EU average (14.6 % in 2001). Over one third of them do not have any qualifications. In 2002 youth unemployment rate decreased to 23.0%.

Long-term Unemployment

Long-term unemployment share in Lithuania exceed the EU average: in 2001, EU long-term unemployed accounted for 42%, Lithuanian it accounted for 59%. In 2002 this share slightly decreased and reached 55.0%.The highest rate of long-term unemployment has been noted in the age group of older than 50 years. On the one hand, this is connected with the refusal of older people and lack of capacities to change, and on the other hand, with employers‘ principle to hire younger people.

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National Minorities Employment Issues

According to the date of the 2001 Population Employment Survey, the unemployment among the ethnic minority groups is higher than the average: while the general unemployment level was 17.1%, there were 15.8% unemployed Lithuanians, 25.6% Russians, 24.5% Poles, 17.6% of people of other nationalities. It has been observed that unemployed representatives of national minorities have lower education and do not have necessary vocational training. Lack of knowledge of the official language is also an obstacle to acquire professional qualification and find a job.

In 2000, attention was focussed on persons of a Roma nationality. Full integration of Roma population into the Lithuanian society has not been achieved yet due to their linguistic, cultural and ethnic uniqueness. It is very important to solve such romas’ problems, as unemployment, low education and poverty. The first steps have been already made – in 2000, when the Government of the Republic of Lithuania approved the Programme for Romas’ Integration into the Lithuanian Society for 2000-2004.

Unemployment and Education

The rate of unemployment varies in different education groups. According to the data of LFS, the rate of unemployment of persons with higher than secondary education in 2001 amounted to 11%, with secondary education 22%, with basic education 26%. Around 4/5 of the unemployed registered in the Labour Exchange do not have any qualifications or their qualifications do not meet the current labour market needs. Approx. half of the registered young unemployed persons do not have any qualifications.

Support to Job-Seekers

The Labour Exchange was established for the implementation of the labour marker policy. This institution comprises the National and 46 territorial labour exchange offices covering the whole country‘s area. The Labour Exchange acts as a mediator in employment of citizens and implements active labour market measures – vocational training, public works, subsidized employment, jobs clubs, etc. However, attracting of the unemployed to participate in the active measures has not been successful due to under-financing (in 2001 - around 40%). Furthermore, activities prevailing in the active labour market measures are not very effective in terms of employment: in 2001, only 28% got a permanent job following the participation in the active measures. The fight against unemployment lacks local initiatives.

Social Exclusion and Social Risk Groups

Economic recession caused big differentiation in prices. A considerable part of the population – 16% in 2000 – found themselves below the poverty line. For instance, more than 20% of families which have pre-school children live in poverty. In most cases, families who live in poverty are unemployed. Therefore, it is very important to resolve the issue of integration of socially vulnerable groups of the population into the economic activities. Major attention is paid to this issue in the Employment Increasing Programme for 2001-2004. The following risk groups may be distinguished: the disabled; single mothers or parents who have children under 14; people at a pre-retirement age; unqualified youth; persons who returned from imprisonment institutions; national minorities. Representatives of these groups account for 1/3 of all persons registered with labour exchange offices.

In 2001, there was a total of 126,911 persons with disabilities of the working age who were eligible for invalidity benefits. According to the data of the State Social Insurance Fund Board, the current number of employed people with disabilities is 27,906. The number of working disabled persons fell from 40% in 1990 to 18%. The number of disabled people, working in the enterprises of the organisations of the disabled, fell by 5-6 times. An average of 4.4 thousand of persons with disabilities are registered with labour exchange offices on an annual basis. Over half of them are unskilled and have never had any labour relations, every third person - under 25. The biggest part of the disabled

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people, working and benefiting from employment programmes, are of the third disability group; people with more serious disabilities do not have a possibility to compete on equal terms in the labour market. It is most difficult to employ people with psychic, visual or hearing disabilities and those of the first disability group. The revenue of the working disabled people is often minimum. The main factors limiting employment of people with disabilities are the following: insufficiently accessible high and higher education, not adjusted public and working environment, absence of professional rehabilitation system and insufficient promotion of employers to hire people with disabilities.

Currently, vocational training and re-qualification of the disabled is implemented through the labour market training services, special training centres, vocational training schools, and it is accessible to people with lighter forms of disability. Vocational training and re-qualification, which are inadequate, hardly accessible, badly adapted and non-compatible with the needs of local labour market, is one of the causes of unemployment among the disabled. There not methodologies to assess professional skills (remaining, acquired) which would allow to judge on the feasibility and effectiveness of professional rehabilitation. The shortcomings of the system of professional rehabilitation and absence of its links with other parts of the rehabilitation system causes the present inadequate state of the professional rehabilitation system of the disabled.

An important thing for the disabled is not only the development of social protection measures, but also the integration of disabled children into education and training institutions, realisation of disabled youths’ rights to education, informal development of the disabled adults, accessibility of information and communications, development of social services at the community level. Meeting of special needs of the disabled by substituting alternative measures of social protection, education and healthcare for the social benefits is the main direction which should guide the development of all the service systems in order to aid the social integration of the disabled.

A problem is also caused by the fact that training programmes and methodologies of schools of general education, high and higher education institutions are not adapted, the support by special measures, services, equipment and specialists is not assured.

One of the graver problems in the country is the integration of former convicts. The number of persons returning from imprisonment institutions and searching for a job has grown especially in 2000-2001. 8 thousand of such cases were registered by the Labour Exchange in 1999, and 8.2 thousand – in 2000. In 2002, this number dropped to 4.8 thousand. Since 1997 the number of imprisoned persons has been increasing constantly in Lithuania and at the beginning of 2001, it was 10,807, i.e. around 290 prisoners per 100,000 population. The bulk of former prisoners consists of potentially most active and employable people: 85% of prisoners – persons under 40. 45% of prisoners have a secondary and 46% have lower than secondary education. In imprisonment institutions, only 8% of all prisoners receive a certificate of secondary education, less than 25% of all prisoners have a possibility to work. A large part of persons returning from imprisonment institutions are likely to re-offend as they have lost their qualifications and social skills. Thus, one of the most pressing problems of social integration of former prisoners is integration into the labour market.

Another social risk group comprises persons dependent on drugs, alcohol and other substances. Their integration into the social and professional life requires complex measures. Existing rehabilitation programmes and centres fail to meet the current needs, in some districts, there are no such centres available, in some – there are even several of such centres. Personnel of rehabilitation centres lacks knowledge and skills. The objective of rehabilitation is to restore a drug addict’s physical, psychological, emotional and social status. In the meanwhile, rehabilitation is perceived and conducted on a smaller scale – it is restricted to social isolation and occupational therapy. There is no unified gradual (multi-step) assistance programme for teenagers (motivation - rehabilitation-integration into society) Therefore, teenagers frequently fail to complete the rehabilitation course, or following rehabilitation the face issues related to integration into the learning process or integration into work activities.

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In 1999, the Government of the Republic of Lithuania approved the National Drug Control and Drug Prevention Programme 1999-2003. The objective of this programme is to determine the most significant problems in drug control and drug prevention by assessing the extent of drug use problem in Lithuania and to set drug policy tasks and measures to resolve these problems. Under this programme, in 2000, the Ministry of Social Security and Labour selected by way of tender and provided funding for 84 projects presented by different non-governmental and public organisations engaged in drug prevention and rehabilitation of drug addicts. Most of the projects launched in 2000 should be further continued as otherwise their effectiveness will decrease.

Regional Differences

Different regions of Lithuania were affected by the transitional period to varying degrees depending on their economic structure at the beginning of this period and geographical location. Additionally, as a result of the decreasing role of the state (both in terms of regulation and decisions regarding investments), direct free market investments were mainly directed to the most developed regions. This caused significant differences in regional employment.

According to the LFS data, in 2001, the rate of employment in the age group of 15–64 years was lowest in the districts of Alytus and Marijampolė, at 53.5 and 54.6% respectively. The highest rate of employment in the aforesaid age group has been identified in Klaipėda (61%) and Vilnius (58.9%). In most districts (especially in Tauragė and Marijampolė), a large number of registered employed persons are involved in the sector of agriculture, and their activity usually is low-productive arable farming intended for making one’s living.

Unemployment rates vary from region to region. According to the LFS data, the highest rate of unemployment in 2001 was in districts of Alytus (21.9%) and Šiauliai (19.1%), whereas the lowest – in districts of Panevėžys (14.2%) and Vilnius (15.6%).

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Table 50. Assessment of Development Disparities in the Area of Labour Market and Employment in Lithuania and EU Member States.

Disparity Measurement unit

Year Lithuania EU average


Unemployment rate % 2001 17.0 7.6 Large

Youth unemployment % 2001 30.2 14.0 Large

Share of long-term unemployed % 2001 59.0 44.0 Large

Female unemployment % 2001 14.2 8.9 Large

Male unemployment % 2001 19.7 8.7 Large

Employment rate % 2001 57.7 64.0 Medium

Female employment % 2001 56.4 46.0

females 25-54 years % 2001 74.9 66.8

Male employment % 2001 59.0 71.3

males 25-54 years % 2001 73.3 87.3

Employment by sectors:

Agriculture, hunting, forestry and fisheries

% 2001 16.3 4.2 Large

Industry, construction % 2001 27.6 26.4 Small

Services % 2001 56.1 69.4 Large

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1.3.10 EDUCATION AND VOCATIONAL TRAINING

Key statements:

Lithuania has a good legal foundation for the development of a modern and effective vocational education and training system as well as the development of social partnership.

The enrolment rate is increasing in secondary (ISCED 3) and post-secondary education.

Negative trends, however, persist in some areas: there are a high number of school leavers leaving the educational system without obtaining the basic education certificate. There is also a low level of participation in continuous training and an absence of a culture of lifelong learning.

The vocational training system is not currently sufficiently tailored to rapidly evolving labour market requirements resulting from structural changes in the Lithuanian economy. There are also issues around the varying quality of vocational education and training provision across Lithuania. In order to rectify this, there is a need for more effective monitoring of standards in training provision

In some rural areas, there are issues around ensuring access to education – which are being tackled in part through the development of distance learning courses. Current investment in human resources and equipment / course materials in the education and vocational training sector is inadequate. Additional investment is urgently needed to create the right pre-conditions to foster a culture of lifelong learning.

Efforts to improve the skills levels of the Lithuanian labour force and to update the skills of those whose qualifications are out of date are constrained by outdated educational curricula in some subject areas particularly in the sciences – where there is a lack of lecturers with appropriate international experience and qualifications to transfer expertise to Lithuania.

Achievement have however been made in respect of specialist training – a three-pillar study system was introduced, the network of higher education establishments was developed and international evaluation of study curricula has started. However, the content of most curricula still does not correspond to labour market needs, scientific achievements and international standards, the trainers’ qualification is insufficient and there is a lack of opportunity for international mobility amongst Lithuanian academics.

During the 12 years since Lithuania’s independence the basic legislative framework on education and strategic instruments for system development compliant with the conclusions of the European Council in Lisbon and with the provisions formulated in the Employment Strategy and Lifelong Learning Memorandum conclusions were adopted. Therefore it can be stated that Lithuania has a fairly good legislative foundation for modern development of the education system and social partnership.

The legislative framework created preconditions for the development of two separate systems of initial vocational education and training, and labour market vocational education and training. The initial vocational education and training falls on the national level within the responsibility of the Ministry of Education and Science and labour market

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vocational training – of the Ministry of Social Security and Labour of the Republic of Lithuania. Time has shown that such a model is ineffective and therefore during the recent years implementation of certain measures was started to strengthen interfaces between the initial and labour market vocational training systems. However, the vocational education and training system is still not homogenous enough to ensure a solid and harmonious lifelong learning environment.

Initial Vocational Education and Training

Structure

Lithuania has a six-level education and training system consisting of: pre-school education, primary education (ISCED 1), basic education (ISCED 2), secondary education (ISCED 3), college education (ISCED 5B) and higher education (ISCED 5A). With a view to harmonizing the system of existing qualifications with the qualifications system applied in the EU, a reform of the post-secondary studies sector was initiated in 2000: with gradual elimination of college education, a two-level higher education is being formed consisting of non-university and university studies.

Participation in Initial Vocational Education and TrainingCompared to the EU, the number of pupils seeking to gain an occupation together with secondary education in Lithuania is quite low. For instance, according to EUROSTAT, in 1999 the share of these young individuals among all pupils in secondary education (ISCED 3) comprised 39.6 per cent. Whereas the corresponding indicator in the EU was 54.4 per cent. According to the information provided by the Statistics Department, in Lithuania this indicator dropped even more in 2000 (32.3 per cent), and particularly in 2001 (28,2 per cent). The decrease was partly due to the ongoing reform: transition to 10-year basic education. One of the reasons for such a situation is low prestige of vocational education and training. So far insufficient attention is devoted to addressing this problem. In Lithuania, likewise in the EU, around 14 per cent of young people on all education levels are studying at colleges and higher education establishments.

Another drawback is a weakly developed vocational information, guidance and counselling system when transferring from schools of basic education to preparation for occupational activity. At present only 10 to 15 per cent of pupils receive qualified advice before choosing an occupation. Whereas in most developed EU countries counselling is available to the absolute majority of pupils.

Education and Training Accessibility

According to information provided by the Statistics Department in 2001 Lithuania has 80 state and 1 non-state vocational school, 33 state and 9 non-state professional colleges. Although the network of training institutions is developed to a large extent, it does not ensure equal access opportunities in different parts of the country. For instance, young people from low income families have limited opportunities to study at higher education establishments, which are mainly concentrated in the big cities. Moreover, there are quite substantial regional disparities with respect to the accessibility to certain vocational education and training programmes. E.g., some regions have quite few vocational education and training institutions and their range of available specialities is too narrow. It should also be noted that the links between individual education levels are insufficient to ensure favourable conditions for lifelong learning. For instance, there is still no system developed for the acknowledgement of credits gained during higher non-university studies for higher university studies.

Lithuania has a high rate of ‘drop-outs’ from the educational system and a high percentage of school leavers that leave at the end of the minimum statutory period of basic education. The share of those having gained basic education compared to the total number of 15-year-olds comprised 80 per cent in 1992 and 73.7 per cent in 2000. This quite substantial share of the young population have very limited opportunities for further development because alternative training possibilities are insufficiently

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developed in Lithuania. Neither are there mechanisms to ensure that everyone capable of learning gain basic education and occupation within a consistent education system. The diagram below shows a somewhat improved situation in 2001, but it still remains a sore problem because the drop-outs are the potential unemployed.

Figure 29:. The share of those having gained basic education

* - no crop due to transition to 10-year basic education** - compared to the number of 16-year-olds

System Capacity

In 2001 – beginning of 2002 vocational schools employed 2345 vocational trainers and 1764 general subject teachers. Almost half of them have higher education. According to research findings, however, 75 per cent of vocational trainers have no teaching qualification. Shortage of management and PC skills is also pointed out. Insufficient competence of teachers hinders implementation of new technologies and application of innovative training techniques in the teaching process. This trend is characteristic of all education levels.

It should also be noted that in Lithuania specialists of vocational information, guidance and counselling are not specially trained for these activities and this has negative impact on the quality of services provided. Besides, the country has no specialists who are able to evaluate training/study curricula and education institutions in a professional manner.

Expenditure on education and training during the recent years comprised 6 per cent of the GDP. 5.6 per cent of the GDP was allocated in 1995, 6.5 per cent in 1999, 6.0 per cent in 2000 and 6.1 per cent in 2001. Compared to EU average (5.5 per cent according to EUROSTAT) this indicator is quite good. However, the GDP share of expenditure from the national budget on vocational schools shows that the Lithuanian indicator is one of the lowest among EU candidate countries (in Lithuania it equalled 0.4 per cent in 2000). According to financial reports, the biggest share in the institutions’ expenditure structure is comprised of staff salaries and related taxes as well as payments for public utilities. Almost no funds are allocated to renovation or procurement of basic equipment and materials necessary for teaching and learning. E.g., the financing for compiling and release of textbooks in 2000 equalled only 1 per cent within the institutions’ expenditure structure. According to 2001 data, Lithuania had 1 PC per 30 pupils in secondary education, whereas the EU average was about 9 students. Pitiable condition of buildings, obsolete material/technical base incompliant with today’s requirements and high shortage of teaching and learning material are some of the basic drawbacks to ensuring the quality of teaching services. The same applies to the material designed for vocational information, guidance and counselling.

Quality Assurance System

Lithuania has developed institutions providing scientific and methodological assistance and performing quality assessment. Moreover, a foundation has been laid for ensuring transparency of vocational education and training (state registry of study and training

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curricula, database of vocational education and training licences, vocational education and training standards, etc). Principles for social partnership and structures for their implementation have also been developed. However, many unsolved problems still remain: there is no single qualifications system and no institution responsible for its development and functioning, the granting of qualification is not separated from training and study institutions (qualifications are granted by education and study institutions), limited techniques for qualification assessment (there is more focus on knowledge rather than skills, and there is no evaluation of non-formally and informally gained competencies), there is no procedure in place for developing and formalising new qualifications, the number of developed standards is several times smaller than the required number; ineffective system of quality assessment of vocational education and training; insufficiently developed internal quality assurance system on the institutional level; shortage of specialists who are able to perform accreditation of training/study curricula and institutions; still very low number of employers involved in vocational education and training.

Incompliance of vocational education and training with economy needs should also be mentioned. For instance, according to the information provided by the Lithuanian National Labour Exchange, in 2000 around 25 per cent of all graduates from vocational schools of that year were registered with labour exchanges. The findings from the Labour Force Survey shows that both in 2000 and 2001 unemployed individuals with vocational education comprised the biggest share in the structure of the unemployed broken down according to education. Absence of corresponding research could be pointed out as one of the main reasons causing the gap between vocational education and training and the needs of the economy. Lithuania is in principle not conducting comparative and prognostic research on the needs for employment and qualifications. Furthermore, there is a shortage of research necessary for effective management and development of the education system. According to the findings from sociological research, it is the practical skills that the newly coming specialists are lacking most. This problem is a consequence of poor material/technical base, insufficient competence of teachers and loose social partnership.

Training of Higher Education

The development of national economy and new technologies obligate education and study establishments (collegiums and universities) to educate specialists with the highest qualification who are capable of adjusting to the rapidly changing labour market, to provide conditions for development of the gained qualification and retraining as well as to apply the scientific potential necessary for training such specialists.

The country has expanded it network of higher education establishments, and establishment of collegiums was started in 2000. Development of the collegium sector allowed shortening the time and reducing the funds necessary for training highly-qualified specialists.

With the view to harmonizing study curricula and available qualifications and degrees with higher education systems in West European countries, a three-pillar study system was introduced. Evaluation of newly developed curricula of higher education establishments started in 1998, regular external assessment of study curricula according to study specialities commenced in 1999, and experts started to be invited from other countries in order to ensure objectivity of evaluating the content of the study curricula.

In Lithuania the proportion of the population with higher education is 17,3% (ISCED97): higher university education (4 year and longer post-secondary courses) - 12,9%, higher non-university education (3 year duration post-secondary courses) - 4,4%. The number of students (exclusive of doctoral students and post-graduate students in arts) studying at all types of Lithuania’s higher education establishments grew from 58 thousand to almost 142 thousand within six years (1996–2002). During the period of 2002-2003 around 116 thousand students are studying at universities (exclusive of doctoral students and post-

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graduate students in arts), and more than 26 thousand students are studying at collegiums according to higher education non-university curricula.

In 2002/2003, 43 higher education establishments were entitled to issue higher education diplomas: 30 state (15 non-university and 15 colleges) and 13 non-state (4 and 9 respectively). The main centres of higher education and studies (according to the numbers of three-pillar students in Lithuania’s higher education establishments and their branches in 2002/2003) are concentrated in the big cities of Lithuania: around 68 thousand students (46.8 per cent) in Vilnius, 46.6 thousand (32 per cent) in Kaunas, 13.6 thousand (9.4 per cent) in Klaipėda and 9.9 thousand (6.8 per cent) in Šiauliai.

Already now universities admit more than three fourths of individuals with secondary education. This indicator is substantially higher compared to European countries (the number of students admitted to the 1st year of study pillar I at state and private universities comprises 78 per cent of the number of individuals who completed secondary education in 2002).

The number of students studying in evening and extramural departments is increasing. In 1995 evening studies were chosen by 2.3 per cent and in 2001 by 6.7 per cent, and extramural studies by 17 and 26 per cent of all students respectively.

An increasing number of older individuals are returning to continue their studies. The age average of students at universities was 22 years in 1999, 22.3 years in 2000 and 22.9 years in 2001. Similar development is observed in all study pillars.In terms of the four dimensions of a knowledge economy (see Figure 24), in Lithuania less progress was made in improving education system, thought literacy and enrollment rates well already high in 1995. The linkages between basic and applied research and the learning process are critical to the development of the knowledge economy. This issue is of particular importance at the upper levels of the higher education system, including both public and private universities and colleges.

Figure 30. Lithuania's performance in developing a knowledge economy, 1995 and 2000-02

In spite of the positive changes the system of higher education still faces many problems:

At the beginning of the economic decline in the 1990’s the prestige of higher education was somewhat lower. Poor social status of researchers caused “brain drain” (including to the USA or other non-EU countries), emigration of young highly qualified professionals and growth in the average age of research workers.

Incompliance of the content of higher education study curricula with the needs of the labour market and science as well as with EU requirements.

Insufficient vocational guidance and counselling services aimed at avoiding differences between demand and supply on the labour market.

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0

5

10

Econ. IncentiveRegime

Innovation

Education

InformationInfrastructure

most recent 1995

Incompliance of qualified lecturers (professors docents, lecturers and assistants) qualification with EU requirements, and shortage of doctoral students who have completed studies abroad.

Unequal international student exchange (1 comes and 10 leave); shortage of study curricula in foreign languages; absence of satisfactory domestic conditions for foreigners.

Unsatisfactory condition of the material base and training and study equipment at higher education establishments. Due to scarce resources the buildings were not renovated until 2001 and they are not adjusted to the handicapped. Only in 2001, 20 million Litas was allocated to renovation of the buildings of education and study establishments.

Continuous Education and TrainingStructure

The Continuous vocational education and training system in Lithuania is more focused on training of the unemployed. The legal framework contains almost no provisions and stimulus for training of working individuals.

Participation in Continuous Education

The level of participation in continuous education is very low. According to the information provided by the labour exchange, the majority of registered unemployed persons are not prepared to enter the labour market, i.e., their occupation has low demand or they have no occupation at all. However, only a very small part of registered unemployed individuals take part in continuous education. For instance, 223480 unemployed persons were registered in 2001, and due to scarce resources only 17000 or 7.6 per cent of them were referred for training. According to EUROSTAT (CVTS-2 survey) only 3.7 per cent of population form 25 to 64 years of age took part in continuous education and training in 2001. Whereas the corresponding indicator in the EU countries the same year was 8.4 per cent. The rate of participation in continuous education and training is a self-sustained indicator showing that continuous education does not meet the needs of the labour market and the individual.

The above statement is also confirmed by the labour force analysis. Around 60 per cent of the current labour force received vocational training according to Soviet curricula, which were focused on narrow activity areas specific to the former economy system, there was no development of general capabilities, such as initiative, entrepreneurship, computer literacy, communication, etc., and the Soviet system of continuous education and training to a large extent did not meet the requirements defined by the economy based on free market principles. On the other hand, the education and occupation gained under the market economy conditions and particularly in the education system of the modern information society is a necessary, but a far insufficient precondition to ensure employment for about 40 further years of activity. Only recurrent (continuous) qualification development, and as the need may be, retraining can ensure mobility on the labour market. Beside these issues the system of labour market education has to address the problems of individuals who left the education system without gaining any qualification. Quite a substantial part of young individuals currently have no qualification because during the period of 1990 – 1995 there was significant decrease in the need to seek education and to gain occupation. At present there are about 100.000 young people who entered the labour market without having an occupation.

Education and Training Accessibility

At present in Lithuania formal training programmes are used by 300 enterprises, organisations and education establishments, which also offer non-formal training programmes. Special training centres, which now amount to 14, are designed for training the unemployed. However, the number of companies delivering staff training is much smaller than in the European Union. According to EUROSTAT (CVTS-2 survey), staff

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training was delivered by 43 per cent of Lithuanian enterprises in 2001, whereas the corresponding indicator in the EU equalled 72 per cent. Respondents of the recently conducted vocational education and training accessibility survey16 indicated scarce resources as the crucial barrier for gaining and developing qualification. Furthermore, there are no incentive mechanisms for staff development aimed at either the employees themselves or employers. Insufficiently developed variety of training and learning techniques as well as insufficiently developed system for assessing gained knowledge are also drawbacks to the accessibility of continuous education and training. For instance, formalization of non-formally and informally gained knowledge is still not ensured in Lithuania.

System Capacity

The problems pertaining to the capacity of continuous vocational education and training are the same as in the case of initial vocational education and training. This first of all relates to the insufficient competence of system workers, obsolete material/technical base, shortage of teaching/learning material, etc.

Conditions for lifelong learning

According to official statistics the education of working individuals in Lithuania is quite high. Persons with full secondary or higher level of education comprise 80 % of the labour force, whereas this number equals two thirds in more developed EU countries. However, the competence of the majority of these individuals only partly meets the requirements raised by the economy based on the free market principles. In 1998 51.2 % of Lithuania’s young people (within 25 to 29 age group) had at least secondary education. This indicator does not strongly differ from the analogous one in the European Union (57.9 %).

There has been an increase in the enrolment rate in secondary (ISCED 3) and post-secondary education. According to the information provided by the Statistics Department, the gross value in secondary education (ISCED 3) grew from 78.4 in 1996 to 94.3 per cent in 2000. The corresponding indicators pertaining to higher education (ISCED 5A) were 17.8 and 31.1 per cent.

However, there is a high number of early leavers (normally without even gaining basic education) and low level of participation in continuous education. Vocational education and training is not fully accessible to everyone who can and are willing to learn, particularly in rural areas and for individuals with low income. Furthermore, the teaching/learning environment is insufficiently adjusted to the learning of handicapped people. Insufficiently developed links between the initial and labour market vocational education systems limit lifelong learning opportunities. Quality of vocational education and training and its compliance with the needs of the labour market also cause serious concern. This is due to insufficient qualification of the people working in the system, inefficient quality assurance system, weak relations between education establishments and employers, obsolete material/technical base, undeveloped vocational information, guidance and counselling system, shortage of material necessary for successful lifelong learning and absence of corresponding research.

All this indicates that human and material resources are not sufficient to ensure good-quality conditions for lifelong learning. The vocational education and training system is actually not prepared to solve the problems identified and to adequately respond to structural changes of the economy.

16 Conducted by Vocational Education and Training Information Service of the Vocational Education and Training Methodology Centre in 2000.

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Table 51. Evaluation of disparities between Lithuania and EU countries in the area of education and vocational training

Disparities Measurement unit

Year Lithuania EU average

Disparity rating

Share of young individuals who after finishing basic school choose vocational education trend among all individuals studying in secondary education (ISCED 3)

% 1999 39.6 54.4 High

Share of 19-year-olds who gained secondary education (22-year-old in the EU)

% 1997 50 71.2 High

Share of those taking part in continuous education and training among population within 25 to 64 age group

% 2001 3.7 8.4 High

Share of companies delivering staff training among all companies

% 2001 43 72 High

Budgetary financing to higher education

% GDP 1995 1.01 0.91 Low

Number of new doctors PhD 1000 population

2001 0.08 0.55 High

Number of in-coming and out-going students within EU Socrates programme

Comers and leavers ratio

2000/

2001

1:11

1:2

High

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1.3.11 INFORMATION SOCIETY

Key statements:

There is recognition at a policy level that Lithuania needs to embrace the concept of an ‘information society’ in order to facilitate the transition towards a knowledge-driven economy.

In economic terms, investment in developing the IT infrastructure (e.g. provision of broadband internet access across Lithuania etc.) should help accelerate economic growth (particularly in rural areas where until now the IT infrastructure is relatively underdeveloped), enhance international competitiveness and enable more modern management approaches to be introduced leading to efficiency improvements in industry and business.

In societal terms, the information society should help improve the quality of life for Lithuanian citizens and level the playing field for those living in rural areas so that they can access the same products and services available to those living in cities.

ICT penetration rates (computer and internet usage, etc.) are rapidly growing amongst the Lithuanian population, although they are still considerably below the EU average due to comparatively low levels of computer literacy, the need for more and better IT training provision and infrastructure limitations (e.g., limited access to the Internet, price constraints).

More positively, computer sales in Lithuania are growing rapidly and Lithuanian cities generally have a well-developed IT infrastructure. Also encouragingly, Lithuanians show growing interest in accessing e-government services: in the middle of 2001, over 50% of Internet users in Lithuania said they had used the services of e-government via the Internet during the previous 12 months.

Lithuania, by nature of its small size and large scientific-technological potential, should be in a position to adapt relatively easily to rapidly changing global IT trends.

The World Bank report on the applicant countries’ preparation for EU accession distributed in February 2002 states that if candidate countries wish to achieve the level of economic competitiveness of current EU member states, they must shift economic activity towards knowledge-driven sectors and embrace new technologies. The study of the situation in 10 countries seeking EU membership conducted by the World Bank showed that the level of expenditure of these countries on research and development, enrolment to universities, accessibility to computers and the number of the Internet access points is considerably lower than that in the EU member states, however, these countries, including Lithuania, have favourable conditions for increasing their competitiveness: the qualified workforce, great capacities in the sphere of research and technologies, a comparatively well-developed communications infrastructure and growing openness to foreign trade.

The main document defining the works aimed at developing the information society of Lithuania in 2001 - 2004 is the Strategic Plan of the Development of the Information Society of Lithuania. This document is harmonized with eEurope + and eEurope 2005: an Information Society for All action plans and give a clear guidance on the development of

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information society. Those plans are clearly represented within the Singly Programing Document, firstly as a horizontal priority within the key dimensions of the strategy and, secondly as a separate measure under the Priority 3 of the Single Programming Document. Successful combination of both horizontal and vertical approaches will allow to significantly foster the development of the information society in Lithuania. In addition the Government has approved the concept of E-Government and an action plan for its implementation that foresees provision of 20 major public services electronically by 2005.

On the basis of those documents, Annual Detailed Plans of the Information Society are drawn up providing the main measures of the state institutions in developing the information society. The following four major priorities in developing the information society of Lithuania are presented in the Strategic Plan: the ICT skills of Lithuanians; public administration; electronic business; Lithuanian culture and the Lithuanian language.

As Lithuania is characterised by well-developed IT infrastructure in the cities, emphasis in the field of development of data transmission infrastructure will be given to rural areas. Despite the fact that implementation of information society related projects has a crucial impact on the development of whole economy, especially in the lagging regions, the competitions rules and guidelines for financing electronic communications are to be respected.

Integration of ICT into Society

Use of ICT Among the Population

According to the study data, 70% of working and studying people in Lithuania, 38% of 15-year and older inhabitants of the country, work or study in computerised places, however, only every second of them use a computer themselves (Skaitmeninė Lietuva 2001). In the summer of 2002 (June-August), 21% of Lithuanian population were Internet users (at the same period of 2001 – only 8%), 34% used a computer (SIC Gallup Media data). Regular users of the Internet (i.e. those who use the Internet at least once a week and more often) in Lithuania accounted for 13.4% of the population (in the summer of 2000 – 4.6%); a respective EU indicator accounts for 40%; in the first half of 2002, 12% of Lithuanian households owned a computer (in 1996 – 1%, in 1998 – 2%, in 2000 – 5%). Only about 6% of Lithuanian households have Internet access (at the end of 2000 – 2.3%) (data of the Department of Statistics); according to this indicator, Lithuania is behind the EU countries by approximately seven times (EU average – 40%, date of Eurostat).

In 2001-2002, the segment of mobile communication of the telecommunications sector was noted for a rapid growth rate. 45% of Lithuania’s inhabitants made use of mobile communication at the end of 2002. At the end of 2000 only 15% of the population had mobile phones. The mobile data transmission services using the GPRS technology are provided by two providers of telecommunications services. From the beginning to the middle of 2002, the number of GPRS users in Lithuania grew by almost 5 times (from 1.5 thousand to 6.8 thousand). From the autumn of 2002, two telecommunications operations started to provide Multimedia Messaging Services (MMS).

E-Business

According to the date of a research carried out at the beginning of 2002, 70% of computerised Lithuanian enterprises used Internet; of the enterprises not having Internet, one fourth was planning to connect to it, 40% did not plan to acquire Internet connection at all. The employees of most of the enterprises (53%) spend relatively little time online per month – up to 20 hours. The most uses of the Internet in the enterprises include the managing of correspondence: e-mail (54%), data transmission (34%) and banking operations (18%). Out of the enterprises having Internet access, 24% have an Internet website. Out of the enterprises having Internet access but not having an website, one fifth plans to acquire a website during the upcoming half a year, while more than a half (56%) does not plan to have an Internet website at all (data of “Sic rinkos tyrimai”).

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According to the date of the research of enterprises of processing industry and services, conducted at the beginning of 2002, 84% of enterprises were using computers (at the beginning of 2001 – 80%), one enterprise had on the average 15.1 computers (at the beginning of 2001 – 13.3). 27% of enterprises had websites, 7% of enterprises indicated that they sell goods / services online, 10% - buy directly online, 32% perform financial operations online.

At present Lithuania’s indicators in the sphere of the development of electronic business are low: in 2001 frequent Internet buyers accounted for 3% of the Internet users in Lithuania; the EU average in this area is 44% (SIC Gallup Media data). In the first half of 2002, only 0.6% of households of the country had ever ordered goods or paid for services online.

E-Government

The population shows a great interest in e-Government: in the middle of 2002, 8% of Lithuania’s population had used e-Government services during the 12 months (for comparison – Sweden’s analogous figure is 57%, Denmark’s –53%). That is more than half (56%) of Internet users in Lithuania. The inhabitants of Lithuania used e-Government services mainly to find information that interests them (75%), to download information (63%), to provide data about themselves or to settle direct accounts (25% each) (SIC Gallup Media data). At present the development of e-Government Lithuania encounters a number of problems: the sector of registers, databases, information systems, which is of paramount importance to the State has not been fully created, neither the electronic document nor the infrastructure of electronic signature has been developed, due to the lack of funds the work of creating the government portal intended for the provision of public information and services has been delayed and part of state and municipal employees have no fundamental computer literacy skills.

Education

Substantial progress has been made in the IT sector in the area of education in 2001-2002 in supplying computers to schools, however, Lithuania is still noted for low school computerisation indicators: according to the number of computers per 100 pupils Lithuania is below the EU average by approximately three times (at the end of 2002, this indicator in Lithuania was 3.2 and the EU average was 12).

Both college-type and higher schools in Lithuania train specialists in informatics and related spheres. Enrolment to departments of informatics and related specialities at higher education institutions was increased for the school year of 2001 and 2002: the number of students admitted to the places financed by the State was raised by 55% and to places that are not financed by the State – by 70%; the total number of students admitted to these specialities is 2,423, including 1,706 students whose studies are financed by the State. According to the data provided by the Ministry of Education and Science, at present 5,052 students study informatics or subjects directly related to it; that is, students of these specialities account for about 5.3% of the total body of students at Lithuanian higher education schools (the EU indicator is 4%). This percentage is to increase in the immediate future.

Main Challenges to Information Society Development

Low Public Awareness of Information Society Processes (ISP)

Currently a large number of Lithuania’s population have insufficient information about the information society processes (ISP), people do not understand the possibilities provided by IT or do not see what benefit it can bring to their everyday activities: for example, over one third of the population (38%) maintain that they do not use the Internet either at work or at school because there is no need to use it: also, over half the population of the country, which is not computer literate, suppose that it is unnecessary to them, and one

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third thinks that they are too old to acquire this knowledge. Approximately one third of the country’s population have no idea what the Internet is29.

Insufficient Computer Literacy Skills

A large part of the country’s population are not computer literate. The level of computer literacy among the Lithuania’s population usually depends on their education level and income, as well as on their age, social status and the place of residence. Surveys have shown that the higher the education and income of the population, the younger the people are, the greater number of them resides in towns and occupy higher positions, the higher their level of computer literacy and the greater their desire to acquire it. The greatest differences, or the “digital divide” are between people receiving the highest and the lowest income; between rural and urban population, especially the inhabitants of Vilnius; and between the youngest and oldest residents30.

Limited Possibilities to Use IT

Computerisation of both work/study places and households is related to the age, education, income, the social status, the place of residence of the inhabitants: the higher education the inhabitants have, the younger they are and the larger income they receive, the more likely is that their households are computerised. Studies show that the main reason why the inhabitants do not use the Internet at home (87%), at work or education institutions (42%) is that there is no access to the Internet there; other reasons why people do not use the Internet at home are as follows: it is too expensive to use the Internet at home (23%) and there is no need to use it (14%)31. Studies show that main business problems related to the use of ITC is the high price of the Internet services; either slow Internet connection or insufficient bandwidth of communication channels; or the small number of public services provided by the Internet.Table 52. Assessment of Development Disparities in the Area of Information Society in Lithuania and EU Member States.

Disparity Measurement unit Year Lithuania EU averag

e

Assessment of

Disparity

Source of information

Regular Internet users

% of population 2002 15 42 Large SIC Gallup Media, EUROSTAT

Computerisation of households

% of households 2002 6 40 Large Dep. of Stat., EUROSTAT

Computerisation of schools

Number of computers per 100 pupils

2001 4 12 Medium Ministry of Education and Science, EUROSTAT

Share of students of IT and related specialities

% of the total number of country’s students

2001-2002

5.3 4 - Ministry of Education and Science

Online buyers % of online buyers in the total number of Internet users

2001 3 37 Large SIC Gallup Media, Eurostat

29 (“Skaitmeninė Lietuva 2001” – “Digital Lithuania 2001”).30 (“Skaitmeninė Lietuva 2001” – “Digital Lithuania 2001”).31 (“Skaitmeninė Lietuva 2001” – “Digital Lithuania 2001”).

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Disparity Measurement unit Year Lithuania EU averag

e

Assessment of

Disparity

Source of information

Number of internet hosts per 1,000 population

Number per 1,000 of population

2001 15 40 Large RIPE

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1.4 REGIONAL DIMENSION

Research suggests that since independence, there are increasing developmental disparities within Lithuania, both between and within Lithuania’s ten counties. It is important to note that while in overall terms, Vilnius and Klaipėda counties appear to fare relatively well in terms of economic performance, this is primarily due to the economic dynamism of the Cities of Vilnius and Klaipėda. Some municipalities within these two counties however (e.g., Šalčininkai municipality in Vilnius county, Skuodas municipality in Klaipėda county) are considerably less prosperous economically. Indeed, their economic situation is comparable to that of some of the least performing counties, such as Tauragė, Marijampolė, Šiauliai.

Economic difficulties experienced in some regions of Lithuania clearly also have social implications. Problems such as poverty, social exclusion, dependence on the social security system and poor quality of life – disproportionately affect those municipalities where economic development is sluggish. A number of public policy measures aimed at tackling the problem of the widening economic development gap between the different regions in Lithuania are already in force. However, given the long term nature of economic development and the regeneration of deprived areas, it is too early to see concrete results from these measures.

For numerous historical and economic reasons, the individual regions, cities and towns of Lithuania have experienced widely differing economic trajectories and consequently have different economic structures and have developed strengths in different sectors. Vilnius, Kaunas, Klaipėda, Šiauliai, Panevėžys are important industrial centres, which, together with a number of other towns in Lithuania, underwent a major industrialisation over the last 50 years. During the past decade all the industries have faced restructuring, with some of them acquiring internationally competitive specialisations and becoming the success stories of transition from state-managed to market-based economy. The service sector – banking, telecommunications, transport and retail trade – has also been developing vigorously since 1990s.

The major centres of the service sector – including the headquarters of banks, telecommunication and retail companies are located in Vilnius. Vilnius city and Vilnius county is also home for some of the biggest enterprises in such industrial sectors as food processing, clothing and textiles, electronics, furniture, construction. The capital city attaches high importance to the development of its information technology sector – which is a priority in Vilnius’s strategic development plan. Tourism is also seen as a sector with good growth prospects – bearing in mind the rich historical heritage of the city. Kaunas hosts the headquarters of some of the biggest wholesale and retail trade companies in Lithuania. The major industries of the county include chemicals, food processing, pharmaceuticals, textiles and clothing, furniture, construction. Information technology sector has also been demonstrating a considerable growth rate. The economic situation of Klaipėda county is strongly linked to the Klaipėda sea port. Due to this reason, transport and transit are important economic activities, as well as shipbuilding and fishing. As for the more traditional industries – electronics, oil extraction, food processing, furniture, paper and carton, construction are among the most important.

One of the advantages of Lithuania is a relatively well-developed network of smaller towns, which play important role in the economic, administrative, social, and cultural life of the country. These include such county centres (adding to the 5 largest cities – county centres) as Alytus – the capital of cultural region Dzukija, Marijampole – the capital of cultural region Suvalkija, Utena – one of the centres of cultural region Aukštaitija, as well as Telšiai and Tauragė – the centres of cultural region Žemaitija. These county centres have certain diversification of industry, better access to all kinds of services including better quality health care, social, education services, and housing. In comparison to 5 largest cities, the bigger cities enjoy significantly lower crime rates compared to the national average (e.g. the crime rate in Marijampolė and Utena is less than 70 percent of that in Vilnius and Klaipėda).

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Due to the industrialisation strategies of the past, many smaller towns have developed special economic links to one industrial sector or plant. Kėdainiai and Jonava (fertilisers production), Mažeikiai (oil processing), Radviliškis (rail transport), Akmenė (construction materials) are good examples here. An extreme instance of such relationship is Visaginas town, where local economic and social situation to a major extent depends on Ignalina Nuclear Power Plant (please see below). The restructuring and privatisation process of some of such plants was not always successful – with far reaching negative consequences for local population. Some of the smaller towns – Palanga, Nida, Druskininkai, Birštonas are traditional resort places. Improving infrastructure and services should help these towns to reverse the negative economic trends which were noticeable in early-mid 1990s as the tourist flows are now on an increase trend again.

Farming is a major economic activity in many rural municipalities. The rural areas in Lithuania face numerous structural problems, such as small average farm size, lack of resources for investment, low productivity, poor public service infrastructure, depopulation and various social difficulties.

Regional policy in Lithuania

Until 1998 Lithuania did not have either regional policy instruments separate from other social and economic development instruments or institutions responsible for regional policy. The first Law on Regional Development has been adopted in 2000. It has foreseen the aims and objectives of regional policy, the institutional structure and the regional policy instruments. This law had some inherent flaws – one of them being conflict with the Council Regulation No 1260/1999. It has been replaced with the new Law on Regional Development in December 24 2002.

The regional disparities have increased significantly during the transition to market economy. The disparities in GDP per capita between the most ant the least developed regions in Lithuania have increased 2,6 times. The growth in disparities within regions has been even higher. The aim of the national regional policy as provided in the Law on Regional Development is to decrease social and economic disparities among and within Lithuanian regions. This aim is to be realised through fostering of initiatives of the regions, which are defined as counties, and direct state support to “problem territories” defined by the Government on the basis of social and economic development criteria to be set in the separate Government Resolution and in line with the state aid rules.

Moreover, a complex regional development planning system, which includes preparation of national and regional level planning documents, has been introduced. On the regional level county governors’ administrations are responsible for drafting regional development plans, which are discussed in and approved in the regional development councils composed of elected members of municipal councils. Municipalities are represented in the regional development councils on the basis of the number of inhabitants.

A number of regions and municipalities over the past several years have developed and adopted their development plans. In December 5 2002 the Government has adopted the National regional development programme and its implementation measures for 2003 – 2005. The objectives of the programme are to facilitate the creation of the regional development planning system, to increase the regional and local capacity to prepare investment projects for the EU structural funds and to facilitate nascent implementation of the INTERREG III initiative.

Finally, another issue with a strong regional socio-economic dimension is the decommissioning of the Ignalina nuclear power plant. The Ignalina Nuclear Power Plant (INPP), situated in the town of Visaginas, Utena county is the main producer of electricity in Lithuania and accounts for some 4/5 of overall electricity supply for Lithuanian customers. In 2001 the plant employed 4634 employees – mostly from Visaginas (the total population of Visaginas is around 34 000). The economic situation of the town is closely linked to that of the INPP. A number of businesses provide the Plant and its employees with supplies and services. The public services – education, health, etc. – are

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to a significant extent related to the needs of the INPP employees and their families. At a national level, businesses in Lithuania take advantage of the fact that the energy produced by the INPP is relatively cheaper as compared to the energy based on, for example, burning fossil fuels. The INPP's emissions of air pollutants is minimal, which adds to moderating negative environmental impact of Lithuania's industry (even though other issues, such as nuclear safety and storage and utilisation of nuclear waste are important). Electricity is an important export item of Lithuania.

The Soviet construction of the INPP's Reactor Units is considered to have some inherent flaws which compromise the nuclear safety of the Plant. Therefore, Lithuanian government took a decision to decommission the INPP. This is to proceed in two stages with the first Reactor Unit stopping its operation in 2005 and the second – in 2009. The decommissioning is bound to have serious economic and social consequences both for the region as well as for the country as a whole. These include direct job looses for the Plant employees, decrease of demand and income and subsequent job looses for the businesses servicing the Plant. As a worst-case scenario, the overall economic activity in the Visaginas town and surrounding area can fall substantially – since the increase of unemployment and income decline may bring further negative multiplication effects. The other possible impacts are related to social costs of unemployment and low income: poorer health, higher crime rate, decline of overall quality of life. At a national level, Lithuanian citizens, businesses and state budget will also be affected. The budget expenses in terms of unemployment and various social security-related contributions may increase unsustainably. The direct costs of decommissioning, modernising and increasing the existing electricity generation capacity will also be high, even though both EU and international assistance is being secured to cover these. At the same time, Lithuanian households and businesses will face higher prices for energy.

The estimated cost of decommissioning INPP and addressing related economic and social issues vary with the highest estimations reaching some 5,8 – 11,6 bn euro in the long term (this includes installing a new nuclear power unit). The medium term cost of decommissioning, modernising the existing capacity and implementing economic development policies in Visaginas and neighbouring areas is forecasted at 647 mln. euro until 2006. Until 2003 the international donors (including the EU) had already committed to allocate some 210 mln euro. During the accession negotiations the EU has undertaken to provide another 285 mln euro of support. Numerous decommissioning preparatory measures are already being implemented, coupled with the assistance to invigorate economic activity in Visaginas town and Utena county. PHARE programme is an important financial source of these measures, along with the national budget and private investment.

1.5 SWOT ANALYSIS AND KEY SECTOR ANALYSIS

The SWOT analysis set out below is based on key strengths and weaknesses, opportunities and threats identified in the baseline analysis. It also takes into account

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additional geographic, social and economic factors. The SWOT provides a basis for the development strategy and for the formulation of individual Priorities and Measures.

The SWOT was put together as a result of the summary analysis of the existing situation and SWOT tables of individual sectors of the Lithuanian economy (industry and business, tourism, information technology, agriculture and rural development, human resources, environment, transport and energy).

To realise economic, social and environmental opportunities requires building on the key foundations of macro economic stability, the geographical advantages inherent in being a link between east and west, further development of and investment in physical infrastructure and the fostering of a favourable business and investment climate. It also necessitates capitalising on Lithuania’s well-educated workforce by focusing development efforts on those sectors of the economy, such as services, SMEs and tourism which have the potential for rapid growth. These factors will be critical to sustainable economic growth over the 2004-06 programming period and beyond.

Realising the opportunities requires tackling the structural weaknesses of the economy and continuing the economic transformation process of the past decade since independence. Modernisation requires a continuing focus on physical infrastructure improvement, along with the development of Lithuania’s skills base and continued investment in human resources, education and training. Tackling a legacy of environmental problems will also be a significant challenge requiring long-term investment.

A weakness identified in the SWOT that will need to be tackled going forward is the low level of private sector expenditure in R&D. In Lithuania, business expenditure on R&D as a proportion of GDP stood at 0.07 in 2002. This is significantly below the EU average (1.28 in 2002) and even from public expenditure for R&D in Lithuania (0.53 in 2002). European Innovation Scoreboard 2002 – Candidate Countries is included in Annex N.

The threats to development combine both factors within Lithuania’s control and external factors over which Lithuania has no direct influence. While EU accession and access to the common market offers the potential for significant benefit, it of course brings corresponding risks to the Lithuanian domestic market which, although larger than its Baltic neighbours, is comparatively small and open. Lithuanian businesses will therefore be increasingly vulnerable to foreign competition and must continue the process of modernisation, investment in new technologies and structural adjustment in order to remain competitive. Foreign competition in industry, agricultural reform, and the need to reach EU quality standards in a number of commercial and social areas are all major challenges.

EU accession may also accelerate the process of structural change already underway in the Lithuanian economy; the increasing proportion of GDP derived from private sector activity, the increasing importance of the service sector, a decline in the share of both GDP and employment in the agricultural sector and improvements in industrial productivity. Rapid changes in industrial and employment structures can be seen as both an opportunity and a threat. An opportunity in the sense that increased private sector activity should bring about greater competitiveness and growth in the level of entrepreneurship plus further productivity improvements but a potential threat in terms of the risk of increased unemployment resulting from structural changes in the economy, competition from other EU countries in domestic and export markets etc.

In line with the baseline assessment, the analysis has focused on issues at national level rather than on regional issues within Lithuania. It is likely that each region will have its own particular strengths and weaknesses as well as face particular opportunities and threats. For example, there are significant regional and inter-regional disparities in unemployment levels. Additionally, most SMEs are located in just two of Lithuania’s ten counties. The possibility of regional imbalances continuing to increase over the coming years is clearly a threat to Lithuania’s long-term national prosperity.

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A sector-based SWOT is provided in the appendices.

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Table 53: Summary SWOT analysis.

STRENGTHS WEAKNESSES

Macroeconomic stability Growing economic competitiveness Geographical location favourable for east-west transit Sufficiently well-developed transport and communications

infrastructure Relatively large export share to western markets Well-educated workforce Pockets of well-developed scientific institutions and high

potential for applied research in selected areas Framework for vocational training established Attractive natural environment and landscape with rich

heritage Improving health care indicators Part of Baltic sea belonging to Lithuania comparatively rich

in fish resources, experience and traditions of inhabitants, specialised fish landing –place in Klaipeda port, developed Atlantic fishing fleet

Low industrial and agricultural productivity Lack of entrepreneurial culture and lack of access to capital for

SME start-ups and existing SMEs High structural and youth unemployment Skills shortages and gaps, especially amongst young with high

levels of dropouts Physical infrastructure in need of modernisation and investment Healthcare system comparatively inefficient and not structured to

meet social needs Insufficient access to and quality of social services and vocational

rehabilitation infrastructure High level of poverty and social exclusion, particularly among

vulnerable groups Energy dependency and lack of indigenous supplies Low level of scientific research, technology development and

innovation, and little private sector involvement Lack of IT awareness and low levels of IT application Pollution, especially of water sources and potential land

contamination from chemicals Inadequate waste management infrastructure Not adjusted with available fish resources, outdated and

inefficient fishing feet of Baltic sea.

OPPORTUNITIES THREATS

EU accession and the opportunities of the EU common market

Growing cooperation of the Baltic Sea states

Dependency on energy resources from a single source CIS market instability and cyclical fluctuations of western market

on small domestic economy

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Goods and services export opportunities to CIS markets Growing business internationalisation including foreign

direct investment and cooperation SME development, cluster formation (especially in high-

technology sectors), and technology and innovation development, building on network of business information centres and incubators

Increasing goods transit flows Rapid expansion of IT-based capacity and economic

contribution Continuing expansion of services sector Growth of national and regional tourism (urban, rural,

marine) Domestic and commercial energy efficiency Implementing the policy of sustainable fisheries, fully

utilizing fishing quota allocated to Lithuania, encouraging the cultivation of new fish species, developing the ecological farming of fish.

Rationalisation of the heath care system is currently taking place

Increasing disparities between rural and urban areas and between different counties/ regions

Growing competition from foreign industry and services in domestic and foreign markets, creating economic and social challenges

Costs and challenges of meeting EU quality standards Emigration of labour force, particularly highly qualified Decline in labour participation rates Closure of Ignalina NPP - consequent social, environmental and

economic impacts Ageing population and growing need for social assistance and

health care services Rural depopulation and agricultural restructuring Environmental impacts of growing economy (CO2 emissions, air

quality) Socioeconomic tension in coastal region, caused by reduction of

fishing quota and restructuring of fishing fleet.

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Key sectorsThe aim of the Objective 1 strategy is to consolidate and build on existing ‘key sector’ strengths. In order for Lithuania to capitalise on its strengths and opportunities and in order to mitigate and minimise weaknesses and threats, it is essential that there is a clear understanding of key sectors in which Lithuania has comparative advantage – these sectors are likely to be critical drivers of national competitiveness. To have maximum effect, Objective 1 interventions will need to be targeted at those sectors whose positive growth prospects will largely determine the outlook for the Lithuanian economy as a whole.

Future prospects for different sectors of the Lithuanian economy will be influenced by a combination of:

- Past trends in the Lithuanian economy, the current performance of different sectors, positioning in international markets, etc;

- The outlook for different sectors taking into account developments in the European and global economies as a whole;

- Specific impacts on different sectors that are expected to come about indirectly as a result of Objective 1 interventions in Lithuania.

The table below shows the current share of GDP accounted for by different sectors of the Lithuanian economy. The first column shows the share GDP figure for 2001 whilst the second column shows forecast GDP growth by sector over the 2001-05 period.Table 54: Share of GDP accounted for by different sectors of the Lithuanian economy

Sectors 2001 Share of GDP (%) Estimated GDP Growth 2001-05 (%)

Agriculture 7.0 -11.4

Fisheries 0.1 0.4

Extraction and processing 1.2 8.3

Manufacturing 22.9 2.6

Electricity, gas and water 4.2 -4.6

Construction 6.1 14.7

Wholesale and retail 15.4 5.2

Hotels and restaurants 1.3 7.7

Transport and communications 12.3 3.5

Financial and business services 2.3 8.7

Real estate and renting 8.1 -2.4

Public administration and defence 6.1 -11.4

Education 6.5 12.3

Health and social work 3.5 -11.4

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Other community and personal services

3.1 -6.4

Source: The impact of EU accession on Lithuania

Below, we review sectoral prospects and the implications for the Objective 1 strategy.

Emerging Sectors

Lithuania has a number of ‘emerging sectors’ that, taken together, currently account for a relatively low share of GDP (4.8%) and which at the same time have strong growth prospects:

Financial and Business Services – internationally, financial and business services is one of the fastest growing sectors and this trend is reflected in Lithuania where the share of GDP is forecast to rise by around 9% over the 2001-05 period driven by increasing demand for retail products and services. There are also interesting developments at a pan-Baltic level that may have an impact on the development of the sector – such as the consolidation of the stock exchanges of Helsinki, Riga and Talinn. Consolidation may help in achieving the critical mass necessary to compete internationally.

Tourism (Hotels and Restaurants) – the SPD highlights the fact that Lithuania’s natural and cultural resources create favourable conditions for developing attractive tourist products. Therefore, whilst there is currently only a relatively modest level of visitors from abroad (mainly from neighbouring countries), the potential to expand tourism and leisure activities – and to target a more international market - by improving marketing and increasing investment in upgraded facilities and services is considerable.

Extractive and Processing Industries - extraction and processing industries (oil processing, wood, leather products, etc) accounted for the largest share (88%) of industrial produce sales by volume in 2001 but for a relatively low share of GDP (just over 1%). However, the comparative weight of the GDP generated by extracting and processing industries has been increasing and there is considerable scope for expansion as competitiveness improves.

Strategies to promote ‘emerging sectors’ typically focus on interventions to assist new business start-ups and SMEs. In the case of Lithuania, there is less scope for this approach given the predominance of large-scale undertakings in the Financial & Business Services, and Extractive and Processing Industries.

A combination of strategies will therefore be required to develop these and other ‘emerging sectors’. In the first place, there is a need to further develop and upgrade basic infrastructures (this is addressed by Priority 1 of the programme). Larger undertakings – particularly in the Extractive and Processing sectors - will need support (workforce skills development, new technologies, product development and design, etc) to develop their competitiveness and export potential. In the case of the Tourism sector, there is also a need for investment in infrastructure to open up and improve visitor destinations. Otherwise, the focus will be more on helping to develop the potential of smaller undertakings (hotels, leisure facilities, restaurants, etc) through initiatives such as training to develop business skills, marketing, use of ICT, etc. Basic quality standards also need to be developed as a framework for encouraging the adoption of good practices. Similar actions will be required in certain Financial and Business Services sub-sectors, and activities such as leather and wood products in the Extractive and Processing Industries, where there is also scope for promoting SMEs. Across all ‘emerging sectors’, there is a need to ensure that the barriers to market entry are minimised and that appropriate financial instruments and advisor services exist to support start-ups and SMEs (Priority 3 of the Objective 1 programme).

Key Sectors

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There are a number of ‘key sectors’ that currently account for a relatively large share of GDP (63.2%) and also have generally good growth prospects:

Construction – employment in Lithuania’s construction industry fell in the early years after transition (after manufacturing and agriculture, construction accounted for the third largest share of employment at 12%). However, EU accession is likely to lead to further investment in major infrastructure projects with the construction industry’s share of GDP forecast to grow by around 14% over the 2001-05 period.

Retail and Wholesale – after manufacturing, the retail and wholesale sectors are expected to benefit most from EU accession with forecasts suggesting growth of around 5% over the period to 2005, fuelled by higher disposable incomes. Inward investment is likely to be a key driver.

Manufacturing – the industrial sector is currently dominated by relatively low added value, low skill activities with production based on high technologies accounting for an estimated 13% of the total (compared with 20-25% in existing EU Member States). The main industries that use highly-skilled labour force are pharmaceutical, machinery and equipment, and electronic but these sectors account for less than 4% of total manufacturing output. The SPD’s assessment of the impact of EU accession on the manufacturing sector suggests nevertheless that manufacturing will benefit most during the 2002-2009 period in terms of the share of the value added generated (LTL 18.6 billion). These effects will come about largely as a result of increased trading and investment opportunities associated with the common market.

Education – Lithuania has a well-developed network of scientific and higher education institutions and the SPD highlights the potential contribution of R&D to economic development (at present, R&D accounts for a relatively small share - around 0.6% - of GDP. Certain areas of applied R&D are seen as having particularly strong potential in this respect (biotechnology, biochemistry, chemistry, physics, mathematics, environmental protection, laser technology).

Transport - the share of GDP accounted for by Lithuania’s transport sector has been increasing and now represents some 8% of the country’s total GDP (the sector employs some 73,000 people or 5% of the total workforce). With the planned upgrading of key road, rail, air and seaports, there is considerable scope to develop transport services, especially given the increased transit traffic that is expected following the accession of the Baltic States to the EU. There may also be scope for a growth in value added logistics.

Whilst the growth of sectors such as construction, education and retail and wholesale will be largely fuelled by domestic demand, expansion on the scale forecast of the manufacturing and transport sectors will depend more on the ability of Lithuanian undertakings to compete in European markets.

There are a number of sector-specific priorities that have been identified in the SPD, particularly in the Transport field where major investment is needed to develop basic infrastructure including components of the Trans-European Networks. In the case of the Manufacturing sector (Priority 2 of the Objective 1 programme), the priority is to increase the value added content of activities by investing in new technologies, upgrading workforce skills, encouraging innovation and new product development, and other measures. There is also a need to encourage foreign direct investment as a way of transferring know-how and resources to Lithuanian undertakings. Similarly, an effort needs to be made to develop local supply chains through measures targeted especially at SMEs.

Lithuania’s higher education sector has a potentially important contribution to make to the development of ‘key sectors’ (and others including some ‘emerging sectors’), specifically with regard to raising value added. Centres of excellence need to be identified and actions taken to encourage stronger linkages with business. The starting point in this respect should be to encourage a more entrepreneurial attitude in HE institutions. But this should be supported by developing the mechanisms for technology transfer – advice

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on patenting, risk capital financing, specialist advisory services, science parks and innovation centres, etc.

Important Sectors

‘Important sectors’ represent over one-third of Lithuania’s current GDP and a higher share of employment. However, there are only relatively modest future growth prospects.

Agriculture and Fisheries – employment in these sectors has declined in recent years from some 23% in 1995 to a current level of 17% of total jobs. However, agriculture and fisheries still provides most job opportunities in rural and coastal areas of Lithuania. These sectors are also expected to be significant beneficiaries of EU accession although the common market effect will be felt here more indirectly rather than directly, i.e. through the general increase in the volumes of production, income and consumption. The SPD’s assessment is that the financial flows from the EU will have a much higher relative impact on agriculture and fisheries than in the case of the industrial sector.

Public Administration and Defence – these sectors currently account for a relatively large share of employment. However, the reform of Lithuania’s public administration and services is leading to a reduction in job levels and increased productivity. Share of GDP is forecast to decline by around 11% over the 2001-05 period.

The priority in the case of these sectors is to bring about a restructuring of major undertakings so that they can adapt to change. This process has been underway for some time in Lithuania’s public administration.

This is also true of the Agriculture and Fisheries sector which has benefited from SAPARD aid. The aim of the Objective 1 strategy (Priority 4) is to accelerate this process of structural change by helping rural areas to develop more diversified local economies. There are links in this respect with efforts to promote ‘emerging sectors’ such as Tourism and certain smaller scale activities in the Extractive and Processing sub sectors.

The two sectors identified above will remain important to the Lithuanian economy. However, with the prospect of reduced labour levels, efforts to promote restructuring will need to be accompanied by schemes to retrain workers (Priority 2 of the Objective 1 strategy). Similar considerations apply to the ‘declining sectors’ (see below).

Healthcare - the provision of health care services is characterised by a hospital infrastructure that is overdeveloped in terms of quantity but does not meet EU quality requirements. A similar situation exists in the social services field where a priority is to switch from residential-based provision to community facilities.

Electricity, Gas and Water – Lithuania’s energy sector is characterised by the production potential which significantly exceeds demand. Restructuring is therefore taking place including the closure of Ignalina Nuclear Power Plant. Against this, however, there will be new investment (estimated at around LTL 1.8 billion for the period 2002-2009) in the construction of new power plants and modernisation of existing utilities. The Ignalina Protocol to the Act of Accession envisages a sum of 285 million Euros in Community Assistance for the period 2004-2006.

2. DEVELOPMENT STRATEGY

2.1. VISION STATEMENT

By 2015, Lithuania will have achieved parity with the more prosperous EU Member States in terms of key social and economic indicators. Its people will enjoy a high quality of life based on a modern, knowledge-driven economy that exploits the country’s many unique strengths.

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Supporting elements of the vision are:

Development will be sustainable and compatible with the principles of environmental sustainability and social inclusion.

Lithuania’s citizens will have access to the full range of employment, education, training and learning opportunities required to achieve individual aspirations and potential.

Disparities in prosperity between Lithuania’s various counties will be reduced if not eliminated.

Lithuania will play an important and distinctive role in the European Union and in the Baltic and Central and Eastern European region.

The 2004-06 Objective 1 programme will clearly make an important contribution to Lithuania’s development. However, the two-year programming period is too short to realise many of Lithuania’s longer-term aspirations. The 2004-2006 Objective 1 programme has therefore been developed in the context of a vision for Lithuania in the longer-term perspective of the next 10-15 years.

Supporting this vision is the overall framework provided by the ‘Long-term Economic Development Strategy 2015’ and two other documents - a ‘Multi-party Consensus on Lithuania 2015’ and the ‘National Development Plan, 2015’. The Objective 1 SPD’s vision is consistent with this framework and highlights the specific role of the programme in achieving broader aims.

There are a number of critical factors that will have a bearing on achievement of the vision:

Investment Climate: Between EU accession in 2004 and 2015, Lithuania should enjoy sustained economic growth with forecasts suggesting an increase in GDP of around 2.5 times current levels. The Objective 1 programme will play an important role in stimulating growth by supporting investment in key infrastructure and other framework conditions for economic development. The programme’s impact will, however, depend critically on the overall macro-economic climate. A stable political and investment environment, solid fiscal and monetary policies, and Lithuania’s intended membership of the Eurozone (planned for 2007) are likely to influence this, as well as economic conditions in the wider EU. Economic prosperity will be compatible with the principle of environmental sustainability.

Development of Key Sectors: By 2015, the industrial structure of the Lithuanian economy should have changed considerably. The agricultural sector should have been successfully restructured with significant increases in productivity as a result of modernisation. The manufacturing sector should have achieved a shift towards higher value-added activities based on traditional strengths and comparative advantages. The service sector meanwhile should have become a driving force of the Lithuanian economy with knowledge-intensive activities accounting for a greatly increased share of GDP. The use of information and communication technologies across all key sectors of the economy should result in significant increases in efficiency and productivity

Labour Market and Skills: A well-educated and highly skilled workforce is needed to underpin economic growth and prosperity. Training schemes supported by the European Social Fund will have a critical role in skills development. Training and education will, however, have to become more closely aligned to labour market requirements and, in particular, the needs of key sectors. Economic growth combined with improvements in education and training provision should help bring about a significant reduction in unemployment from present levels. The recent decline in labour participation rates should also be possible to reverse through economic growth, a rise in real wages and specific measures to encourage labour market integration. Those that have left the school system without achieving their full potential will have the opportunity to be trained (or re-

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trained, if necessary) and will join the process of lifelong learning. Increases in labour participation rates as well as the use of active labour market policies will help bring about a reduction in levels of social exclusion.

Business Activity: High levels of entrepreneurship, a strong, dynamic and innovative small and medium sized enterprise sector, and a flow of inward investment will be the basis of fast economic growth. Structural Fund investment will help to eliminate obstacles to new business activities through modernisation of communications and transport networks, investment in other physical infrastructure, improvements in the labour market, and an overall strengthening of the support structures for business. A positive attitude to entrepreneurship should become ingrained leading to a high level of business start-ups. Likewise, the Higher Education sector should interact far more closely with business than at present with mechanisms in place to facilitate technology transfer and the commercialisation of research. At the same time, economic development in Lithuania and the wider region should lead to a build-up of inward investment.

Regional Development: By 2015, there should have been a significant reduction in disparities between and within Lithuania’s various counties. Whilst a ‘growth pole’ approach may lead to an increase in disparities in the short-term, balanced regional development should be possible to achieve in the medium-long term by exploiting the potential to develop clusters of high growth industries in different parts of the country and other actions to actively encourage a more even spread of economic activity.

Human Resources Development Policy Frame of Reference

Seeking to achieve one of the main goals of the Objective 1 programme – knowledge-based economy and employment growth the development of human potential is essential part of the strategy. Human resources development based on reality of positive and active people and high level skills will be a powerful attraction factor for all lines of business and welfare. In development work the emphasis is on the importance of stimulating the possibilities of the human potential and of combating poverty and social exclusion by life-long learning and better employability of unemployed people. All this is supported by Human Resources Development priority.

The ESF investments in the human resources development provided for in Lithuanian SPD support and supplement the employment policy pursued by the Government of the Republic of Lithuania, the objectives and targets of which are established in the National Employment Increasing Programme for 2001-2004, the Joint Assessment Paper on Employment Priorities in the Republic of Lithuania, Joint Inclusion Memorandum, etc.

The comprehensive analysis and justification for the SPD strategy in connection with the above-mentioned national strategic documents is provided in Annex 1 of the programme.

2.2. STRATEGY OF THE SINGLE PROGRAMMING DOCUMENT

2.2.1 PROGRAMME GOALS AND OBJECTIVES

The Objective 1 development plan as set out in the Single Programming Document 2004-2006 will involve large-scale joint investment between Lithuania and the European Union (EU). It will play a critical role in helping to create the necessary framework conditions for growth that will enable Lithuania to realise its potential, and will contribute to the realisation of the long-term vision set out in the previous section.

The SWOT table set out in section 1.5 demonstrates clearly that the Lithuanian economy has yet to realise its full growth potential due in large part to previous under-investment by both the public and private sectors. Structural Fund investment will help to redress

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this and will also help Lithuania to capitalise on good progress already made in carrying out necessary structural reforms and achieving macro-economic stability, high levels of GDP growth and low inflation.

The global objective of the Development Plan 2004-2006 is therefore to:

Strengthen the preconditions for growth in long-term national economic competitiveness and to facilitate the transition to and development of a knowledge-based economy characterised by increasing GDP levels and strong employment growth, leading to higher living standards and increasing well-being for all Lithuania’s inhabitants.

As stipulated in the long-term vision, the main priority for the national economic development strategy is the achievement of high GDP growth rates. Over the longer term economic growth will provide a platform for employment creation and growth in real incomes.

The specific objectives of the development plan are set out below:

- to develop new and improve existing physical infrastructure in order to promote economic growth and facilitate the free movement of goods, services and people,

- to ensure that development supported through the SPD is compatible with the principle of sustainable development;

- to improve the skills base of the Lithuanian labour force and to ensure that the workforce is both flexible and adaptable. Another key objective is to upgrade skills and qualifications particularly amongst disadvantaged groups such as the unemployed and young people. Another important objective is to ensure that skills and competencies taught are relevant to labour market requirements;

- to strengthen economic competitiveness by creating the necessary framework conditions for growth, the promotion of a favourable business environment and investment climate conducive to the growth and development of both existing businesses and new business start-ups.

- to strengthen the process of economic restructuring already underway in Lithuania;

Recognising that the 2004-06 period is only limited in developmental terms, the strategy has been devised to contribute to the realisation of the objectives set out above in the context of a longer-term vision. The Development Strategy seeks to ensure that resources are invested in such a way as to maximise the potential benefits for the implementation of the longer-term vision. The strategy seeks to build on Lithuania’s recent period of macroeconomic stability (one of the key strengths identified in the SWOT analysis), as one of the key preconditions for economic growth in real terms.

Limited inflation and moderate growth in wages should allow Lithuania to continue to enjoy higher than average GDP growth over the forthcoming programming period. While there are significant structural problems to be overcome, the European Commission forecast in November 2003 that GDP growth in Lithuania would exceed that in all EU25 countries over the next three years.

The development plan seeks to encourage the rapid development of a few key strategically positioned economic growth centres and key sectors that over the medium and long term have the potential to act as a catalyst for sustainable economic development across Lithuania as a whole due to their favourable location and competitive advantages. It is envisaged that fast growing growth poles and key sectors will play an important role in encouraging more balanced regional development in less prosperous areas over the longer term even if in the short term, there may well be an increase in disparities.

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2.2.2. OVERALL STRATEGY

Investment in physical infrastructure is an important part of the development plan. Investment in both new infrastructure and the upgrading of existing infrastructure should provide a strong basis for long-term economic development in Lithuania enabling the country to capitalise on its favourable geographic location as a transit country and trade conduit between east and west. Investment in infrastructure is a critical precursor to wider socio-economic development – and will be complemented by significant investment in human resources. Investment in infrastructure will be compatible with the principle of (environmentally) sustainable development.

As the SWOT analysis emphasised, the potential of the Lithuanian transport sector has yet to be fully capitalised. Lithuania enjoys comparative advantage compared with some of its neighbours since it is bordered by the sea and has a number of major transport corridors of European significance. However, Lithuania has not fully exploited the transport sector’s tourism and transit potential in large part because of the shortage of quality transport infrastructure. Investment in transport will greatly improve Lithuania’s competitive position as a transport transit corridor and will improve access to more remote areas, as well as linking it with Western European countries. Moreover, surveys carried out in EU countries show that the need for the development of transport infrastructure is driven by two main factors. In respect of passenger transport, development is driven by high demand for private cars. The growth in demand for freight transport and related infrastructure will mainly be determined by the level of growth in the national economy and by the level of manufacturing activity and industrial output.

In Lithuania’s case both these factors are very important. Increased economic activity will undoubtedly create an increase in demand for transport, particularly in view of the fact that the Lithuanian economy is undergoing intensive preparations to join the Single European Market. Removing borders in an enlarged EU will stimulate intra-EU trade, with an increasing transition from a “warehouse”-oriented economy towards a “flow”-based economy with just-in-time delivery of goods to the required place. Moreover, the key provision of the latest White Paper32 is to focus European transport policy on meeting public needs, increasing passenger rights, improving traffic safety, ensuring high standards of services and upgrading key transport infrastructure facilities.

Over the last few years the Lithuanian transport system has undergone major changes as the country has sought to integrate into the EU transport network and transport services market. One of the most important drivers of change has been investment into the future Trans-European transport network. Support from the EU Cohesion and Structural Funds will enable social and economic development to be promoted on a regional basis by lowering development differences between and within Lithuania’s regions. Thus, investment in the area of transport infrastructure will aim at providing as favourable conditions for economic growth as possible based on two key principles:

The principle of complementarity: infrastructure investment aimed at improving and further developing the transport system will be made according to the likely impact of investment made (not only technological and economic, but also social, ecological, etc.) not only in the transport sector, but also in other sectors of the economy.

The need to improve efficiency: in order to improve the transport system’s efficiency, upgrading and modernisation of Lithuania’s transport infrastructure and the improvement of the transport management system will need to take place. Infrastructure development will take into consideration overall economic development needs in Lithuania and will be compatible with the principle of striving to achieve sustainable social-economic development of individual districts.

32 In September 2001 the EC approved the White Paper “European transport policy for 2010: time to decide”

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Balanced development of transport modes: distribution of investment funds for transport modes will be balanced, focusing on promoting combined freight transport.

Accessibility: access to transport corridors of international significance at local and regional level will be improved. Secondly, the transport system will be improved, upgraded and adapted so that all transport users (including groups such as the disabled) are able to benefit.

Three levels of development in the Lithuanian transport sector are envisaged. At a local level (transport in urban and suburban areas) measures will be introduced to reduce transport congestion during peak hours through the promotion of flexible formers of working and increased teleworking as well as through the development of a more integrated transport system in urban areas, the promotion of public transport in the urban and district transportation system, the development of more environmentally friendly public transport, through the elimination of the transit of heavy goods vehicles through urban areas and the adaptation of urban transportation systems for disabled people, etc.

At a national level (intercity transport) key objectives include the creation of a single integrated Lithuanian transport system, the development of a national transport network, the development of a sustainable transport system through maximising the use of existing infrastructure, reductions in negative environmental impacts and reductions in journey times as well as improvements on other qualitative indicators.

At a European level (international transport) objectives include the upgrading of sustainable transport infrastructure through the integration of main roads into Trans-European networks and the development of transport infrastructure links of regional significance with main roads, the development of multi-modal transport and its integration into the EU multi-modal transport network and service market, the setting up of logistics centres and their integration into the transport network of logistics centres of the Baltic Sea region and Europe, the modernisation of Klaipėda Seaport infrastructure in order to provide as favourable conditions as possible for tourism development, the upgrading of passenger terminals and improvements in service quality. Planned actions at all three levels are closely interlinked - pursuing objectives at all three levels should bring about synergies and help ensure that transport sector development meets economic development needs.

The issue of environmental sustainability, already referred to in the transport sector investment strategy, is one of the most significant aspects of the development plan. The SPD strategy was coordinated with the Lithuanian National Environment Protection Strategy, which was also used as a basis in the development of the Financing Strategy for the Environmental Sector, the ISPA strategy for the environmental sector 2000 and the Lithuanian Sustainable Development Strategy 2003 which is currently under preparation. The latter strategy lays down a number of key sustainable development objectives measured against a set of quantified indicators such as economic growth, social development and efficiency of resource use amongst others. The strategy sets a series of quantified targets – that Lithuania will meet the current EU average by 2020 in terms of environmental pollution indicators and will comply with the requirements of international conventions limiting environmental pollution and making a positive contribution to global climate change. In pursuing these environmental objectives, Lithuania will seek to avoid some of the environmental problems experienced by many developed countries.

In this respect, investment in physical infrastructure in the field of the environment can be seen as a useful counterbalance to some of the more negative environmental impacts that might result from rapid economic development and increased flows of goods and people. Key sustainable development priorities in the environmental protection field include:

- More efficient use of natural resources and waste management.

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- Reduction of health hazards.

- Alleviation of world climate change and its impacts.

- More efficient protection of biological and landscape diversity.

These priorities were used as the basis for formulating Cohesion Fund and Structural Funds investment priorities for 2004 - 2006. With regard to the water protection sector, priority will be given to achieving EU drinking water compliance requirements for the whole of the Lithuanian population, the expansion of centralised water supply network so that it services at least 95 % of the urban and settlement population. The objective is to more than double the proportion of wastewater treated compared with the 2000 level by the end of the programming period.

In the Waste Management sector objectives are to ensure the supply of public waste management services to all natural and legal entities, to promote local waste recycling and to encourage private sector investment in waste management and recycling; ensuring safe hazardous waste management; using waste in power generation; as well as to bring about a reduction of biodegradable waste disposed of in waste dumps down to 75 % of 2000 levels. In the natural environment protection sector objectives are to develop and improve the network of protected areas in Lithuania; to increase the role of protected areas in the field of public ecological education and to promote the conservation of cultural heritage values; to strengthen the conservation of traditional rural landscapes; to encourage the monitoring of and research into biodiversity and the effects of economic activity in protected areas on biodiversity and finally to improve methods for biodiversity protection.

Accordingly, investment in the third aspect of physical infrastructure – energy infrastructure – is also very important from a sustainable economic development perspective - investment in this area should help eliminate an important weakness identified in the SWOT analysis – over-dependence on a single source of energy supply. Secondly, more efficient use of current energy resources would have positive environmental consequences by helping to reduce air pollution. In this respect, the SPD strategy is essentially based on the key provisions regarding the restructuring and development of the Government’s energy sector formulated in the National Energy Strategy, approved by the Seimas on 10 October 2002.

The strategy provides for specific solutions regarding the conditions and terms of the closure of Ignalina Nuclear Power Plant and takes into consideration the new market and environmental requirements and adjusts and amends directions for energy development. The latter strategy takes into account the most important economic and energy changes, uses available experience and information required in order to plan and forecast the development of individual energy sectors, as well as takes into consideration energy development plans in Lithuania and neighbouring states, global trends in the areas of environmental protection and market liberalisation and key European strategy documents and relevant directives.33

33 Commission of the European Communities, Communication from the Commission. „The regions and the new economy“, Guidelines for innovative actions under the ERDF in 2000 – 2006, Brussels, 31.01.2001, COM (2001) 60 final.

Communication of the Commission, „The Structural funds and their co-ordination with the cohesion fund“, Guidelines for programmes in the period 2000 – 2006; Directive 96/92/EC of the European Parliament and of the Council of 19 December 1996 concerning common rules for the internal market in electricity; Directive 98/30/EC of the European Parliament and of the Council of 22 June 1998 concerning common rules for the internal market in natural gas; Kyoto Protocol to the United Nations Framework Convention on Climate Change; Communication from the Commission to the Council and the European Parliament. Green Paper "Towards a European strategy for the security of energy supply". Com (2000)769 final.

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The SPD strategy therefore supports the implementation of objectives of the National Energy Strategy, providing for investment in order to ensure reliable and safe energy supply and to increase energy efficiency, as well as to improve the management of the energy sector through strengthening of institutions operational in the sector, knowledge development and skill upgrading of energy sector specialists.

During the current SPD programming period 2004 – 2006 with a support of EC funds the Strategic Objectives No. 1, 8, 10, 11, 12 of the National Energy Strategy and principal directions No. 2 & 3 of a revised National Energy Efficiency Programme will be dealt with.

The following projects are outside the scope of the SPD:

The International Ignalina Decommissioning Support Fund includes measures for supporting the decommissioning of the Ignalina Nuclear Power Plant (technical decommissioning measures) and for technical and environmental modernization of the conventional power production facilities (Lithuanian Power Plant) needed to replace the nuclear capacities after the decommissioning; The projects for technical and environmental upgrade of three main CHP’s in Lithuania – Vilnius, Kaunas and Mazeikiai CHP – are to be financed under the Cohesion Fund; The main energy infrastructure development projects – underground natural gas storage, electricity interconnection (Power Bridge to Poland) and gas pipeline to Poland – do not have the clearly defined co-financing source.The health sector will also benefit considerably from investment in physical infrastructure. A number of health care institutions will be upgraded. Given that the population’s health directly affects labour supply and productivity as well as longevity rates and quality of life, investment in healthcare infrastructure to help modernise the healthcare industry is an essential pre-requisite if Lithuania is to achieve its long-term economic development aims.

Key health indicators in Lithuania are currently improving, however, as identified in the SWOT analysis, the ageing population is an important and costly issue – there will be an increasing need for health care services. It is therefore very important to ensure modern and efficient health care infrastructure that would create the necessary preconditions for a healthy and capable labour force to exist. As the baseline assessment makes clear, the number of beds in in-patients clinics, death rates and disease resulting from various causes is relatively high, considerably exceeding the EU average, and there is lack of efficiency of preventive measures and healthy lifestyle skills.

In this respect, the SPD strategy consistently supports reform of the national health sector that is seeking to attain two complementary goals, namely to:

Increase economic efficiency of the health care sector through concentration of top specialised medical services, new modern medical technologies and highly qualified medical specialists in hospitals and centres of major cities and counties; and

Improve the national health care infrastructure, rationalising the structure of health care services, improve their quality and ensure regionally balanced accessibility that meets patients' (consumers’) needs.

In respect of investment in healthcare infrastructure, the SPD strategy is consistently based on the Health care institutions' restructuring strategy, approved by the Lithuanian Government. It identifies 3 main aspects to the restructuring process: 1) the development of outpatient services and giving priority to primary health care; 2) the optimisation of

Communication from the Commission. Energy For The Future: Renewable Sources Of Energy. White Paper for a Community Strategy and Action Plan. COM(97)599 final (26/11/97); Directive 2001/77/EC of the European Parliament and of the Council of 27 September 2001 on the promotion of electricity production from renewable energy sources in the internal energy market.

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inpatient services and development of alternative activity forms; and 3) the development of medical nursing and long-term/palliative treatment services.

In order to create the necessary pre-conditions for an improvement in the quality of vocational training and education provision and investment in human resource development, an appropriate supporting infrastructure is essential. The baseline assessment identified a large need for training, retraining and skills development. This will clearly be impossible to achieve without adequate investment in physical infrastructure. Improved infrastructure in the vocational training and education sectors will enable investment in improving supply side training provision (i.e in educational programmes and in training teachers) to be realised. Timely investment into the development of labour exchange and education, research and study and social infrastructure will help Lithuania to successfully achieve the process of reform of the education and vocational training sectors and to ensure that courses provided are beter adapted to labour market requirements. Finally, new infrastructure development in the education/ vocational training sector in more peripheral areas will improve access to educational and lifelong learning opportunities for Lithuanians living in these areas.

In conclusion, the need for investment in physical infrastructure as detailed above is reflected in the first priority of the Single Programming Document - DEVELOPMENT OF SOCIAL AND ECONOMIC INFRASTRUCTURE. A more detailed description is presented in the next section.

Investment in the knowledge economy and in individuals’ adaptability to the rapidly changing economic environment is another inseparable part of this development strategy. This will be attained through channelling support into increasing employment, improving qualification levels amongst employees and helping the workforce adapt to changes in labour market requirements. Additionally, resources will be made available to support community development and to raise awareness amongst students and the labour force alike about the advantages of increased use of ICT. In the education and vocational training sectors, the Higher Education sector and amongst further education colleges promoting adult education and lifelong learning, there will be a strategic focus on encouraging the increased use of ICT as an educational tool. The development plan provides for a significant increase in investment in human capital and will focus on the elimination of key weaknesses identified in the SWOT analysis, namely, high structural and youth unemployment, outdated qualifications and the need for new skills acquisition.

Knowledge and skills development is the main social economic development and growth factor. As the socio-economic analysis showed, the Lithuanian labour force is relatively well educated with a large proportion finishing secondary or college education. However, a knowledge-intensive modern economy requires flexible skills and the continuous upgrading of qualifications. In order to attain one of the strategy’s main goals – the development of the knowledge economy – human resource development will be given major priority in order to ensure that the Lithuanian labour force better meets labour market needs and that a culture of lifelong learning is fostered.

The SPD strategy will support and complement national policy actions, currently under implementation in the HRD/ employment field such as the National Programme to Increase Employment of the Republic of Lithuania 2001-2004, which will be continued in the future. The latter emphasises a huge need for labour force training and retraining in order to overcome the negative employment effects and impact on the labour market caused by structural economic reforms and external impacts, to increase employment, to reduce unemployment and to restore balance in the labour market, as well as to prepare for participation in the EU employment policy coordination process.

The Human Resource Development component of the SPD strategy is also based on the Joint Assessment Paper of Lithuanian Employment Policy Priorities (JAP), prepared and signed in cooperation with the European Commission. This document recognised that the labour market must reflect the needs of a dynamic market economy operating in the

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near future in the European Single Market. In order to achieve this goal, the JAP advocated that Lithuania should ensure that the labour force was adaptable, flexible, and mobile and that steps should be taken to improve the skills levels and qualifications of the labour force. In this respect, it is important to pursue a forward-looking and dynamic approach to industrial restructuring in order to adapt to the labour market requirements that will be required once Lithuania has made a transition to a knowledge-based economy. Taking these steps should also help Lithuania cope with demographic changes and an ageing workforce. The SPD strategy therefore provides for active actions under the three overarching objectives identified in the European Employment Strategy (EES):

full employment;

improving quality and productivity at work;

strengthening social cohesion and inclusion.

Moreover, the SPD strategy takes into account the strategic education and vocational training goals that were set at the European Council meeting in Stockholm, 2001, namely to:

improve the quality and efficiency of EU education and vocational training systems;

ensure that the education and vocational training systems are accessible to everyone;

open up education and vocational training systems to the rest of the world.

The above mentioned Joint Assessment Paper of the Lithuanian Employment Policy Priorities says, "though education of the Lithuanian labour force is of a relatively high level, vocational qualifications and acquired knowledge of part of the labour force does not meet the changing requirements of the labour market." This is largely related to the Soviet heritage, when the education and vocational training system did not focus on the development of such basic skills as entrepreneurship, critical thinking, decision making, initiative. Neither did it develop the ability to learn. In undertaking economic restructuring and increasing economic competitiveness, there is a constant need for raising the level of employee’s qualifications and retraining personnel, therefore, continuing vocational training and development of the informal learning system becomes the main condition for competing in the labour market. In cases when the implementation of strategic economic development plans provides for the introduction of the latest technologies and development of knowledge-intensive manufacturing and services, it is also often feasible to invest into primary vocational training.

As the SWOT analysis by sector reveals, with respect to the area of continuing vocational training /studies, Lithuania is considerably below the EU average: only 3,7 percent (EU - 8,4 percent) of employed individuals participate in continuing vocational training and only 43 percent of companies undertake personnel training (EU - 72 percent). The situation is made worse by the fact that, due to a high dropout rate from the education and vocational training system in times of economic turmoil, a significant percentage of the adult youth (around 100 thousand) have no qualifications with many lacking a basic education due to the high level of school dropouts.

In response to the challenges from the European Summit Council – to ensure that the European economy becomes the most competitive and knowledge-driven economy in the world by 2010, the SPD strategy has a strong focus on improving education and vocational training provision and on higher education. Strategic provisions of the Lithuanian Education Development Plan 2003 – 2012 provide the Lithuanian education sector with a practical vision and clear goals to strive towards. The SPD’s implementation will make a significant contribution towards achieving the goals set out in this strategy. The main objectives for the next decade are set out below:

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to reduce the number of individuals leaving school prematurely (dropping out) by at least half, as against 2000 levels;

to ensure that the percentage of 25-59-year-old individuals with at least secondary education reaches 80 % or higher;

to ensure that 70% of Lithuanian young people reaches as a minimum the first level of higher education at universities and colleges and that the qualifications, skills and competencies taught are relevant to labour market needs;

to ensure that the majority of the Lithuanian population has realistic opportunities to engage in lifelong learning and to regularly update and further develop their skills and abilities, with 15 percent of adult population of the country engaging in adult education in any given year;

to ensure that all Lithuanians are able to harness the opportunities that the knowledge society and membership of the European Union offers.

Taking into consideration open society and market economy conditions, objectives of the Lithuanian education, vocational training, research and study system are directly or indirectly related to the issue of lifelong learning and education (learning /study continuity on all levels of the education system: from vocational schools (Tecnological Gymnasium) to colleges and university higher schools, in order to achieve a more decentralised, rapidly responding and accountable network of (higher) schools and institutions.

The growing competitiveness of the national economy conditioning rapid knowledge-based economic development obliges the training of highly qualified specialists able to adapt to the rapidly changing labour market. In training highly qualified specialists, a special focus will be placed on updating study programmes that would match science achievements and needs of the national economy and international standards, qualification upgrading of teachers, organising student placements in industrial and business companies.

It is important to provide conditions for scientists and other researchers of higher schools, research institutions and economic entities to engage in research and development work of international level, creating new knowledge and bringing increased competitiveness to the national economy. The qualification of scientists and researchers will be upgraded for this purpose, if required, they will retrained. Further, taking into consideration economic needs, quality and scope of preparation of students engaging in R&D activity (including post-graduate students) will be improved, in addition to encouraging their international mobility, thus reinforcing international R&D integration of Lithuania and developing research quality assurance system.

The SPD also provides for investment in social integration, focused on the immediate restructuring of existing poverty areas in rural and urban locations and helping to overcome social exclusion. In this respect the SPD strategy is based on the Joint Inclusion Memorandum, which is currently being drafted in co-operation with the European Commission and will be signed by the end of 2003. The Joint Inclusion Memorandum (JIM) highlights the key challenges for Lithuania over the next twelve years: to eradicate extreme poverty and to significantly reduce poverty and social exclusion levels. In order to achieve this, the Memorandum recognises the necessity of taking priority actions in order to:

- increase access to employment and education of vulnerable groups and tackle regional and geographic concentrations of unemployment;

- promote vocational training, consultancy and life-long learning;

- reconcile work and family life;

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- promote the social economy;

- take advantages offered by the development of information society;

- promote gender equality in combating poverty and social exclusion.

SPD investment into development of human resources and the information society will support the achievement of the priorities of Joint Inclusion Memorandum, particularly as regards development of employability and skills, increase access to education and vocational training, helping vulnerable people to get back to working life.

In this respect, investment in agriculture and fisheries to ease the restructuring process, rural development, needs and area-specific problems of socially isolated society groups (first of all, Ignalina region) is expected to help avoid social and territorial fragmentation of the society, which may otherwise result in increasing probability of political conflicts, undermining conditions for achieving the main goal of this development plan.

The implementation of the SPD strategy and priorities will also contribute to the achievements of objectives and tasks provided for in the State Programme on Equal Opportunities for Men and Women. This Programme covers many areas thereby consolidating gender equality aspect in all areas of political and socio-economic life and sets the following overall aims: to create equal opportunities for men and women to participate in all spheres of public life, to increase the representation of men and women in these areas where they do not participate equally, to achieve that services and financial resources as much as possible equally reach both women and men, to identify and seek to solve specific problems both of women and men.

The need for investment in human resources as set out above is reflected in the development plan’s second priority – HUMAN RESOURCE DEVELOPMENT, presented in more detail in the following section.

The baseline assessment indicates that, in addition to providing the broad preconditions for rapid economic development – development of adequate physical infrastructure and investment in human resources, the Lithuanian economy needs investment in business infrastructure and in publicly funded business support services to help accelerate the restructuring process and to improve the competitiveness of existing and start-up businesses. These measures should help deal with the weaknesses identified in the SWOT analysis such as low industrial productivity, the lack of entrepreneurship and problems in respect of access to capital - which is a particularly important issue in respect of SMEs seeking to expand and new business start-ups.

In order to achieve these objectives, the SPD strategy is based on the Lithuanian Economic Development Long-Term Strategy for 2015, which stresses the need to:

- create an efficient national innovations system guaranteeing conditions favourable to integration of research and production, development and distribution of new technologies and business methods,

- attract investment into Lithuanian industry through the promotion of “green field” investment and investment into joining Lithuanian companies into international clusters,

- guarantee local and foreign companies equal conditions for competition,

- create favourable conditions to company management and specialists to receive information about markets and other important business aspects,

- create infrastructure favourable to the development of small and medium companies, including those providing corporate services to industrial companies.

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The Lisbon Strategy’s key objective is to transform Europe into the most competitive and dynamic knowledge-driven economy in the world by 2010. The Lisbon objectives and means of achieving them such as encouraging innovation in small businesses, improving ICT skills and increasing economic dynamism, as well as the European Charter for Small Enterprises, have been incorporated into the Long-term Economic development Strategy of Lithuania 2015. The strategic importance of the SME sector and of entrepreneurship as one of the key means of bringing about sustainable economic development and boosting economic competitiveness is explicitly recognised in this strategy document.

On this basis, the 2002 Government Resolution “On approval of strategic guidelines for small and medium business development by 2004 and of measures regarding small and medium business development for 2002–2004“ have been developed, establishing strategic goals for SME development in Lithuania. In line with the 10 actions highlighted in the Charter, medium-term strategic directions seek to improve the economic environment for SMEs, improve financial support and access to finance for small and medium sized companies, improve the provision of business information, training and consulting services, encouraging the introduction of new innovations and information technologies in small and medium sized businesses, improving institutional business infrastructure and small and medium sized business development in Lithuania’s regions.

In 2000, Medium-term industrial development policy and its implementation strategy were approved by the Government of the Republic of Lithuania. The medium-term industrial development programme and the measures underpinning it are in line with comparable measures being supported in other EU member states.

It is important to note that as early as 1998 the Government of Lithuania approved the Export Development and Promotion Strategy. The implementation of the Export Development Strategy involved creating an environment favourable to exports, training and providing information to exporters, raising the international competitiveness of goods and services, the development of collaboration between the Government of the Republic of Lithuania and business companies, based on mutual trust, as well as cooperation with foreign countries.

The 2004 – 2006 period will be dedicated to the implementation of the strategies mentioned above through increased competitiveness of existing companies, orientation at creating larger added-value products and services, providing conditions for using highly qualified labour force, and retraining of low and medium qualified labour force or directing it into the tourism sector that is characterised by the intensive use of the labour force. Promoting entrepreneurship and creating infrastructure required for business development will expand the business base that will consequently lead to the setting up of new SMEs and the growth of existing companies.

Industrial and business competitiveness is expected to increase through encouraging the penetration of companies into EU and international markets, as well as promoting industrial structural changes through increasing the share of high technology companies in the overall industrial structure, bringing it closer to the EU model, promoting the manufacturing of high added-value products, increasing the competitiveness of research-intensive, high and medium high technologies, knowledge and high-employee-qualification-based sectors.

On the other hand, measures supported under the development strategy are also oriented at horizontal industry and business needs – the promotion of entrepreneurship, SME development, innovation, information technologies, Research and Development activity. The search for ways to encourage such change has led to the conclusion that both direct and indirect support is important and coordination of both support types would result in synergies.

The business dimension of the SPD strategy takes into full consideration the way enterprise policy intends to achieve the strategic goals set in Lisbon through the

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Multiannual Programme for Enterprise and Entrepreneurship, 2001-200534 35. Other European Commision documents on entrepreneurship (Green Paper, “Entrepreneurship in Europe”36) and SMEs (“Thinking Small in an Enlarging Europe”37) were also taken into account.

Taking into consideration the creation of a knowledge economy, stressed as the SPD’s global objective, the strategy also emphasises the importance of investment in research and development and on technology and innovation. The aim is to create the pre-conditions in the Lithuanian economy for companies to produce products that are competitive not just domestically but also at an EU and international level. A parallel objective is to develop high technologies in the manufacturing sector through investment in high-level research and technological development services. This is expected to be achieved through investment in Higher Education and in research and development and by making Lithuania an attractive centre for foreign companies for investing in knowledge-intensive industries – here a considerable contribution could be made by expenditure on human resource development. This will no doubt require sufficient pooling of professionals (including those with scientific degrees), able to satisfy company needs and to generate new jobs and new companies, and researchers. In order to make knowledge creation and use the key progress driving force, the SPD strategy provides for the support of the implementation of High Technology Development (HTD) Program, which has been provided for in the Lithuanian Science and Technology White Paper and the Long-Term Economic Development Strategy. Development of science and technology parks is foreseen in the Conception of Science and Technology Parks Development approved in 2003 by the Government of the Republic of Lithuania. Implementation of the SPD strategy should initiate the process of Lithuania’s conversion into a highly qualified society competing in the international economy through innovations and productive use of resources, rather than low work pay or traditional processing industry.

This part of the SPD strategy concerning innovations as well as Programme of Innovations in Business approved by the Government of the Republic of Lithuania take into account the approach and intented measures of EU member States and the Commision in the context of Lisbon Strategy38.

The Lithuanian long-term tourism development strategy as well as National tourism development programme for 2003-2006 take into consideration Charter of Cultural Tourism39, Helsinki Declaration regarding political importance of cultural heritage in Europe40, Commision Communication “Working together for the future of European tourism”41, Commission Communication “Basic orientation for the sustainability of European Tourism” (scheduled for adoptation in November 2003). The national tourism strategy provides for the development of marketing, telecommunications and information systems and measures to promote and encourage their use. The development of modern

34 “Towards Enterprise Europe”, Work Programme for enterprise policy 2000-2005, SEC (2000) 771, 08.05.2000.35 “Challenges for enterprise policy in the knowledge-driven economy and a proposal for a Council Decision on a Multiannual programme for Enterprise and Entrepreneurship, 2001-2005”, COM(2000) 256.36 Green Paper , “Enterpreneurship in Europe” , document based on COM (2003), 27 final, 21.01.2003.37 “Thinking Small in an Enlarging Europe”, COM (2003), 26 final, 21.01.2003.38 “Innovation policy: updating the Union’s approach in the context of the Lisbon Strategy”, COM (2003), 112 final, 11.03.2003.39 adopted in 1976, ICOMOS seminar in Brussels.40 adopted in 4th conference of the Council of European Union, held in May 30-31, 1996.41 Commission Communication to the Council, the European Parliament, the Economic and Social Committee and the Committee of the Regions “Working together for the future of European tourism” Brussels, 13.11.2001.

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hotels, other companies providing accommodation services, development and cooperation of tourism and travel arrangements and other elements comprising tourism infrastructure will enable better quality services to be developed that meet the changing needs of tourists. Tourism products will be better differentiated according to the particular attributes of individual counties.

Implementation of this investment will allow a more rational use of natural and cultural resources and will promote sustainable development, help control tourism flows, particularly in conservation areas, allow for ecological education and promotion of healthy lifestyle to be organised, reduce the negative effects of non-organised visitors and tourists on the environment through the developed infrastructure. Cleaned-up localities and renovated buildings will improve the landscape.

Most of the measures mentioned above for implementing this part of the SPD strategy (priority 3) and the measures of Human Resource Development and Rural and Fisheries Development priorities (priorities 2 and 4) will be inter-related. In many cases there should be significant synergistic effects, e.g. by granting support to enterprises for implementation of new technologies under measure “Direct support to business” and supporting training of the employees under measure “Development of Labour Force Competencies and Ability to adapt to changes”. The latter measure of priority 2 also contribute to increasing skills of employees in tourism sector. Measures under Development of Productive Sector priority do not provide for the support to individuals (natural persons, including farmers) neither by implementing measure “Direct support to business” nor measure “Public tourism infrastructure and services”. However support to individuals will be provided by implementing measure “Adaptation and development of rural areas” for promotion of tourism activities and crafts: development of rural tourism and the development of traditional and non-traditional crafts and this support will contribute to fostering entrepreneurship. The links between all measures within this priority are especially strong and evident: the creation of a favourable business environment through measure 2 and the development of information services under measure 3 will contribute to enhancing business competitiveness which will be supported directly through measure 1; the development of public tourism infrastructure will stimulate the rapid development of private sector activity in tourism.

In parallel with the implementation of Priority 3 of the main Objective 1 programme, a number of PHARE Programme projects with similar objectives will run: Phare 2001 ”Framework for Economic restructuring in Ignalina, Visaginas and Zarasai Municipalities”, Phare 2001 “Innovation capacity”, Phare 2003 “Support to Development of Greenfield Investments in Lithuania”. The latter project is particularly important as contribute to the development of the system for attracting investments into physical infrastructure. Administrative and institutional experience of implementing grant schemes should be acquired through the implementation of the Phare 2002 - “Support to Business Development” project.

The third priority – DEVELOPMENT OF THE MANUFACTURING SECTOR AND SERVICES– seeks to implement this part of the SPD strategy and is described in more detail in the next section.

Though agriculture and fishery accounts for a relatively small share of Lithuanian GDP, the percentage of the labour force in rural and coastal areas that are engaged in agricultural and related activities remains relatively high. Agriculture, rural development, fisheries and forestry therefore has a special focus in the SPD strategy. The high quality of arable land and the natural environment, Lithuania’s coastline along part of the Baltic Sea, comparatively rich fish resources, combined with a long history of agricultural sector activity amongst many Lithuanians provide generally favourable baseline conditions for the agricultural sector.

However, there is significant scope for increasing productivity in the agricultural and fishery sectors as well as scope for economic diversification in rural areas into non-traditional agricultural activities: organic agriculture, aquaculture and alternative

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businesses such as rural tourism. However, the scope for increased efficiency improvements in the agricultural sector is severely limited by structural limitations including the small average farm size caused by the high number of farms (in respect of farm areas, the number of cattle, etc.). Fragmentation is also a characteristic of forestry areas: the majority of forests in Lithuania are owned by the state (71 percent), while the structure of the private forestry sector (29 percent) is not favourable to intensive economic development of forestry since like the agricultural sector it is characterised by large numbers of private holdings.

Amongst the SPD’s key objectives in the agricultural sector are to boost productivity, to improve the competitiveness of the agricultural sector, to shift the focus of export markets of foodstuffs to European markets, and to improve the safety of foodstuffs. Additional objectives include an improvement in how foodstuffs and other agricultural, fisheries and forestry products are marketed in order to improve the sustainability of the agriculture, forestry and fisheries sectors and to create new employment in rural areas. The Strategy also provides support for the diversification of economic activities in rural areas, and for agricultural producers – engaging in additional economic activity through fostering biodiversity, landscape and environment. It is also very important to create a market-oriented more modern and competitive fishery that complies with EU health and safety requirements and is sustainable in view of the forthcoming introduction of EU fishing quotas. Structural Fund investment in the fisheries sector as well as in those agricultural sectors where there is over-capacity should help to alleviate the adverse social effects of sectoral restructuring.

Investment earmarked in the SPD will be used to improve the structures of farms, to encourage consolidation and to ensure the development of economically strong and competitive agricultural units. It will also seek to ensure that farms increase production efficiency, ensure produce quality and safety and ensure hygiene and environmental standards. These initiatives are expected to result in the improved quality of agricultural products and increasing income of the working age population in agriculture. The introduction of new technologies and development of human resources will improve the competitiveness of Lithuanian farms, incomes to grow and for the improvement of life quality in rural areas. Improvement of farm structures will encourage young farmers, thus seeking to improve farm competitiveness because young farmers are more adaptable to modern technological changes and the new competitive environment. This will stabilise demographic situation in the country, because young people will be encouraged to stay in rural areas.

In seeking to achieve the implementation of sustainable rural development objectives in Lithuania, a special focus will be placed on infrastructure improvement and encouraging alternative types of activities. A lot of attention will be given to improving rural engineering infrastructure, the absence of which makes successful farming, engaging in alternative activity or appropriate living impossible. This will include renovation and upgrading of common use drainage systems,, water drainage network and their hydro-technical facilities.

With regard to the development of alternative activities in rural areas to support the process of economic diversification, support will be provided to rural tourism and craft activities. These sectors are generally accepted as having the greatest potential to create new jobs, as well as providing an opportunity to farmers, employees of agricultural companies or other rural inhabitants to work and receive additional income.

Investment will also be made into the forestry sector in order to improve the infrastructure of private forest holdings, increase productivity, increase opportunities for rural people to engage in alternative activities, as well as to improve environmental and landscape diversity. Development in the forestry industry will aim to increase the economic, ecological and social value of forests in the rural development process, focusing on capital investment in private forest holdings. This measure is expected to create the necessary pre-conditions for the development of private forestry holdings by providing investment support not only for the improvement of forest infrastructure, but

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also for timber preparation and primary processing. Promotion of investment is expected to create additional jobs, thus reducing rural unemployment. Benefits from other forest products (animals, mushrooms, berries, medicinal herbs) will also give an opportunity for rural population to receive additional income.

Finally, special attention needs to be paid to the fishery sector which, although small in relation to GDP as a whole, is nevertheless a particularly sensitive area from both a social and environmental point of view. Therefore, SPD investment in fisheries will be concentrated on supporting the structural adjustment and modernisation of the Baltic Sea fleet and providing favourable conditions for the development of the fishing business. There will be a strong focus on encouraging the development of aquaculture and towards catching new fish species where EU quotas have not yet been met, on ecological production, the promotion of fish processing and marketing development and support for the modernisation of enterprises in order to meet EU standards, lowering the produce cost and raising business profitability and competitiveness. These measures should go some way to helping to ensure the long term sustainability of the Lithuanian fisheries sector, and should also help to alleviate the negative social effects of structural adjustment.

Thus, RURAL AND FISHERIES DEVELOPMENT is the fourth priority of the SPD strategy implementation.

In summary, the implementation of the overall development strategy outlined above requires flexible investment policy that is able to take into account rapidly changing economic and social challenges. Thus, seeking to achieve the efficient and productive implementation of the strategy and key development objectives, investment will be based around four key priorities, each of which are discussed in greater detail below:

1. Social and economic infrastructure development,

2. Human Resource Development,

3. Manufacturing and services,

4. Agriculture, rural development and fisheries.

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2.2.3. ESSENTIAL DIMENSION OF THE COMMON STRATEGY

Horizontal themes

The SPD strategy has a number of cross-cutting themes (or horizontal priorities), which will be implemented across the four main priorities. The three cross-cutting themes will each play an important part in the overall development strategy and are summarised below:

Information Society

Sustainable Development

Equal Opportunities

Information society

Despite the rapid development of information technologies in Lithuania, the baseline assessment shows that Lithuania still lags behind many other European countries in terms of ICT take-up. The Information Society is named as one of three long-term development priorities in the State Long-Term Development Strategy. Several key points are worth highlighting in relation to the information society as a cross-cutting theme:

The information society will play an important role in helping to achieve goals in relation to improvements in the education and vocational training system, in the fostering of a culture of lifelong learning and in improving access to services (educational and other) for those living in peripheral areas as well as those with disabilities

The ICT skills levels of the Lithuanian population are relatively low although improving rapidly. The training dimension of the SPD strategy should help Lithuanians to improve their knowledge and the level of usage of ICT. Investment in public IT infrastructure should help eliminate the digital divide inked to social, class-based, geographic and other factors. Programmes to help integrate the disabled and/ or people with special needs into the information society will also be supported;

The information society component of the strategy will also benefit national, regional and local government (to develop e-government through the implementation of e-government projects; to modernise the activity of the Government and governmental institutions and to increase transparency of public administration procedures, etc.);

The information society part of the SPD strategy should also have major cultural benefits (seeking to preserve and make the cultural identity of Lithuania more important and ensure its continuation and competitiveness in the modern context of the culture of Lithuania, the European Union and the world).

The main document defining the works aimed at developing the information society of Lithuania in 2001 - 2004 is the Strategic Plan of the Development of the Information Society of Lithuania as well as the concept of e-Government. Those documents take into account the Commission’s eEurope+ Action Plan, integrating its objectives and main proposed actions. Activities proposed to be financed from the Structural Funds are also in line with eEurope 2005 – an Information Society for All. On the basis of those documents, annual detailed plans for the information society are drawn up providing for the main measures of the state institutions in developing the information society. The following four major priorities in developing the information society of Lithuania are presented in the Strategic Plan: the ICT skills of Lithuanians; public administration; electronic business; Lithuanian culture and the Lithuanian language.

The SPD strategy provides for investment to ensure the possibility for the inhabitants of Lithuania to acquire knowledge, skills and qualifications which would allow having made

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use of the advantages offered by the information technologies and communications to more freely adapt themselves to a rapidly changing living and working conditions, successfully compete on world markets, as well as to ensure support in modernising the state management by using computerised information sources, developing e-Government and electronic democracy, by creating real possibilities for the population to receive information from all state institutions and in such a way create favourable conditions for developing the information society of Lithuania. It is expected that successful implementation of information society development measures will significantly contribute to the creation of sustainable jobs, reduce unemployment and improve professional qualifications of employees. Also it is sought to serve other related tasks:

to create the appropriate conditions for the development of a world economy based on knowledge, information, and information and communication technologies;

to improve public health following reliable and easily accessible information about health based on the use of the possibilities offered by the information technologies;

to eliminate differences in urban and rural communication information infrastructure, to provide all the inhabitants of the country with equal opportunities to make use of information technologies for social and public needs;

to foster Lithuanian culture, cultural heritage, the Lithuanian language and preserve them in the environment of the global information society.

Priorities and goals provided for in the Single Programming Document are co-ordinated with the strategic trends and goals specified in these strategic documents defining the guidelines of the development of the Lithuanian information society. Activities foreseen in the Single Programming Document are fully in line with the priorities highlighted in the eEurope + and eEurope 2005: an Information Society for All actions plans.

Encouraging the development of an ‘information society’ in Lithuania is likely to be a complex task for the implementation of which all priorities specified in the Single Programming Document (and human resources development measures in particular) would be concentrated. Structural Fund investment should help eliminate current market distortion whereby there is much more limited access to the Internet outside the main urban conglomerations (this will be achieved by creating public access points and supporting the development of the data trasmission network (including broadband) respectively considering competition rules), as well as through the promotion of information technologies in order to increase productivity in the public administration. Weaknesses identified in the baseline such as the under-developed telecommunications and IT infrastructure (in rural areas in particular), the relative under-usage of information technologies and the lack of basic ICT skills amongst many in the Lithuanian workforce will be tackled through Structural Fund investment in IT infrastructure (Priority 3) and through training (Priority 2).

Joining the Single European Market will bring new opportunities to use ICT to improve efficiency and productivity across all sectors of the Lithuanian economy from business to public administration, work, studying and culture. Information, knowledge, skills, the capabilities of the residents, businesspeople and authorities to use the possibilities provided by IT will become of paramount importance. Therefore, the Single Programming Document devotes considerable attention to the development of information technologies as an integral and continuous process relevant to all sections of the economy.

The long-term strategy for the development of information technologies and telecommunications is an indispensable part of Lithuania’s development process and will have both a positive economic and societal impact. The objective is essentially to speed up the modernisation of both the public and private sectors through measures to support the increased use of information technologies and telecommunications, as well as to encourage the manufacture of modern information technologies and telecommunications products for domestic and international markets.

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The development of the information society is horizontal and its processes form an important part of different sectors - education and science, industry, small and medium size business, health care, national defence, etc. The horizontality of the development of the information society determines a wide sphere of possible interventions. The same attention is paid to the investments of structural funds into the development of the infrastructure of information technologies and institutional technical capacities to move to a qualitatively new "digital" level of activity and strengthening of respective knowledge and qualifications of the inhabitants of Lithuania. In this way the development of the information society is a very important and priority investment field of the Single Programming Document.

The implementation of such information society projects will contribute to improvements in skills levels and possibilities of the inhabitants of Lithuania to use information technologies, an increase in ICT usage at home, at work, in educational institutions, and in the creation of new modern technology-based services and high value added products, the development of e-Government, the development of e-business, the creation of IT adapted to the Lithuanian environment, the transfer of data about Lithuanian cultural heritage into digital form, etc. As a result Lithuanians’ increasing interest in and use of IT, there is likely to be increased domestic and foreign investment in the IT and telecommunications sectors leading to its more rapid development, and the wide application of new technologies in business, public administration, education, culture, health care and other fields, public services of new generation provided to the inhabitants and business by the e-Government, growing competitiveness of the country's economy on the single European and global markets should increase.

The information society project could be defined as the project where new methods of the activity of inhabitants, business entities, state institutions, non-governmental organisations and interaction between members of society are created and developed by information technologies and telecommunications. Different objectives and measures in various sectors (for example in education and training, health care and social affairs, public administration, industry and business, research and innovations, etc.) are achieved. Interaction (mutual communication between the user and the system or among users) and/or distant access (provides for the possibility for users and systems to communicate through a distance) are characteristic of information society projects.

Special attention will be paid and priority given to projects (or their parts) corresponding to the definition of information society projects. The existence of an information society component in any supported project types specified in the Single Programming Document makes the potential results of each project important and increases the influence of the projects both at local level and in Lithuania as a whole.

Information society projects will have a major impact on education and science, industry and business (small and medium size businesses, in particular), health care and social security (especially in solving problems relating to employment, vocational education and training and sustainable job creation), scientific research and innovation dispersion, transport, environmental protection, tourism and other sectors.

Sustainable Development

The expected rapid growth of the Lithuanian economy over the next few years and other projected changes are related in large part to membership of the EU. As environmental protection is horizontal, changes will undoubtedly influence the environment in one way or another, therefore, moderate development of economy co-ordinated between economy sectors and regions is named as one of Lithuania’s most important sustainable development priorities.

Priorities for the development of Lithuania for 2004 - 2006 specified in the Single Programming Document correspond to the sustainable development priorities of Lithuania set out in the Sustainable Development Strategy approved in 2003 and are summarised below:

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Moderate development of the economy co-ordinated among branches of the economy and regions.

Elimination of differences in standard of living between regions by capitalising on their respective competitive strengths and differences.

Reduction in the environmental impact of the key sectors of the Lithuanian economy (transport, industry, energy, agriculture, household waste, tourism).

A more effective utilisation of natural resources and waste management.

Decrease of danger to human health.

Mitigation of world climate change and its consequences.

More effective protection of biological and landscape diversity.

Reduction in unemployment, poverty and social exclusion.

Increase in the role of education and science.

Preservation and fostering of Lithuania’s cultural heritage and national identity, ethnic and national minorities.

Sustainable development is singled out as an important horizontal dimension of the SPD strategy, because investment in measures that will have an impact (positive / negative) on the environment are not limited to investment in physical infrastructure in the field of environmental protection. Special attention in the SPD is devoted to the development of the economy, industrial sector and general infrastructure which will undoubtedly exert an influence on the environment, therefore, the reduction of environmental impacts on the main branches of the economy (transport, industry, energy, agriculture, tourism) by increasing their ecological efficiency and integrating environmental interests into their development strategies is an especially important priority for Lithuania’s sustainable development.

In implementing measures provided for in different priorities of the Single Programming Document, long-term sustainable development objectives are aimed at balancing environmental, economic and social objectives of the society without exceeding the allowable environmental impact limits will be achieved or a basis will be provided for achieving them in future:

- In the field of air protection - an air quality management system has been approved and it has been ensured that the emission of pollutants and materials encouraging the greenhouse effect into the air should increase at a slower rate than production and services, air quality which does not cause danger to the human health and which corresponds to the European Union requirements (for example, here investments into the physical infrastructure in the field of the efficiency of energy utilisation shall play an important role) has been ensured.

- In the field of water protection - a modern system enabling to provide all the inhabitants of the country with healthy drinking water which corresponds to EU requirements, as well as ensuring effective protection of open water bodies and water ecosystems, high recreation potential and the diversity of water ecosystems and their biological productivity has been created.

- In the field of the protection of biological diversity - biological and landscape diversity and its peculiarity have been preserved and increased, their protection has been strengthened, renaturalisation of the damaged natural elements is

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purposefully carried out (for example this would form one of the most important aspects in developing tourism infrastructure).

- In the field of waste management - the system of non-hazardous and hazardous waste management which is effective from the environmental and economic point of view has been created, waste flow has been decreased, conditions for the rational utilisation of waste for secondary recycling and energy purposes (business entities will do a lot in this field for the direct support granted to them) have been created.

- In the field of transport development - the development of transport types has been co-ordinated by giving the priority to the transport exerting a smaller negative impact, the energy efficiency of transport sector and the use of alternative fuel which is more environment friendly have been increased, traffic safety has been increased.

- In the field of industrial development - the development of the industry sector is orientated towards progressive and environment friendly technologies, not only economic but also ecological efficiency of companies have been increased, resources are utilised more efficiently.

- In the field of energy - the energy sector is well co-ordinated and provides all Lithuanian branches economy with energy, the efficiency of energy generation and distribution has been increased, the utilisation of local renewable and waste energy resources, as well as ecologically cleaner organic fuel has been extended.

- In the field of agriculture - more environment friendly farming not only in ecological, but also in traditional farms has been implemented, ecological farms have been intensively developed.

- In the field of fisheries – the development of fishing sector is oriented towards adjustment of fishing effort to available resources, use of environment friendly technologies.

- In the field of tourism - in developing tourism and recreation, the preservation of natural and cultural peculiarities of Lithuanian regions has been ensured, exerting both the minimum negative impact on the environment and positive social changes in rural territories.

- In the field of new employment creation - economic factors encouraging the creation of new jobs and reducing differences in regional employment have been stimulated, labour market flexibility has been increased, unemployment has been reduced, preconditions and conditions for forming the mobile and competitive labour force have been created.

- In the field of poverty reduction - possibilities for poor and socially excluded groups to acquire a proper education, to receive qualitative heath care services, to have a dwelling place corresponding to the public standards and healthy working conditions, the possibility to chose and influence the main life decisions have been ensured.

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- In the field of health care - the reform of health care sector is oriented to ensure all inhabitants better quality and accessibility of health care services, paying special attention to rural and remote areas.

- In the field of education - conditions for developing educated, independent, active and responsible members of the society, developing the intellectual potential of the society, seeking to turn knowledge and science into the main factor ensuring welbeing of people, sustainable development of the society, cultural peculiarity and historical continuation of the state, have been created.

The horizontal theme of environmental protection determines the impact of the requirements in this field on each project financed by EU structural funds. For this purpose in accordance with the Law on Environmental Impact Assessment of the Republic of Lithuania in effect, the environmental impact assessment will have to be carried out for planned investment projects, environmental monitoring of projects will have to be conducted, the assessment of the environmental impact of horizontal projects on project applications will have to be made, the project will have to be co-ordinated with the Sustainable Development Strategy of Lithuania and continuous monitoring of the impact of activities in accordance with the criteria of the sustainable development approved by the Sustainable Development Strategy will have to be carried out. he sustainable development strategy is therefore a very important cross-cutting theme of the SPD strategy the implementation of which will definitely be not restricted to the investments of the first priority of the Single Programming Document only into the physical infrastructure in the field of environmental protection.

Equal Opportunities

Equal opportunities is the third cross-cutting theme, and is an integral part of the overall development strategy. The theme of equal opportunities will be mainstreamed across all priorities and measures in the SPD. The aim of this horizontal priority is not only to ensure equal opportunities for men and women but also to secure equal access for all people and especially for socially excluded groups to use new possibilities offered by the Programme: to make full use of physical infrastructure, to participate in education and training activities, upgrade skills or acquire new ones and to get any other direct or indirect assistance with a view to remain in or become an active participant in economic and social life.

This horizontal priority equal opportunities supplements strategic level objectives, tasks and measures provided for in the State Programme on Equal Opportunities for Men and Women. This Programme covers many areas thereby and seeks to mainstream the principle of gender equality across all areas of political and socio-economic life and implementing the provision\statement of the Government of Republic of Lithuania: “To ensure equal opportunities for men and women in seeking education, in upgrading their skills, in employment, promotion, setting the salaries; to enable women to participate on equal conditions in all areas of political and public life and high-prestige activities, to occupy leading positions in public administration institutions”.

“Gender equality is one of the fundamental principles of democracy. It is based on equal rights, responsibilities and opportunities of women and men in all areas of life. Equal opportunities for men and women means no obstacles in the ground of gender to fully participate in economic, political and social life”.

The main objectives of the National Programme for Equal Opportunities are to create equal opportunities for men and women to participate in all spheres of public life, to increase the representation of men and women in these areas where they do not participate equally, to achieve that services and financial resources as much as possible equally reach both women and men, to identify and seek to solve specific problems both of women and men.

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Elimination of all forms of discrimination in all spheres of activity is an essential precondition to ensure human rights and welfare for all Lithuanian citizens. While the Lithuanian legal framework enshrines the principle of equal opportunities between men and women, it is important that legal provisions to promote equality are supported by practical steps to eliminate discrimination, the active promotion of equal opportunities as well as steps being taken to mainstream gender equality. The SPD should make a real contribution to the achievement of this aim by establishing equal opportunities for all to participate in the implementation of the Objective 1 programme.

Gender mainstreaming will be used as a tool for the implementation of equal opportunities for women and men and for other social groups that have traditionally faced discrimination of exclusion across all areas of the SPD. The strategy is defined as the (re)organisation, improvement, development and evaluation of policy processes so that a gender equality perspective is incorporated in all policies at all levels, by the actors normally involved in policy-making and evaluation from the point of view of gender aspect of all activities, legislation, strategies and programmes in every field, as to estimate the impact on men and women.

Sustained economic advances and social and economic cohesion can only be achieved if there are conditions made for all and especially for socially excluded groups to integrate into the labour market, to acquire education and skills and thus get employment and incomes. Therefore in the process of the implementation of the SPD the aim will be to secure equal opportunities for socially excluded groups to take part in different measures and receive support, as well as to create a support framework for the above groups.

In order to create conditions for socially excluded groups to get access and make use of the Programme it is necessary that both business and training organisations take into consideration their needs thus allowing them to make the fullest possible contribution to the region’s economy. Flexible training and employment options, specific support to increase access to entrepreneurial funds and advice, non – traditional employment opportunities, enhanced use of and involvement at higher levels with ICT are the examples of options available in the Programme to achieve this objective.

To monitor the mainstreaming of equal opportunities across all measures and activites of the SPD, indicators at measure level will be set within the Programme Complement to monitor the achievement of these aims.

Gender equality will also be preserved by forming and participating in the activities of Monitoring Committee and other strategic groups of SPD.

Regional Dimension

In addition to the three horizontal priorities, the SPD will also support Lithuania’s regions where there is considerable variation in terms of economic performance, levels of prosperity and levels of social exclusion/ poverty. The SPD addresses regional issues both directly and indirectly in a number of ways; it provides significant investment in the field of transport (both the development of international corridors and local network), energy (links with Western energy system), as well as environmental protection, tourism, fishery infrastructure, etc. Of no less importance are investment into the infrastructure in the fields of education and teaching, health, information society, because it is the investments that will provide a basis for the implementation of other tasks of this plan - human resources and business competitiveness development. Hence, it is planned that these investments will not only form the basis for further development of the international competitiveness of the Lithuanian economy, but will also serve a broader social and economic task. Though the SPD strategy does not single out a separate priority or a measure which would be orientated towards a specific territory of the country, the strategy of the Single Programming Document itself will have a strong regional dimension.

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In the context of faster nation-wide economic development the needs of less-developed and poorer regions will be taken into consideration to try and eliminate obstacles for sustainable economic development. The goal is to achieve adequate balance between investment into regions characterised by highest fast growth potential and less-developed regions. Achieving this balance, whilst difficult, is a key objective wherever possible in the implementation of priorities and measures.

For example, in the case of physical infrastructure investment in the transport sector, the SPD strategy clearly delineates between European, national and regional/local levels, providing for different needs and therefore varying types of intervention (solving traffic congestion issues in the urban areas, but investing into building tarmac roads in rural and especially peripheral areas to improve accessibility). Very similarly human resources development component of the SPD strategy emphasises the necessity to ensure balanced coverage of training capacity in various parts of the country, so that ‘black pockets’ in terms of VET and professional guidance/counselling are eliminated and increasingly equal access to training, re-training and skills acquisition possibilities is ensured across the country. Finally, the rural development and fisheries priority will be primarily targeted at rural areas, thereby effectively balancing the potential bias of the SPD interventions towards urban or more advanced areas. The general position is that at the time of implementing concrete measures of the SPD (and setting the conditions for the implementation in the programme complement beforehand), each major intervention or initiative supported will be assessed for its regional impact, and preferential treatment will be given to financing operations in backward or disadvantaged regions and/or municipalities.

A particular example, which clearly stands out in this respect, is the Ignalina region, which is expected to suffer major negative economic and social impacts as a result of the closure of the Ignalina Nuclear Power Plant. Given the acuteness of the problem, EU assistance is essential in countering the negative impacts. In this respect it is foreseen that under a number of measures under all four priorities of the SPD, projects originating from Ignalina region or having positive effects on it would receive preferential treatment. In this way it is expected that the SPD will provide substantial assistance to this region, which would effectively supplement (but would not duplicate or overlap) already agreed or planned international, EU or bilateral assistance to the technical and other related aspects of Ignalina NPP closure.

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3. PRIORITIES AND MEASURES

3.1. PRIORITY 1: DEVELOPMENT OF SOCIAL AND ECONOMIC INFRASTRUCTURE

One of the key priorities in the development plan is to invest in physical infrastructure to facilitate social and economic development. Appropriately developed infrastructure should provide the preconditions for the development of the national economy and help Lithuania capitalise on growth opportunities that are so far largely untapped.

In order to implement the SPD’s overriding objective of creating a modern, dynamic and knowledge driven economy, economic and social infrastructure development priority has the goal of sustainable and economically efficient development of infrastructure of energy, transport, health care and the network of education institutions, based on principles of rational energy use and environment protection.

Investment in this area would allow to use efficiently Lithuania’s advantages and opportunities pointed out in the SWOT analysis (such as using Lithuania’s potential as a transit state, as well as ensuring connections of physical infrastructure with the single EU market, etc.), thus forming a basis for long-term economic development, as well as serving the main aim encoded in the main goal of the plan, which is that positive effect of economic development is as soon as possible felt by as large a number of population as possible. Lower transportation costs, more efficient transportation and access to clean and cheaper energy resources and other services will help infrastructure sectors to increase productivity and, therefore, competitiveness of the country on international scale will increase. Thus, this priority would be coordinated with the third priority of this plan – development of the manufacturing sector and business– and would create preconditions for successful implementation of this third priority. Infrastructure improvement is the main part of increasing competitiveness: in order to increase production volume and employment to the maximum, companies must receive full indirect support in such sectors as tangible infrastructure (including energy), telecommunications and quality environmental infrastructure. On the other hand, one-off (even if largest) investment may be of limited benefit, unless opportunities are used and, first of all, unless SMEs are encouraged to use advantages made available by development. Therefore, a method of integrated development will be applied to the support. Investment into economic infrastructure must be intended for increasing competitive advantage and for ensuring, over a longer term, that all society groups and regions receive as equal as possible share of the benefit brought by growth.

One of the key conditions for quality and efficient human resource development is creating and sustaining appropriate infrastructure. Timely investment into the development of labour exchange and VET, research and study infrastructure would guarantee services matching today’s needs and would ensure equal access throughout the country. Thus, this priority is closely linked to the Priority 2 “Human Resources Development” and is an essential condition for ensuring implementation of the HRD priority measures.

Objectives and goals are to be met applying gender mainstreaming, through special attention to provision of infrastructure, favorable for women’s SME, maintaining equality of both genders in relation to health care infrastructures, development of transport infrastructure, equal access to education, vocational training research and study and social infrastructure.

The goal of the priority will be achieved through attainment of the following objectives of the priority:

- development of transport infrastructure sufficiency and efficiency;

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- increasing of reliability and efficiency of the energy sector;- management of environmental infrastructure and provision of opportunities

for creating or expanding business - rationalisation and modernisation of health care infrastructure- development of accessibility and productivity of education, vocational

training, research and study and social infrastructure.

Development of Transport Infrastructure Sufficiency and Efficiency

The long-term transport and transit development strategy provides information on the development of a modern multi-modal transport system in Lithuania by 2015, that by its technical parameters and quality of provided services will correspond to the level of European countries and will be integrated into the EU transport system and will efficiently serve interests of the enlarged European Union, simultaneously providing favourable conditions to development of production and service sectors in Lithuania.

The SPD SWOT analysis mentions transport infrastructure as one of the main advantages, emphasising geographical location of the country, convenient for transit and existing preconditions (sufficiently developed transport infrastructure, universal ice-free seaport) and pointing out an opportunity for growing tourism and goods transit flows through Lithuania. A more detailed analysis of the transport sector carried out in the first section of this plan shows that there are clear limitations on appropriate use of these advantages and opportunities.

First of all, though the length of the Lithuanian road network is sufficient, however, the technical state of roads fails to meet increasing traffic needs – transport traffic volume caused by number of vehicles and private, growing freight volume, – which determines worsening traffic safety conditions, increasing transportation time costs (transport congestion) and increasing negative impact on the environment. These tendencies largely determine that fatality rate in road transport in Lithuania is almost twice higher as the EU average, as well as not allow to use full potential offered by the geographical location of Lithuania, convenient from the transit point of view.

Similarly, the existing capacity of the rail network allows carrying almost double the volume of freight a year than the current volume, unfortunately, such freight flows cannot be reached because of unsatisfactory condition of the railway infrastructure and outdated rolling stock. Finally, the existing earlier mentioned an infrastructural (goods and passengers/tourists) transit a limitations also defines only partial use of seaport and air ports capacity.

Development of transport infrastructure in Lithuania is of vital importance not only to the development of the mentioned transit, export and import potential, but also to sustainable internal economic development. This presupposes the need for high quality infrastructure that would allow dealing with such problems pointed out in the analysis as transport congestion (particularly in major cities) and increasing accident rate or pollution.

These issues will be dealt with through investment into development of management of regional-local traffic. Priority would include the development of traffic control, street construction or construction of bypasses, construction of multi-level intersections, construction of multi-level pedestrian crossings, improvement of public transport that has lately lost its attractiveness (in order to compensate the rapid increase in the number of private cars, dangerous both from environmental and economic point of view) and development of alternative – pedestrian –cycling – networks.

Finally, the above mentioned investment into transport infrastructure will provide preconditions for successful implementation of other priorities and using advantages and neutralisation of weaknesses revealed in the SWOT analysis. For example, Lithuanian historical heritage and landscape will become easier accessible, which will promote

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tourism development, reduce territorial isolation of rural areas, provide preconditions for larger territorial mobility of the labour force and more rapid development of the economy (for example, formation of clusters), as well as response to growing attention to sustainable development and clean environment.

Thus, to attain the set goals of the Lithuanian SPD implementation in the near term of 2004-2006, the following investment areas are identified in the transport sector:

reconstruction and construction of links of roads, railways and the sea port with the TEN-T network;

improvement of technical parameters of roads of state and local significance, including surfacing of gravel roads with asphalt;

improvement of traffic management in streets (particularly in major cities) through application of traffic control technologies;

construction and reconstruction of bypasses; introduction of traffic safety and environmental measures; development of public passenger transport; improvement of interoperability of different transport modes (development of

multi-modal transport processes) in order to ensure new quality of transport services (for passenger and freight transport);

development of transport infrastructure of logistics centres; introduction of railway rolling stock monitoring and control system; reconstruction and building of roads and railways in the Klaipėda State

Seaport; development of passenger service infrastructure in Klaipėda Seaport; improvement of inland waterway infrastructure from Kaunas to Klaipėda; modernization of international airport infrastructure.

In 2004-2006, as mentioned earlier, the transport sector is expected to be financed from a number of different EU support funds.

The Lithuanian transport sector strategy of the Cohesion Fund continues implementation of the provisions of the ISPA period. The implementation of projects financed from the Cohesion Fund in Lithuania is planned on the basis of the priorities of the development of transport networks, which will be indicated by means of amending of the Decision No.1692/96/EC of the European Parliament and the Council. The large-scale projects (over 10 million EUR) in the transport sector, related to the development of Trans-European network, based on the guidelines for the TEN-T of 1 October 2003, in this respect, priorities for Lithuania are Motorways of the Baltic Sea (project n° 21) and Rail Baltica (project n° 27)", are financed from the Cohesion Fund42.

To supplement the Cohesion Fund investment into transport infrastructure defined in the separately presented strategy, SPD Transport section includes measures necessary for receiving support from Structural Funds for regional-local development, i.e. they are intended to ensure good access to the Trans-European network (TEN-T), to improve transportation from counties to main cities and towns, to improve water transport and airport infrastructure, to improve traffic conditions in cities and towns, to reduce transport congestion. The list of projects identified by the Lithuanian Strategy of the Cohesion Fund is very large; however, the budget of the Cohesion Fund is limited. Therefore, a number of projects having importance for the successful development of TEN-T, e. g. modernization of international airports, establishment of transport infrastructure for logistic centres, reconstruction of railways within the territory of Klaipėda State Seaport and establishment of a single inland waterway system via the Nemunas River will be financed by the ERDF. Therefore, the following table presents information which areas of the transport sector are planned to be financed from what funds.

42 Appendix III to the Single Programming Document. Strategy of the Cohesion Fund in Lithuania (Transport sector)

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Table 55 . Transport Sector Areas and Support Sources 2004-2006

Infrastructure of international significance Infrastructure of local significance

Cohesion Fund

State roads (TEN-T network)

Main railway lines (TEN-T network)

Connections of IX transport corridor with the seaport

(projects over 10 million EUR)

International airports (projects over 10 million EUR)

Development of border crossing points on the external EU border; TEN-T network interconnection with intermodal platforms

European Regional Development Fund (ERDF)

Connections of road transport infrastructure with elements of the TEN-T network

Railway connections with elements of the TEN-T network; passenger terminals

Multi-modal transport, transport infrastructure for logistics centres; road and railway network of the Klaipėda Seaport.

International airports

Roads of regional and local significance; railway crossings; cycling, pedestrian sidewalks

Urban transport infrastructure and public transport

Inland waterways

Increasing of Reliability and Efficiency of the Energy Sector

The extensive energy sector, with its essential characteristics (efficiency, management principles, structure, etc.) inherited from the past and oriented at large-volume, but inefficient use of power and oil products and considerable export, fails to meet current requirements. The energy sector is characterised by well developed local infrastructure and lower than the Eu average consumption and high dependence on one supply source (with the exception of oil and its products) in Russia or CIS countries, which does not provide preconditions for the stability of the entire economic development of Lithuania. Thus, investment into energy is very important in the attainment of the main goal of this plan. Over the last years the national policy has primarily been focusing on the major restructuring of the energy industry, reorganisation and privatisation of the energy sector and implementation the European Union (EU) directives.

As noted in the baseline analysis, the energy sector overall is characterised by demand considerably exceeding production capacity. Although there is surplus capacity in the electricity sector, this will change over the medium term as a result of the decommissioning of Ignalina Nuclear Power Plant. Forthcoming changes in energy production and consumption patterns will require some modifications to and expansion of energy transmission and distribution networks (electricity, natural gas and district heating).

Better energy efficiency is one of the most promising areas, offering a good opportunity to reduce energy needs and minimise the environmental impacts of the energy sector. This priority will therefore seek to encourage the use of local and renewable energy resources, to optimise energy generation and consumption and to reduce its harmful effect on the environment, to implement projects for efficient energy consumption, in the implementation of requirements of EU directives and other international documents.

Activities that will be supported are in line with the Lithuanian National Energy Strategy as well as with the proposed EU long-term Energy Strategy priorities outlined in the Commission Green Paper “Towards a European strategy for the security of energy supply” (COM (2000) 769 final).

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Successful development in the energy sector will also require appropriate coordination with the human resource development priority - current training provision for energy sector specialists does not match the rapidly changing energy sector needs. By upgrading the energy industry and through reclaiming Lithuania’s own resources, servicing energy users and suppliers, training specialists as well as the problem of establishing the network of research and design institutions and companies providing consulting services will be of vital importance. The wider economic impact of investment in the energy sector is likely to be significant: over the medium and long term the better and more efficient use of energy resources and energy and increasing the use of renewable energy resources should make a positive contribution to environmental impacts and help reduce the quantity of imported fuel, create new jobs and lead to lower production costs and increase competitiveness amongst energy sector companies.

Management of Environmental Infrastructure

The implementation of the National Lithuanian environment protection strategy will seek to use opportunities for investment financing from both the Cohesion and Structural Funds. The main investment using the funds from the Cohesion Fund* will be directed to:

Putting in order water management systems and development of basin-based management, covering towns and settlements with a population of over 500. The public waste management sector, with completion of creating regional domestic waste management systems and hazardous waste disposal system in Lithuania.

In the meantime, investment from EU structural funds will be used to help solve the following problems in the environment protection sector.

Water Protection in Rural Areas

Since investment in the water management sector has been channelled to support projects in major towns in Lithuania and in border regions, the quality of drinking water and wastewater in small Lithuanian towns and rural areas where water supply and wastewater management facilities are generally outdate has fallen behind. In some towns and rural areas there is no centralised system at all. One of the urgent drinking-water-related problem is ground water (found close to the surface) in densely populated areas or areas of intensive agriculture polluted with nitrates and micro organisms. Lithuania’s rural population of roughly 1 million consumes water using shaft wells. Thus, investment in water management facilities remains one of the key Lithuanian environment protection priorities for the period of 2004-2006. *See appendix IV to the Single Programming Document. Strategy of the Cohesion Fund in Lithuania (Environmental sector)

Management of Polluted Areas

One of the most significant problems is the disposal of hazardous waste that accumulated during Soviet times and cannot be attributed to specific owners. The cleanup and improvement of polluted areas (over 800 former waste dumps and military bases etc. have so far been identified) remains a major challenge with very little work undertaken to date. This poses a significant threat of surface and ground water pollution. Spreading pollution damages the soil surface and ground waters. Moreover, various reactions of random chemical elements can cause fires that result in hazardous compounds being emitted into the environment which is of course harmful to humans. Therefore, the identification and cleanup of these areas by 2006 is a key developmental priority.

Establishment of Natura 2000 Network and Management of Protected Areas

In line with EU requirements in the environmental protection area, Lithuania has undertaken to create a single network of special protection areas - NATURA 2000. In

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these areas the spread and condition of habitats will be analysed, conservation and monitoring systems will be established and management plans will be developed. The implementation of these requirements will require the introduction of mandatory protection areas and management measures and measures for the adaptation of protected areas for public education needs.

Collectivisation and intensive farming has resulted in the destruction of many natural meadows, pastures and many farmsteads. It has also led to the destruction of much vegetation and the formation of huge open spaces, which is not characteristic of Lithuania, with the majority of rivers and streams put under control and converted into canals, which impoverished the Lithuanian landscape beyond recognition and reduced biodiversity. Abandoned and unclaimed quarries and dumps, partly dismantled farm buildings not only disfigure the landscape, but are also frequently turned into illegal dumps. These problems will be dealt with through the introduction of measures tailored to help preserve protected areas: to protect the landscape and biodiversity, natural and cultural heritage territorial complexes and sites, to ensure greater ecological balance in the landscape and the sustainable use and renewal of natural resources. Moreover it aims at the public education and informing and carrying out research, monitoring of the environment condition.

Conditions conducive to Sustainable Development

Public participation in solving environmental protection problems is dependent in large part on the collection, processing and making available of reliable and timely information on environmental issues. Though considerable progress has been made over the past few years, the capacity for monitoring the environment across Lithuania’s ten countries is generally lacking.

The harmonisation of Lithuanian and European Union environmental protection laws has considerably raised requirements for implementing and supervisory structures, first of all, the qualification and technical preparation of specialists of municipal institutions and companies and environment protection inspectors. Therefore, over the period until 2006 the implementation of measures to strengthen specialists working in these institutions through upgrading qualifications, introducing new information technologies and means for the prevention of accidents and liquidation, etc., must be undertaken.

Despite public education campaigns to raise awareness of environmental issues that have recently been undertaken, awareness levels and the engagement of communities, particularly in some countries of Lithuania is still largely insufficient. Lithuania has failed to develop over the last decade greater levels of environmental awareness amongst the Lithuanian public and to foster a more responsible and caring attitude towards nature. Inter alia, this has been determined by the absence of a previous culture of cooperation to preserve the environment from the general public, a lack of funds and a certain degree of public passivity. Therefore, active public environmental education has been identified as a standalone intervention area and as a means of achieving a better and safer environment.

Another key environmental objective is to protect the sand-dune strip of the Lithuanian Baltic Sea and the buffer beach from degrading that has recently became particularly intensive due to rising sea water levels, the increased number of storms, the unsustainable use of seaside landscape and conservation violations.

Upgrading of Health Care Infrastructure

The level of health amongst the Lithuanian population has a direct influence in helping to determine national economic development. Health issues clearly have a direct impact on labour supply and productivity, while high levels of disease and premature death (particularly amongst the middle-aged) has an adverse impact on labour supply and and the quality of life.

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Conversely, set against this trend is the fact that Lithuania, in common with many EU-15 countries, has an ageing population. The under-development of health care services in Lithuania particularly in respect of preventative healthcare is therefore an increasingly relevant issue. These problems can be tackled in part through efforts to improve levels of health amongst the Lithuanian labour force. Over the longer term, this would result in significant cost savings through the State not having to pay out social benefits that can essentially be channelled into more active measures to improve healthcare standards.

Lithuania’s health care system suffers from inherent structural problems that will be redressed in part through health sector reform and rationalisation. There is an inappropriate balance between inpatient and outpatient health care services, an excessive number of beds, as well as problems relating to the generally poor condition of hospital buildings and facilities. These factors mean that the sector is characterised by inefficiency. Steps should be taken to improve medical care and to better meet patients' needs.As the analysis in this document illustrates, the health care system in its current state in comparison with EU quality requirements still has a relatively large share of inpatient services out of the total amount of health care services; a relatively high concentration of health care institutions in the largest cities and a lack of specialists in more peripheral areas. The quality and consistency of healthcare treatment therefore varies considerably depending on where patients are being treated; the physical state of most buildings as well as medical equipment is insufficient and the sector’s current asset base does not enable the healthcare sector to make the necessary investment to improve it.

Some reforms in the health care system have been carried out over the past decade. One of the main objectives of healthcare reform has been to rationalise existing health care infrastructure and services and to improve the network of health care institutions. As a result over the last ten years the number of institutions has not changed but the number of hospital beds has decreased by 14,000.

Aiming to improve and rationalise the provision of health care services it is necessary to create and sustain appropriate health care infrastructure. Taking into consideration the advantages of the health sector and areas to be developed identified during the analysis, it is evident that investment is urgently needed to help strengthen health care infrastructure and to help that demand for health care services can be met throughout Lithuania and that those in more peripheral areas are not disadvantaged by access issues.

These objectives are closely related with the objectives of the national Health Care Institutions' Restructuring Strategy, which was approved by the Government of the Republic of Lithuania. The main objectives of the Strategy are: 1) to improve quality and accessibility of health care services and 2) to optimise the structure and volumes of health care services that would meet patients' needs. Restructuring of health care institutions will be implemented along the following main lines:

The development of outpatient services, primary health care being the priority (on a priority basis, development of general practices; a focus on the development of GPs in rural areas; an increase in the volume of examinations and treatment services at outpatient healthcare institutions; and more attention to disease prevention). Improving inpatient services and developing alternative forms of activity (improving the volume and structure of inpatient services, matching them to patients’ needs and intensifying of the treatment process; development of day inpatient care and day surgery services; development of consulting by specialists at inpatient institutions on outpatient basis). The development of medical nursing and long-term/palliative treatment services, with a focus on the improvement of health care for the elderly.Restructuring will be implemented in various ways: by merging, re-organising, splitting, etc. of institutions or dividing them up. The network of hospitals and the variety of services provided in each hospital will be based on disease incidence rates, resources

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(physical, financial and human) of health care institutions, and institutions’ cost-effectiveness indicators.

Rationalisation in the healthcare sector will also involve facilities being renovated and adapting healthcare institutions to changes in the service structure, complying with hygiene requirements, acquisition of necessary equipment, introduction and development of IT technologies and networks. Special attention should be paid to the network of health care institutions in the rural areas and regions that face socio-economic problems and lag behind from the average level of development of the country. The disease prevention needs to be strengthened at the primary health care level, outpatient activities to be developed. Inpatient health care should be optimised and modernised handling the flows of patients, assuring its accessibility. Renovation and renewal of health care institutions, introduction and upgrade of necessary medical equipment, support for the introduction of information technologies and creation of integral register system will be followed by achieving compliance with EU standards.

Seeking to increase accessibility of health care services and to reach even economical development of the country, grate attention must be paid to the activities renovating and computerising public and private general practitioners (GP) offices in rural areas. Especially of grate interest are regions of the country with socio-economic problems. At present the network of outpatient health care institutions is not developed properly in rural areas, there are difficulties establishing GP offices in remote areas. The technical equipment of institutions is insufficient; the level of usage of IT is low. Modern co-ordination and data interchange systems would assure better information flows, consultations and lead to in-time provision and better quality of services. Support for modernisation and rational development of outpatient health care institutions would determine not only the improvement of health care services, but the establishment of new working places, increase of investment flows as well.

Bringing about a population that is more healthy is one of the objectives of the Government's major policy objectives. Leading an unhealthy life style is clearly hazardous for health. The number of people living healthy lifestyles is increasing but not significantly. Providing appropriate information and public education is essential. Measures to raise public awareness and to promote the adoption of more healthy lifestyles must be sustained. Therefore, active public education and promotion of healthy lifestyle is planned as a standalone intervention area in the second priority of the SPD.

The aim is to provide the population with the necessary knowledge and awareness of the importance of leading a healthy lifestyle to affect positive change in lifestyle habits and to teach people how to live more healthily. These activities strengthen understanding of the fact that quitting harmful habits, healthy nutrition, physical activity and the ability to control stress result in good personal health and the prevention of diseases.

Resources available to doctors and the geographic distribution of doctors in Lithuania is unequal. One of the common features in Central and Eastern European countries is that there is an uneven distribution of doctors by gender, region and area of speciality. These problems are also relevant in Lithuania. The distribution of doctors by area of speciality is slowly changing. In 2000 the geographic distribution of doctors in Lithuania was very unequal, with the majority working in urban areas, while in rural settings the number of doctors was significantly lower.

It is notable that the number of physicians during the past decade has not changed significantly and is close to the EU average. Reform of the health care sector and the development of primary health care services (family doctors) has increased demand for general practitioners. Specialists are in demand to help carry out retraining. In general, physicians faces the constant need for training to develop their skills and to deepen their knowledge due to the implementation and use of new, modern technologies providing health care services.

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The health sector is undergoing a major modernisation programme. Due to the technological progress and restructurisation of the sector, skills' requirements for those working in the health sector are now far more demanding than previously. Physicians have not only to be qualified as specialists in their own particular field, but must also possess communication skills and be adept at team working. Health care sector professionals need to be trained extensively to make full use of new technologies.

Development of Accessibility and Productivity of Education, Vocational Training, Research and Study and Social Infrastructure

Infrastructure investment in this area is closely related to the human resource development priority and is an essential condition for ensuring the implementation of Priority 2. Key problems requiring investment in infrastructure include the failure of the research and study system and its equipment basis to comply with EU and international standards, the uneven territorial distribution of institutions providing education, vocational training, labour exchange, vocational orienting and counselling and vocational training services, the poor condition of education buildings, research and higher education institutions, the shortage of facilities adapted for studies of disabled people, and a mismatch between the technical supply of training, research and study institutions and today’s needs, particularly in the engineering and manufacturing areas. Additionally, there are problems relating to the lack of an adequate structure to help integrate socially excluded and special needs children into the education system.

One of the key conditions to help improve the quality and efficiency of human resource development is the creation of an appropriate and sustainable infrastructure. Timely investment in the development of labour exchanges and education, research and study infrastructure will help the education, vocational training and research sectors better meet students needs and should help ensure equal access to educational opportunities throughout Lithuania.

The integration of the disabled into the labour market requires special targeted support and vocational rehabilitation measures. As pointed out in the SWOT analysis the access and quality of vocational rehabilitation facility and social services infrastructure are not sufficiently developed. This will be overcome by the development and renovation of infrastructure of care homes for disabled people, improvement of the infrastructure of vocational rehabilitation system for disabled people, in order to provide conditions for restoring their self-sufficiency and possibility to return to the labour market to the maximum. This will include adaptation of physical and information environment: vocational training classrooms, specialised workshops, work therapy centres, development of distance training opportunities.

Another important investment area is increasing the diversity and quality of social services in order to try and lower dependency on institutional care services. The development of social services centres could also provide non-institutional services is expected to increase efficiency of these services over the longer term.

Information society development related activities will significantly contribute to the achievement of the objectives of this priority. Thus, although contribution to the development of the information society is not used as a project selection criteria, many measures will indirectly benefit the information society. Implementation of projects under Priority 1 of the SPD will naturally include information society development activities that increase overall socio-economical impact of the projects (e.g. the upgrading of energy facilities with a high level of IT technologies, development and promotion to use information technologies in health care sector ensuring more efficient service provision, introduction of modern information technologies while creating better conditions for people in Lithuania to gain IT skills and knowledge, etc.).

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The objectives that this priority will seek to achieve will be underpinned by the following five measures:

Measure 1.1. Improvement of Accessibility and Service Quality of Transport Infrastructure Measure 1.2. Ensuring of Energy Supply Stability, Accessibility and Increased EfficiencyMeasure 1.3. Improvement of Environmental Quality and Prevention of Environmental Damage Measure 1.4. Restructuring and Upgrading of Health Care Institutions Measure 1.5. Development of Infrastructure of Labour Market, Education, Vocational Training, Research and Study Institutions and Social Services (supplementing the ESF measures)

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MEASURE 1.1. IMPROVEMENT OF ACCESSIBILITY AND SERVICE QUALITY OF TRANSPORT INFRASTRUCTURE

Goal of the Measure

To create a modern integrated transport system, the technical parameters and quality of which must correspond to the level of EU countries and ensure integration into the EU transport system, in order to establish favourable conditions for the development of the Lithuanian economy.

Objectives of the Measure

To improve traffic conditions on roads and streets, to increase traffic safety and to decrease the negative environmental impacts of transport.

To increase capacity in the railways, to promote the transportation of goods and passengers by railways, to improve railway service quality for passengers.

To increase flows of goods and passengers in Klaipėda State Seaport, to create a single inland waterway system for passenger and freight transportation. To adapt inland waterway infrastructure for passenger and freight transportation needs.

To imrpove safety and the security of flights into and out of international standard airports in Lithuania and to improve passenger service quality.

To develop a multimodal transport network in Lithuania.

Measure Description

Improvement of major transport infrastructure will be funded under the Cohesion Fund (the co-ordination of Cohesion Fund and Structural Funds strategies implementation is explained in the Priority description). However, improving roads between less developed districts of Lithuania and major industrial and business centres will be funded under the Structural Funds. Investment is expected to lead to a reduction in negative environmental impacts, and the achievement of a relevant level of the Lithuanian road network satisfying growing traffic needs and the attainment of appropriate technical parameters corresponding to international standards. Furthermore, traffic safety and environmental protection projects are planned to be introduced, as well as the reconstruction and construction of roads and railway links with the TEN-T network and transport infrastructure of the Klaipėda seaport. According to an EU directive on road transport - EC Regulation 3821/98, a digital tachograph system should be set up in Lithuania that meets EU standards in order to ensure an effective driving and rest periods and to improve road traffic safety.

Reductions in transport congestion and improvements in traffic management on streets will be achieved by means of the reconstruction of town and settlement streets, the construction of bypasses, multi-level intersections, underground and overhead pedestrian crossings, introduction of modern traffic control systems, introduction of intelligent transport systems and other public transport.

The renovation, reconstruction and upgrading of railway infrastructure, the improvement of traffic safety on railway crossings are projects of particular importance in order to guarantee regular and safe railway traffic and to increase train speeds. Improvement of passenger transportation and service quality will be undertaken by means of the reconstruction of railway passenger terminals, the renovation of railway infrastructure (tracks) and the adaptation of passenger railway transport for disabled passengers. Improvements in railway transport safety and simultaneous reductions in air pollution should be achieved as a result of the introduction of a new railway rolling stock monitoring and control system.

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Rail transport infrastructure projects eligible for support will comply with EC Directives on Interoperability.

In order to develop interaction of water and land transport and to promote transportation of goods by railways and ships, reconstruction of railways within the territory of Klaipėda State Seaport will be undertaken.

In 2003 the reconstruction of quays serving cruise ships at Klaipėda State Seaport was completed. Therefore, in the 2004–2006 programming period it is feasible to complete remaining infrastructure development needed at the cruise ship terminal: to construct special sites for receiving cruise ships and passenger services, to establish passenger waiting halls and to ensure relevant facilities for tourists departing from the port territory. Lithuanian Klaipėda State Seaport is and will be an open port ensuring equal opportunities for all operators.

In order to create a single waterway system from Kaunas to Klaipėda in Lithuania, improvement of infrastructure will be implemented by means of adaptation of it for passenger and freight transportation needs. Moreover, it has been provided for construction of piers, access roads and parking places.

In order to ensure flight safety and to improve passenger service quality, infrastructure of Lithuanian airports will be modernised and modern safety and aviation security equipment will be installed. The compliance of the airport infrastructure with the ICAO requirements and the international standards will be achieved.

Development of multi-modal transport is one of the key priorities of the Lithuanian long-term development strategy within the transport sector. In this connection, there is need for development of transport infrastructure required for logistics centres in administrative industrial areas, using capacities of transport corridors No. I and IX and Klaipėda seaport for the EU transport service market.

Structural funds grant rate to the aforementioned projects will be in conformity with Art. 29 of Regulation 1260/99.

Transport sector projects are technically complex and the preparation and implementation of projects is therefore likely to take a long time. Therefore, considerable attention will be paid to the preparation of technical documentation of transport sector projects during the 2004-06 period. This will improve the likelihood of additional funding being made available to complete necessary transport infrastructure development, upgrading and modernisation during the following programming period.

State aid

No state aid will be granted under the measure.

Institutions responsible for implementation of the Measure:

Intermediate body- Ministry of Transport and Communications

Implementing agency- Transport Investment Directorate

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MEASURE 1.2. ENSURING OF ENERGY SUPPLY STABILITY, ACCESSIBILITY AND INCREASED EFFICIENCY

Goal of the Measure

The overriding objective of this measure is to ensure the stability, reliability, flexibility and accessibility of energy supply to domestic and business customers as well as to increase energy consumption efficiency and thereby to form the basis for more stable growth in Lithuania’s economy.


Upgrade and develop energy transmission and distribution networks and improve their reliability;

Reduce dependency on energy imports through the diversification of fuel sources and conversion to local and renewable energy sources;

Increase energy efficiency and reduce negative impacts on the environment.

Measure Description

The planned decommissioning of Ignalina NPP Unit II will require additional electricity system costs resulting from the switching from nuclear to fossil fuel (such as oil and gas), which is imported predominantly from one country and a single supply source. This will potentially have a negative effect on stability and reliability of energy supply to Lithuanian businesses and consumers, and will mean increased energy generation and consumption costs.

The following groups of activities are covered. Structural funds grant rate to the aforementioned projects will be in conformity with Art. 29 of Regulation 1260/99.

Energy Networks

After the decommissioning of Ignalina NPP, there are plans to replace nuclear fuel with other fuels such as natural gas, orimulsion and renewables as well as to increase the share of co-generation in electricity generation. Alongside, energy transmission and distribution networks will be improved in attempt to ensure reliability and efficiency, since the changes in the structure of generating sources will determine the additional investments into the refurbishment and development of energy transmission and distribution networks. The present electricity transmission and distribution network is designed for a certain type of generation capacities structure, namely for a few generators of big capacity. The conversion to renewable energy sources, especially hydro and wind, will lead to an increased share of distributed generation in the Lithuanian power system. This shift in generation type will require certain modifications of power network. The present group of activities will support:

- construction of additional electricity lines and other technical measures, related to stability of the system itself. In addition certain upgrade and development of distribution network may be required in order to ensure the proper level of power supply increase reliability to consumers;

- expansion of District Heating network, its renovation aiming to reduce losses and increase efficiency;

- expansion of local natural gas distribution network, in case of boiler conversion to natural gas of District Heating installations.

Boilers Upgrade and Fuel Conversion

To a large extent the main type of energy considered here is heat. Centralised heat provision (District Heating) is an important public service, since it covers around 75 per

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cent of necessary heat generation. Subsequently, this group of activities will try to redress the aforementioned problem by investing into development, upgrading and modernisation of heating facilities, encouraging the use of technologies allowing the efficient use of energy resources in heat generation, boiler conversion to local and renewable fuels, or, when feasible to natural gas, and the co-generation cycle (CHP). In case of boilers upgrade and conversion to natural gas, the feasibility of CHP option shall be assessed.

Local and Renewable Energy Sources

This group of activities will be aimed at increased utilisation of local and renewable energy resources as well as introduction of new technologies enabling efficient utilisation of these resources. It is planned to support the use of geothermal, hydro, wind, solar energy, biomass and municipal waste resources. This activity shall facilitate the implementation of the Directive 2001/77/EC on the promotion of electricity from renewable energy sources and compliance with the Community acquis in this field.

Increase of Energy Efficiency in Public Sector

Energy consumption in the public sector will be reduced through the insulation of buildings, reconstruction of energy facilities of buildings, and namely the refurbishment and upgrading of the existing buildings, monitoring of the renovated buildings and energy certification of buildings, in a view to implementing the EU 2002/91 EC directive on energy performance of buildings. Any beneficiary falling under the State Aid provisions shall be excluded from this activity.

State Aid

The first three groups of activities – Energy Networks, Boilers Upgrade and Fuel Conversion, Local and Renewable Energy Resources – are covered by de minimis aid scheme, or aid shemes based either on SMEs block exemption regulation, or regional aid, depending on the project. Under the fourth group of activities - Increase of Energy Efficiency in Public Sector – no state aid will be granted.

Institutions responsible for implementation of the Measure

Intermediary body- Ministry of Economy

Implementing agency- Public Agency “Lithuanian Business Support Agency”

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MEASURE 1.3. IMPROVEMENT OF ENVIRONMENTAL QUALITY AND PREVENTION OF ENVIRONMENTAL DAMAGE

Goal of the Measure

To reduce water, air and soil pollution and its potential threat to Lithuanian regions and to ensure public rights to a safe and clean environment; further, to seek avoiding or reducing negative effects of farming and other activities on the environment, retaining the balance of the use of natural resources and promoting a responsible public attitude towards the natural environment.

This measure will also support the horizontal theme of environmental sustainability. The priority of this measure is to create an adequate environmental infrastructure in order to provide the basis for favourable economic development in Lithuanian regions especially focusing on recreation and business development. In this way, the present measure will consistently complement the environmental aspect of the other measures of this Programme (especially in the fields of transport, agriculture, energy and tourism) and of projects supported by the Cohesion Fund.


To improve the quality of drinking water and waste water in Lithuanian settlements and villages below 500 inhabitants developing drinking water supply and waste collection and treatment systems, owned by municipalities and companies owned by them;

To clean up areas suffering from pollution and to manage pollution hazards resulting from the dumping of hazardous waste in the past and to restore the natural state of nature to areas blighted by pollution;

To expand the network of protected areas including NATURA 2000, to implement activities regarding protection and restoration of biodiversity and habitats;

To strengthen and improve environmental management systems and prevention activity via the strengthening of environmental quality assessment, control and management institutions responsible for environmental quality management and damage prevention.

To educate the public at all levels through using media, audiovisual, modern IT and other means, to develop and introduce training programs, ensure integrated information exchange in order to encourage public participation in the environment protection process;

To restore and retain landscape components and to introduce conservation measures to support landscape preservation;

Measure Description

Drinking water and wastewater management. The group of activities will finance the development and renovation of drinking water supply and wastewater management in small, mostly rural, agglomerations where the population is below 500 and for this reason not included in the list of projects that will be financed by the Cohesion Fund (see Cohesion Fund strategy for the environmental sector). This group of activities will cover investment into solving of one of the main drinking water pollution problems, related to fluorine and iron content in the drinking water in areas of intensive agriculture, where Lithuania’s rural population of roughly 1 million use shaft wells as their primary source of water. The construction of supply and waste water collection systems in the regions is one of the most important preconditions for attracting private businesses to rural areas,

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particularly those that are less developed. This group of activities targets water and waste water processing companies owned by municipalities, hence there will be no overlap with measures supported under Priority No. 4 of the SPD.

Identification and cleanup of past pollution and polluted areas. Cleanup of polluted areas (over 800) is practically not undertaken in Lithuania. Therefore, by 2006 part of these problems will first be tackled in this measure, giving priority to trouble-spots posing the largest threat to the environment and the public health. Majority of the indicated areas are former military lands which after the clean-up will comply with EU directives related to the ground water, surface water and soil quality requirements, thus preventing the living risks for the neibourhood territories. The group of activities will tackle also the clean-up of the past pollution from the hazardous waste. The group of activities will also aims to the management and cleaning of banks and valleys of rivers, brooks and lakes, reservoirs of ground. After the implementation of these projects the attractiveness of the regions from economic growth point of view will significantly increase. Any land reclaimed will remain the property of Municipalities for at least 5 years after the completion of the programme.

Establishment and management of protected and non-protected areas. This group of activities will invest into analysis of the extent and status of habitats in NATURA 2000 and other national protected areas in order to ensure their conservation, establish monitoring system and to prepare their management plans. This will require introduction of activities of mandatory protection of areas management and adaptation of protected areas for sustainable public access and education needs. To comply with EU directive requirements the start up of establishment of Natura 2000 network especially for wetlands, meadows and forests is foreseen for 2004. The group of activities will also assist the restoration of the most value landscape components of Lithuania. Management activities will be undertaken in order to restore and protect the seaside strip from degradation, cleanup of beaches, erection of information signs, according to the National costal zone management Programme.

Strengthening of environmental monitoring and prevention is another area to be assisted by this measure. Though considerable progress has been achieved in recent years, the capacity for environmental monitoring in individual regions is still insufficiently developed. This measure will seek to ensure that all public environment research laboratories conform to EU standards and are able to present fast, accurate and reliable information about the state of the environment and emergency effects on it. Moreover, special importance will be attributed to the prevention of environmental degradation as well as to rapid response to violations. Therefore, over the 2004-2006 period, the implementation of projects related to strengthening institutions responsible for environmental inspection, control and monitoring will be continued. Before the implementation of any project under this activity the assessment of existing situation and suggested action will be undertaken through this measure.

Environmental information and awareness raising amongst the Lithuanian population. Over the last few years public information campaigns on environmental issues have become considerably more active. However, with increased public interest in the environment, technical capacity to disseminate information and to raise awareness is no longer sufficient. The group of activities will aim at raising and promoting public awareness about the importance of the environment and in raising public participation in decision making processes to improve the environment. This will be achieved through the implementation of projects that will help to provide the public with detailed and timely information about environmental issues and conservation measures. Prior to the financing of implementation of this activity, a priority action plan will be developed through this measure.

As projects of environmental sector are complex the preparation of project documentation could be supported through this measure as well.

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State aid



Intermediary body- Ministry of Environment

Implementing agency- Implementing Agency of the Ministry of Environment

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MEASURE 1.4. RESTRUCTURING AND UPGRADING OF HEALTHCARE INSTITUTIONS

Goal of the Measure

To improve the national health care infrastructure, ensure a better balance between in-patient and out-patient services, rationalise health care service provision and eliminate over-capacity, improve the quality of healthcare provision and ensure regionally balanced access to healthcare. A final objective is to ensure that healthcare services more closely meet patients' needs.


The Measure “Restructuring and Upgrading of Health Care Institutions”, closely corresponds to the national restructuring strategy, and has the following objectives:

1. To rationalise and modernise infrastructure of health care institutions and to optimise the structure of services provided (through the development of outpatient services and reorganisation of inpatient health care services).

2. To update medical equipment of health care institutions.

3. To introduce information technologies in health care institutions in order to ensure more efficient service provision.

Measure Description

Taking into consideration both the strengths and weaknesses of the healthcare sector set out in the baseline, it is evident that investment is needed to strengthen health care infrastructure and to help ensure that health care services meet the demands of patients and that there is equal access to healthcare services across Lithuania. The activities of this measure provide for the rationalisation of infrastructure and include facility renovation through adapting them to the changed services structure, complying with hygiene requirements, the acquisition of necessary equipment, the introduction and development of IT technologies and networks. Special attention should be paid to the network of health care institutions in rural areas and regions that face socio-economic problems and lag behind from the average level of development of the country. The measure plans to implement two groups of activities as described below.

Projects aimed at reducing mortality rates from cardio-vascular diseases. It is foreseen to strengthen cardiology health care network (disease prevention, diagnosis and treatment will be strengthened at outpatient and inpatient levels accordingly) with co-ordinating centre in Vilnius. Inpatient health care will be optimised and modernised handling the flows of patients, strengthening the specialised health care, assuring its accessibility for the patients in rural areas and cities. The foreseen renovation and renewal of health care institutions, introduction and upgrade of necessary medical equipment, support for the introduction of information technologies and creation of integral register system will be followed by achieving compliance with EU standards. Such activities will target eastern and south-eastern regions of the country, that are being characterised as facing highest morbidity or mortality from such cause indicators and as having socio-economic problems.

Seeking to improve access to health care services, it is planned to modernise and develop the network of public and private general practitioners' (GP) offices in rural and remote areas where development is lagging (when assessed against a range of key economic indicators) and in areas where number of GPs per capita is low. As it is relatively expensive for the state to establish and maintain public GP officers in rural areas, support is planned for the establishment and renovation, modernisation of established private rural GP offices and the expansion of their activities. Licensed GPs working in rural areas that have agreements with the statutory health insurance

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system are eligible for support under this measure. At present the network of outpatient health care institutions is not developed properly in rural areas, there are difficulties in establishing and upgrading GP offices in remote areas. The technical equipment of institutions is insufficient; IT usage is low. Support would be provided for the renovation, computerisation of the GP offices, introduction of modern technologies, for establishment of new offices. Modern co-ordination and data interchange systems would assure better information flows, consultations and lead to in-time provision and better quality of services. Financial support for modernisation and rational development of outpatient health care institutions would determine not only the improvement of health care services, but the establishment of new working places, increase of investment flows as well. Within this measure, it is planned to target remote areas in the southern and western regions of the country that have economic difficulties and distinguish with the low number of GP per capita.

Activities of the measure “Restructuring and upgrading of health care institutions” closely corresponds with the reform of the health care sector. The general and common objective of both is to improve the quality and access to of health care services, paying special attention to the rural, remote areas and regions facing socio-economic problems.

In order to improve and rationalise the provision of health care services it is necessary to create and sustain appropriate health care infrastructure. The Lithuanian Government approved the Health Care Institutions' Restructuring Strategy on 18-03-2003 (resolution No.335). The main objectives of the Strategy are: to improve the quality of and access to health care services and to optimise the structure and volumes of health care services that meet patients' needs. The Strategy will form the basis for a Health Care Institutions’ Restructuring Programme, which will set out specific implementation measures, the responsible institutions and implementation timeframe. Restructuring of health care institutions will be implemented along the following main lines:

Development of outpatient services, primary health care being the priority (on a priority basis, development of the general practice activities; focus on the development of GP in rural areas; increase in the volume of examinations and treatment services at outpatient health care institutions; more attention to prevention of diseases).

Optimisation of inpatient services and development of alternative forms of activity (optimisation of volumes and structure of inpatient services, matching them to patients’ needs and intensifying of the treatment process; development of day inpatient care; development of consulting by specialists at inpatient institutions on outpatient basis).

Development of medical nursing and long-term/palliative treatment services, with a focus on the improvement of health care for the elderly.

Restructuring will be implemented in various ways: by merging, re-profiling, splitting etc. of health care institutions or their structural divisions. The network of hospitals and the variety of services provided in each hospital will be based on disease incidence rates, resources (physical, financial and human) of health care institutions, and institutions’ cost-effectiveness indicators.

It is foreseen, that implementation of the Strategy by the year 2008 will lead to a reduction in the number of beds in inpatient health care institutions by 20 % from 30,555 in 2002. The average duration of time of staying in hospital will be reduced from 10.8 days (in 2002) till 8 days.

Due to their remote position, the provision of health care services in rural areas is characterized by lower quality provision, less modern services and facilities and

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difficulties with regard to access in more remote areas. The renovation of healthcare institutions and the acquisition of the necessary equipment is highly investment intensive and can only be financed through joint EU and national investment. In the past more attention was paid to the strengthening and development of medical centers and large hospitals. This causes extreme delays in investment for health care institutions in rural areas and highlights the urgent need to catch up and reduce disparities. The aforementioned situation justifies use of structural funds grant rate of 80 percent of the total eligible costs of the measure.

State aid



Intermediary body- Ministry of Health

Implementing agency- Central Project Management Agency (CPMA)

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MEASURE 1.5. DEVELOPMENT OF INFRASTRUCTURE OF LABOUR MARKET, EDUCATION, VOCATIONAL TRAINING, RESEARCH AND STUDY INSTITUTIONS AND SOCIAL SERVICES (COMPLEMENTARY TO THE MEASURES SUPPORTED BY THE ESF)

Goal of the Measure

To reduce area-specific differences in labour market services, to develop and upgrade infrastructure in the education, scientific research and development, vocational guidance and counselling and vocational training sectors and to improve the quality of these services and to reduce the gap between the level of these services and the level of respective services in leading EU countries.


to support the efficient implementation of Priority 2 “Human Resources Development” measures by ensuring that there are adequate facilities to deliver education and training; to improve the quality of education through the modernization of the learning environment and improvements in educational infrastructure; to create the right pre-conditions for a dynamic R&D base in Lithuania; to capitalise on the opportunities offered by IT to improve access to education and training provision for those living in rural areas, to improve the quality of lifelong learning provision and labour market services; to develop the capacity of labour exchanges to provide quality employment services; to improve the quality of and access to occupational rehabilitation infrastructure for the disabled; to increase the diversity and quality of social services in connection with the labour market. Measure Description

One of the key pre-conditions for improving human resource development is the creation of an appropriate and sustainable infrastructure. Timely investment in the development of labour exchanges and education, research and study infrastructure would help these sectors to better meet the requirements of end-users and would ensure equal access in provision throughout Lithuania. This measure is closely linked to the,,Human Resources Development” Priority and is an essential pre-condition for ensuring the implementation of measures supported under the HRD priority.

Supporting and setting up new territorial units, the measure will be instrumental in reducing uneven territorial distribution of institutions providing labour market, vocational guidance and counselling and vocational training services. Therefore the measure will invest in the development of new and the upgrading of existing facilities belonging to the Lithuanian Labour Exchange and the Lithuanian Labour Market Training Authority. This will improve access to and the quality of vocational guidance, counselling and training as well as employment services, while schoolchildren, graduates of regional schools and the unemployed will receive better services in their locality and consequently, are likely to benefit from improved employment opportunities. These activities support the implementation of Measure 1 of Priority 2.

Financing will be extended to optimizing and developing the educational, vocational training, research and Higher Education infrastructure as well as of libraries, forming a modern and high quality learning environment throughout the entire education and training system, the introduction of information technologies and other modern training means in education and training institutions. These activities are linked to Measure 4 of

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Priority 2. This will ensure an education and training system matching new conditions on the labour market and a smoother transition from training to working life.

The measure will also invest in development and upgrading of the infrastructure for occupational rehabilitation of the disabled ensuring better quality of and access to the appropriate services in order to restore self-sufficiency and opportunity for their return to the labour market. The activities will also cover adaptation of physical, information environment and training facilities for special needs: vocational training classrooms, specialized workshops, work therapy centres, etc. This will increase learning and vocational training opportunities for disabled people and make learning conditions easier, thus increasing opportunities for their integration into the labour market and full participation in working life. In this regard the measure will be related to and supplement the implementation of Measure 3 of Priority 2.

The research and study system, together with the necessary basic equipment, will be improved in order to comply with economic development requirements. Scientists and other researchers of research institutions, higher education schools and economic entities will be provided with conditions for undertaking R&D work of international level, creating new knowledge that will increase the competitiveness of the national economy. These activities are linked with measure 5 on HRD priority and will create relevant conditions for such research.

The measure is also intended to increase the diversity and quality of social services (including services for elderly people, disabled) and to reduce the volume of institutional care through investment into non-institutional social services institutions – setting up of day centres, community centres or social services centres on the basis of institutional care services. This will aim at reducing the number of institutional services financed by the state, strengthening the ability of communities to take care of their members, and diversification of social services by involving and employing community members. It will also make it possible for family members to take part in the labour market.

These activities are implemented in co-ordination with strategic plans in education and labour market areas. To summarise, the measure will invest in the following groups of activities:

Development of new and upgrading of existing labour exchange, vocational guidance, counseling and training facility;

Optimization and development of VET infrastructure; Development of research and study and libraries facility; Development and upgrading facility for occupational rehabilitation of disabled; Setting up and diversification of non-institutional social services facility.

The 80% grant rate is justified by the lack of investment for over a decade into educational and vocational training institutions and the need to increase accessibility to these facilities in remote areas, together with developing educational infrastructure for the disabled; the need to provide non-institutional social services for the elderly, children and the disabled in order to make it possible for family members to enter the labour market.

State aidNo state aid will be granted under the measure.


Intermediary bodies – Ministry of Social Security and Labour and Ministry of Education and Science

Implementing agency- Central Project Management Agency (CPMA)

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3.2. PRIORITY 2: HUMAN RESOURCE DEVELOPMENT

In order to achieve the main goal of this document – the development of a knowledge driven economy – a major priority has been given to human resource development, in order to ensure that the labour force more closely meets labour market requirements and that a culture of lifelong learning is fostered. The labour force in Lithuania is comparatively well educated (i.e. a relatively large share of Lithuanians are qualified to higher education level etc.), however, the nature of the modern economy requires a shift in skills sets, adaptability and the upgrading of qualifications. In many instances, knowledge acquired previously is hard to apply or even worthless. The availability of highly qualified specialists is also one of the main preconditions for the introduction and development of research and development (R&D) stressed in this document.

In many respects this priority is horizontal, with close links to other priorities of this development plan and many of their measures. The goal of the priority is to reduce structural youth unemployment and prevent unemployment through the coordination of knowledge and skills of employees with evolving labour market needs, sustainable growth of human resource competence with economic development goals. Over the longer term human resource development in its broad sense and more specifically – the level of qualifications in the labour force – will be a critical determinant of the stable development of the Lithuanian economy. Numerous employment opportunities that have been created and (with the help of implementation of this document) will be created by new, rapid growth sectors of the economy that require more adaptability and greater initiative from the labour force, as well as higher qualification levels and/or technical skills acquired in the higher education system. The training needs of the labour force (both employed and unemployed individuals) are determined by rapid changes in the economy, the rapid growth of the small and medium sized business sector, market globalisation and the related development of international relationships, as well as the penetration of information technologies into all sectors of the economy. Successful competition under these conditions is hindered by the fact that the majority of Lithuanian employees lack basic computer literacy and foreign language skills, entrepreneurship, communication skills, etc., i.e. skills identified in the Lifelong Learning Memorandum as new basic skills critical to success in Lithuania’s rapidly evolving economy.The second factor influencing the training needs of employees is rapid technological change that, again, is related to general development tendencies in both Europe and further afield, as well as the considerable lagging behind of technologies used during Soviet times. Retraining often involves not only development of new skills, but also the topping up of existing knowledge. Thirdly, Lithuania has a number of locations that are undergoing or will be undergoing essential restructuring of economic activity. Visaginas town is likely to be an example of this, where after the closure of the nuclear power station the employment structure and skills base will have to undergo fundamental changes. In this respect, training requires large investment, because people are often required to acquire new qualifications.All this presupposes not only the need for providing appropriate and demanded qualification for those who do not have it, but also for encouraging the fostering of a culture of lifelong learning. Technological change, globalisation and other factors are not a one-off, but an ongoing process that will require employees to embrace a culture of continuous and lifelong learning. The appropriate preconditions to facilitate this in the HRD field will need to be created.

Lithuania’s growing international competitiveness and the need for a rapid transition towards a knowledge-based economy, requires highly qualified specialists to be trained and retrained, in order that such individuals are able to adapt to rapidly changing labour market requirements. Skills and training targeted at highly qualified specialists should focus particularly on updating study programs and course curricula so that these reflect recent scientific developments as well as developments and trends in the national

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economy which in turn influence labour market requirements. The upgrading of teacher qualifications and student placements in industry and in companies will both be actively encouraged through the development plan.

First of all, the vocational training system must guarantee good access to vocational guidance and counselling and vocational training and matching of provided competences to the labour market needs. On the one hand, the measure is intended for optimising the network of vocational guidance and counselling and vocational training institutions, "bringing learning closer to home", the introduction of information technology-based learning methods and provision of conditions for learning mobility both in the country and abroad.

Second, improvement of training quality requires to disseminate experience acquired in the implementation of earlier mentioned bilateral and multilateral cooperation projects and programs throughout the entire higher education and vocational training system: to undertake training of pedagogical personnel and management, to develop social dialogue, to develop various forms of practical training, to create a system for formalising knowledge and abilities acquired at work or informally, etc. As mentioned earlier, human resource development is closely related to characteristics of economic development, therefore, the measure is expected to achieve their close coordination through ensuring appropriate involvement of social and economic partners.

Third, the cause of such a situation in the labour market is understood to have been largely determined by the education system that should provide not only adequate knowledge, but also become more attractive and to overcome such identified problems as a rather high number of people leaving the education system prematurely. In this respect, the measure will seek to improve competence of (vocation) teachers/professors, their ability to asses knowledge and to develop abilities of pupils/ students. In this respect, the earlier mentioned huge need to improve technical supply of education and training institutions cannot be overlooked. The latter factors would allow to use optimally education and training networks (that, according to the SWOT analysis, are sufficiently dense), and most importantly – to make them accessible to users. The objectives will be achieved through providing support to investment direction into social infrastructure of priority 1.

Taking into consideration conclusions made in the SWOT analysis, special attention should be paid to training unskilled and low skilled adults, because the need for unskilled labour is rapidly decreasing. Such individuals are therefore at greatly increased risk of ending up as long-term unemployed. The need for such training is huge particularly amongst 16-29-year-olds. As a result of considerable growth in social differentiation and a drop in learning motivation between 1990-1995, a considerable percentage of youths left the education system prematurely without acquiring the basic education certificate. While in decline, this harmful trend has not yet been fully eliminated. The problem is best illustrated by data provided by the labour exchange: as much as half of the registered unemployed are unqualified, and the majority of these do not even have the basic level education certificate. Some elderly people whose education and/or qualification was acquired many years ago no longer meet the needs of the modern labour market so should also be classified with this population group.

The SWOT analysis also indicates a high level of poverty and social exclusion, particularly among vulnerable groups. Therefore the implementation of the Human resource development priority will also focus on providing more opportunities to groups of social risk individuals to integrate into labour market and thus reduce social exclusion. Reduction of social exclusion is primarily related to increasing accessibility of vocational training and employment opportunities. Special needs of those groups will be taken into account and additional efforts will be applied when designing and implementing actions to combat social exclusion. In the implementation of the human resources priority investment will be made into the following objectives:

- reduction of unemployment and its more efficient prevention;

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- development of adaptability to change;- targeted promotion of social integration.- promotion of lifelong learning;- ensuring that sufficient numbers of highly qualified specialists in the R&D

sector and energy sectors are trained in order to stem the adverse impact of an ageing workforce in these sectors in particular.

Reduction of Unemployment and its More Efficient Prevention

One of the most urgent problems facing the Lithuanian labour market is high and structurally unfavourable unemployment: high youth and long-term unemployment, considerable territorial differences in unemployment levels. In 2002 average unemployment level was as high as 13.8% , while youth unemployment stood at 23.0% , with over 56 percent of the unemployed having been out of work for over one year. Over 50 percent of the unemployed have only secondary or basic education, and roughly 80 percent of the unemployed registered with labour exchanges either have no vocational qualification or their qualification is too low and does not meet labour market needs. Another related problem is that many individuals increasingly face the threat of dismissal from their jobs as a result of structural changes in the wider economy and the knock-on impact this has at enterprise level. Many are therefore forced to change their occupation completely and to acquire new skills and qualifications.

The Lithuanian Labour Exchange and the Lithuanian Labour Market Training Authority were set up to help implement of labour market policy. The Lithuanian Labour Market Training Authority is responsible for organising labour market vocational training, vocational guidance, counselling, coordination and supervision and methodological management. The key objective of the Lithuanian Labour Exchange (Public Employment Service) is to ensure that state guarantees for employment to individuals that lost their jobs and to seek sustainable labour market activity through active policy measures (placement services, organising labour market vocational training, employment support for the unemployed (public works, works supported by the Employment Fund, support to individuals wishing to set up their own businesses, creating of new jobs for socially disadvantage people).

However, as stressed in the Employment Increasing Program and the Joint Assessment Paper of Employment Policy Priorities signed with the European Commission, expenses of active programs are relatively low and the participation of the unemployed in programs is insufficient, with respect to the scale of the unemployment problem in Lithuania. In 2000 the average number of program participants (excluding job clubs) was under 8000, or slightly over 3 percent of the total number of registered unemployed.

After in 2002 the Law on Support to the Unemployed was supplemented by new provisions an essential switch was made from passive towards active support to the unemployed. The number of participants in 2002 was by 25% higher than in 2001. 23.400 persons were enrolled into vocational training programs, 16.400 unemployed persons received professional qualification. 1.500 long-term unemployed participated in a special programm for upgrading of professional knowledge and skills. For 2.600 unemployed new jobs were created. 377 new jobs were created through the implementation of local employment initiatives projects. 4.800 unemployed were engaged in the supported jobs programs, i.e. by one forth more than in 2001. LTL 74.6 m. were allocated for the active labour market policy measures in 2002, accounting for 39.4% of the total resources of the Employment Fund (in 2001 – 34.9%).

The demand for active programmes, particularly in the vocational training area, is very much in excess of supply. Active programs are overly oriented towards temporary jobs, enjoying 1/3 of the total funds allocated for these programs and an even larger number of program participants. Short-term employment does not resolve problems faced by the long-term unemployed and difficulties in adapting these individuals so that their skills and qualifications are able to adapt to changes in labour market requirements.

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The Employment Increasing Program of the Republic of Lithuania for 2001-2004 has set the goal to stop the growth of unemployment level by the end of 2002 and to reduce unemployment further down to 7-8 percent. Economic growth, job creation and activation of the labour market policy resulted in stopping the growth of unemployment level and even in slightly decreasing it (from 284.0 thousand in 2001 down to 224.4 in 2002) )

Thus, in order to ensure further employment growth and reduction of unemployment the labour market policy will be activated, including expansion of volume of active programs, particularly vocational training programs, more targeted involvement of participants into programs and increasing number of participants, concentrating funds on those active labour market policy programs that ensure long-term effect, provide conditions for individuals to find permanent employment, raise their qualification and give knowledge and abilities matching the market needs. Needs analysis for a more efficient labour market and qualifications will be combined with the development of new training programs. The focus will be on youth and the long-term unemployed, the unemployed aged over 55, the unemployed with no required vocational qualification, as well as those who are facing the threat of long-term unemployment. Another problem group includes individuals who are facing the threat of dismissal from work as a result of structural changes in the company or/and mismatch of their qualification when the company transits to new technologies.

The implementation of this priority is expected to concentrate local labour market partners and to increase their participation and responsibility for problem solution. Projects of local employment initiatives financed from the state budget undertaken in Lithuania can be mentioned as a successful example of local development. The goal of local employment initiatives is to consolidate efforts of the local community for resolving together arising unemployment problems and to provide state financial support to employers creating new jobs for the unemployed. Out of 87 projects prepared in various locations of the country, 16 were selected for implementation and have been implemented. 1.2 million litas from the state budget were used for this purpose in 2001, in 2002 – 2.5 million litas, with 3.5 million LTL allocated in 2003. Upon evaluation of positive experience and need to expand this program, further implementation of local employment initiatives will also use the ESF funds.

The employee number, other resources and administrative structures of the labour exchange are insufficient to allow the labour exchange to provide services satisfying the changing needs of the Lithuanian labour market and to contribute effectively to the implementation of the active employment strategy. One of the key preconditions for attaining the set goals is improvement of operation and service quality of the labour exchange system. This will be achieved through carrying out surveys of efficiency of the labour exchange activity and provided services, in order to evaluate which programs under implementation should be improved or replaced, which new services and to which client groups should be introduced. ESF investment will be channelled to introduction of new methods and instruments, in order to achieve labour market sustainability and better integration of the unemployed into the labour market.

Successful implementation of set goals requires to strengthen skills and employee qualification of the Lithuanian Labour Exchange. The capacities of Labour Exchange will be strengthened through wider introduction of information technologies, because, just as indicated in the Joint Assessment Paper of the Lithuanian Employment Policy Priorities, currently IT is used very little for providing mediation and related services, which considerably limits opportunities of territorial units to offer appropriate self-service means that could reduce the work load of employees servicing clients and free them for more intensive work with priority groups of the unemployed.

Development of Adaptability to Change

High structural unemployment and low occupational and territorial mobility of the labour force indicates a clear lack of ability to adapt to changing labour market conditions. Thus, increasing the competence of the labour force and its ability to adapt is not only one of

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the key objectives of this development plan, but also an essential precondition for successful implementation of many other measures. In the development of employability, entrepreneurship, increasing adaptability of the labour force to the rapid change in technologies and economic activity, special attention will be given to the development of information (ICT) literacy and vocational training, research and study services, encouraging development of the small and medium business sector and providing the required vocational competence to the employed. In addition, investment will be made into human resource development needs of other sectors, identified in the analysis, for example, qualification upgrading of specialists in tourism, SME, IT, energy sectors, etc., in companies, planning to introduce new technologies or new products, management and personnel training and development of practical skills, upgrading of work and work organising in companies, training and informing of social partners.

The Employment Increasing Program for 2001-2004 identifies slow development of the job creation system as one of the key hindrances for the reduction of unemployment and raising employment. Development of the small and medium business sector, a leader in creating new jobs in developed countries, is slow. This is directly related to the lack of entrepreneurship in the labour force. Therefore, in the production and services sectors, an emphasis is placed on support the training of business and industrial management personnel. Attention should be paid to training businesswomen, because their number is much lower than that of male businessmen.

High needs for training and qualification upgrading of management and employed individuals are identified in many sectors of the economy. In surveys of Lithuanian companies lack of knowledge and skills required by managers and other knowledge and skills required by business is named as one of the main problems determining relatively low levels of entrepreneurship and prohibiting the development of start-up companies and the expansion of existing companies and hence acting as a constraint on the competitiveness of Lithuanian companies.

The implementation of the Human resource development priority is directly linked to the measures provided for in other SPD priorities. Investment will be made into elimination of skills shortages of employed individuals in such areas as tourism, industry and business, particularly SME, energy, transport, IT and others, giving priority to companies planning to introduce new technologies or new products and to undertake restructuring. Support will be given to initiatives of individual companies or their associations to prepare and implement personnel development plans, linking them directly to updating of technologies.

Existing and expected skills gaps identified in individual sectors as well as measures suggested for the elimination of these gaps are summarised in the “Analysis Skills Gaps of Employees by Economic Branches” that will be provided for in the Programme Complement. Implementation of the Human resource development priority will have to ensure needs for improvement of training and qualification of individuals employed in these sectors and thus will contribute to the successful implementation of other SPD priorities, in particular Priority 3 and 4.

Another important problem is the lack of good quality practical-oriented training. The Employment Increasing Program points out that "the insufficiently close link between training and practice. After school graduation graduates often lack practical skills to do the job of their acquired occupation and according to the latest technologies". This issue is addressed in all performed surveys of employers and youth that started working or the unemployed that were employed after training. This concerns training of all types (primary education, retraining and qualification upgrading) and levels (vocational schools, colleges, universities). Therefore, all possible support will be given to companies undertaking to develop apprenticeship and recruit pupils and students for practical placements.

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Support will also be given to training and qualification upgrading of employees in state institutions in public administration, health care, education and other areas. These institutions organise continuous training course for their employees, however, with lower financing, such training becomes fragmented and does not meet the existing needs.

As one of the ways for adaptation to market changes, support will be given to modernisation work and work organisation in companies, introduction of flexible work and work remuneration forms, strengthening of social partnership on the company/industry/sector level, training and informing of social partners. These activities will aim at ensuring greater flexibility in the development of work organisation, better adaptability of employees and management to technological changes and more efficient regulation of labour relations.

The priority will also support activities intended for increasing information communication (ICT) literacy of the population if this activity will influence growth of competitiveness of trained individuals or their groups in the labour market, improve accessibility to information sources required for successful work and expand learning opportunities. In this respect Lithuania is noticeably lagging behind the European Union states. In undertaking training of this type, it is important to seek that all regions receive sustainable support in order to avoid locations suffering "information literacy" exclusion.

Targeted Promotion of Social Integration

Key factors restricting employment of disabled people are as follows: lack of accessibility to higher and college education, not adapted public and working environment, absence of a vocational rehabilitation system and trained specialists for working with the disabled, insufficient motivation of employers to employ disabled people.

Social integration of former prisoners is one of the more acute problems in the country. The majority of former prisoners are potentially more active and top working-age individuals: 85 % of prisoners are under 40 years of age. 45 % of prisoners have secondary education, and 46 % – lower than secondary education. A large number of individuals returning from places of imprisonment commit crime repeatedly, because they have lost their qualification and work and social skills.

Another social risk group are persons dependant on drug, alcohol and other substances. Their integration into social and occupational life requires comprehensive measures. Existing rehabilitation programs and centres do not satisfy the needs, personnel of rehabilitation centres lacks knowledge and skills. It is no less important to undertake active prevention of addiction diseases and organise educational and information activity

According to findings of the 2001 Population Employment Survey, unemployment among representatives of national minorities is higher than average: at general unemployment of 17,1 percent, 15,8 percent of Lithuanians had no jobs, Russians - 25,6 percent, Poles – 24,5 percent, individuals of other nationalities– 17,6 percent. In 2000 attention was directed to individuals of Roma nationality, however, to date attempts to integrate Romas fully into the Lithuanian society as a result of their language, сultural and ethnical uniqueness. Resolving socials problems of Romas, such as unemployment, low education and poverty is particularly urgent. The first steps have been made – in 2000 the Government of the Republic of Lithuania approved the Program for Integration of Romas into the Lithuanian Society for 2000-2004.

Implementation of the Human resource development priority will focus of providing more opportunities to groups of social risk individuals to integrate into labour market and thus reduce social exclusion. Reduction of social exclusion is primarily related to increasing accessibility of vocational training and employment opportunities. Attempts will be made to make vocational training accessible to all socially sensitive groups and on all levels. Moreover, in this respect, it is particularly important to also solve not only vocational training issues, but also employment issues, thus consistently implementing measures of active labour market policy. In order to ensure the labour market accessible to all,

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account will taken of specific needs of these groups of individuals, while applying additional measures that would allow to acquire required abilities and to integrate into the labour market.

Another important dimension of support under the HRD Priority (particularly measure 3) is ensuring equal opportunities for men and women. The principle of equal opportunities as a horizontal priority of the Single Programming Document will be ensured in the implementation of all measures. However, in addition, investment will be made into specific activities directed at improvement of women’s situation in the labour market. Though the level of unemployment for women is lower than that for men (according to the date of Population employment survey, 2002 – 12.9% and 14.6% respectively) ), other indicators, such as lower employment level (respectively, 57.2% and 62.3%) a considerably lower number self-employed women, work pay differences (33 percent more women than men work for minimum work pay) show that still there are obstacles for integration of women into the labour market. This problem is particularly acute among older women and those returning to the labour market after a longer break. In support implementation priority will be given to improving knowledge and abilities necessary in order to return to or to stay in working career.

The issues of social exclusion and inequality in the labour market will also be addressed in the ESF funded Community Initiatives program EQUAL. The EQUAL programme in Lithuania will be addressing the problems of the most vulnerable population groups on the labour market and will be aimed to facilitate access to the labour market, in particular by development, piloting and adapted assistance mechanisms facilitating access and return to the labour market. EQUAL will support actions meant to develop and pilot measures for improving reconciliation of family and professional life and creation of opportunities for making an interval in the professional career and support in returning into the labour market. The EQUAL programme will ensure additional value in terms of development of innovative ways and methods in addressing the issues of discrimination and social exclusion, broader partnership involved, international co-operation and exchange of experience.

Promotion of Lifelong Learning

The baseline assessment showed that the high number of young people leaving the education system prematurely remains a very acute problem, which limits their further development. This problem is compounded by insufficiently developed vocational informing, counselling and orienting limits opportunities for young people to realise their full potential in the world of business. The qualifications of lecturers and teachers do not adequately meet the needs of modern vocational training and education which has hindered and slowed down the introduction of new training methods and ways of learning, shortage of training/learning and vocational information, guidance and counselling material has a negative impact on the training and counselling quality. Insufficiently developed horizontal and vertical links among training and study programs, effectively non-existent accreditation system of training and study programs that would allow to ensure matching of programs to labour market needs and EU provisions. Not developed assessment system of non-formally and formally acquired knowledge and skills, which limits the variety of ways for learning.

Resolving the problems mentioned above will help create a system of lifelong learning through improved quality of education and vocational training; support for the development of human capital and infrastructure in the lifelong learning system; creating and publishing material required for the successful provision of services in the lifelong learning system; creating mechanisms for reducing the percentage of "dropouts". The measure also provides for the introduction of new training/learning methods, organising accreditation of educational institutions and training and study programs, creating of knowledge and competence assessment system, survey and consulting-based coordination with world education services and business needs, strengthening the entire education management system. Ensuring of methodological supply of vocational informing, orienting and vocational training will be undertaken through the development

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of databases. Top priority will be given to activities seeking to increase matching of qualification of specialists under training to the needs of the economy, including development of the national qualification system and carrying surveys it requires. A lot of attention will be given to opportunities opened up by information technologies so that opportunities are provided to the population for easier acquisition of knowledge and qualification, their renewal and improvement, more successful adaptation to living and working in the rapidly changing environment of the knowledge economy.

Important direction of support in lifelong learning system is forming the Lithuanian education and science information environment (is essential to use of information technologies in education and training of the population, assistance to scientists, teachers and students in gaining necessary information, accumulation of data on science and education; employment of this data in the activity of different institutions in decision - making and representing the Lithuanian science and studies in the global computer networks). In 2001 Ministry of Education and Science confirmed the programme "Information Technologies for Science and Higher Education" (ITMiS) (2001). This programme is made up of three basic parts closely linked together - sub-programmes dealing with information of the following systems: Lithuanian Higher Education and Research Information System (LieMSIS), Development of Distance Education in Lithuania (LieDM), Lithuanian Academic Libraries Network (LABT).

The measure entitled Development of Conditions for Lifelong Learning is intended for the implementation of this objective. The implementation of this objective is also closely linked to the measure entitled Development of Labour Market, Education, Vocational Training, Research and Study and Social Services Infrastructure".

Increasing Human Resource Quality in Research and Innovations

In helping to restructure the economy and increasing the relative share of industry and businesses using high technologies, a significant role will be played by research and development (R&D). As the SWOT analysis indicated, the low level of investment in research and development (as well as attention they receive) in the private sector and the lack of cooperation between scientists and private companies is one of the key problems. The following manufacturing sector and services priority focuses on increasing such a potential in business and the promotion of cooperation. However, it is obvious that its implementation alone cannot change the situation radically, because of the need to resolve a more fundamental problem, namely, limited capacity of researchers and their diminishing social status.

The problem of diminishing social status of researchers has led to a rapid rise in the average age of scientists: In 2000 as many as 55 % of scientists were over 50 years old. At the start of the economic decline of the 90s the prestige of science went down, Moreover, the diminishing social status of scientists increased. An additional adverse factor has been the “brain drain”: i.e. the emigration of young highly qualified specialists (also adding to increases in the average age of scientists). Therefore, it is very important to improve the conditions for scientists and other researchers of higher schools, research institutions and economic entities to undertake international level R&D work to create new knowledge and improve Lithuania’s competitiveness. This will be done through upgrading qualification scientists and other researchers of research institutions, higher schools and economic entities, if required, they will be retrained. Further, taking into consideration needs of the economy, the measure will seek to increase preparation quality and number of students undertaking R&D activity (including post-graduates), as well as to encourage their international mobility, thus deepening R&D international integration of Lithuania.

Talking about fast rise in the average age of scientists is essential various forms and initiatives of gender equality in the academic labour market, through stimulating the participation of women in science and studies institutions. The aim is to support

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innovative pilot studies and surveys, designed to complement and enhance existing knowledge and to open up new perspectives for further in-depth work in this field.

Finally, the development of research quality assurance system has been provided for.

On 19 July 2002 the Government of the Republic of Lithuania approved the following priority Lithuanian science and research and development directions: research ensuring human life quality (genomics and biotechnologies for health and agriculture; technologies for clean and ecological food; climate and ecosystem changes); research is oriented at creating a knowledge society (the increased use of ICT by business and by wider society; citizens and government in the knowledge society; retention of national identity in the context of globalisation); research into nanotechnologies (development of nanoscience; nanotechnologies; multi-functional nanostructural materials). Research programs of priority Lithuanian R&D directions by 2006, based on individual programs of the EU 6 th

Framework program, are currently under development. Priority will be given to cooperation projects of a number of scientist groups, research centres or institutions. The goal of the high technologies program is to increase the international competitiveness of Lithuanian industry, primarily through the development of established areas of high technologies, such as biotechnologies, mechanical engineering, laser technologies and information technologies.

An important precondition for the successful implementation of these objectives will be targeted and coordinated investment in science and education infrastructure under priority 1.

The analysis (of sector-specific tendencies) of identified problems such as the brain drain and the diminished social status of scientists will be resolved indirectly through increasing preparation and competence of scientists meeting the needs of the economy and business, undertaking and developing program and tender-based financing of R&D projects, undertaking R&D project of international level. This would help to integrate scientists into projects carried out in Lithuania.

The following principles and measures must be implemented in order to make the research and study system and institutions more attractive and open to highly qualified specialists (both Lithuanian and foreign): to assess research and development work based on criteria tested by international practice and applied for assessment of our country; to allocate budget funds to institutions according to their activity results, assessed by criteria used in international practice, and clearly identified priorities of the country, area and , institution; to put in order information system characterising the research and study system (databases of students, scientists, research products, study programs, etc.)

It is obvious that the implementation of this priority will coordinated with the recently updated European Employment Strategy as this will contribute to achieving three of the overarching objectives of the new Employment Guidelines: full employment, quality and productivity at work, social and economic cohesion. Equal opportunities and gender equality are extremely important in making progress towards these objectives. Implementation of this priority will also be based on the specific guidelines of the new Employment Strategy, as the latter shall be regarded as a basis for priority actions. Information on how this priority, as well as all actions provided for in this document, will fit into the national employment policy is presented in a separate section of this document.

The Human resource priority is closely related to and supported by the Mesure 5 “Development of Infrastructure of Labour Market, Education, Vocational Training, Research and Study Institutions and Social Services” of the Priority 1 “Social and economic infrastructure” financed by the European Regional Development Fund. The latter measure will provide necessary facility and conditions for optimum development of infrastructure, absence of which would making achieving of the set goals– increasing of

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the labour force competence and adaptability to market changes, increasing of the vocational training quality and accessibility, improvement of social integration– impossible.Implementation of Priority 2 is also closely related with other priorities and measures of the SPD and will contribute to the successful implementation of Priorities 1, 3 and 4 by providing necessary skills and competence to the development of knowledge economy in Lithuania.

Moreover, in providing support under this priority, focus will be placed on the earlier mentioned horizontal themes of this document – development of the information society, promotion of equal opportunities, promotion of local and social partnerships and environmentally sustainable development. Gender aspect taken into account in all measures of this priority are aimed at changing stereotypes so decreasing gender-segregation in the labour market, increase of the women’s employment, business start up and development opportunities, especially elderly women.

Furthermore, in respect of implementation, a lot of attention will be given to coordination with other initiatives supported by priorities of this plan, because human resource development is understood not as being autonomous or a goal is itself, but as a process closely related to the overall economic development and its needs, since, as mentioned earlier, the essential role in creating jobs will be played by the following priority – Development of Productive Sector. The priority will be implemented through the following measures:

Measure 2.1. Development of EmployabilityMeasure 2.2. Development of Labour Force Competence and Ability to Adapt to Changes Measure 2.3. Prevention of Social Exclusion and Social IntegrationMeasure 2.4. Development of Conditions for Lifelong Learning: Measure 2.5. Improvement of Human Resources Quality in Scientific Research and Innovations

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MEASURE 2.1. DEVELOPMENT OF EMPLOYABILITY

Goal of the Measure

To improve the employability of the unemployed and their integration into the labour market in order to help reduce unemployment in general and prevent long-term unemployment in particular.


to broaden the application of active labour market policy measures and increase participation in the labour market of the unemployed and those at risk of unemployment;

to increase the institutional capacities of the labour exchange system.

Measure Description

The measure will be carried out by the Lithuanian public employment service – the Lithuanian Labour Exchange, and will supplement the national employment and labour market policy by investing additional resources and value into the achievement of the main aim: to improve the employability of the unemployed and their possibilities of finding a permanent job, thus addressing the issue of reducing unemployment.

The measure seeks to achieve two interrelated objectives: to enhance the participation of unemployed in the active labour market policy programmes and improve the scope and efficiency of this policy, as well as to increase the institutional capacity of the organization which is in charge of the implementation of this policy – the labour exchange.

The measure will be targeted at supporting registered unemployed and those having received redundancy notices – these are the groups entitled to receive labour exchange services. Among those, the priority will be given to the young, the long-term unemployed, those aged over 50, and the unemployed who are at risk of becoming long-term; the unemployed with no adequate professional qualification and lacking basic skills; those having received redundancy notices due to technological and structural changes in a company.

In order to achieve the aim and objectives of the measure it is intended to broaden the scope and quality of active labour market programmes and especially vocational education and training, to make the involvement of the participants into the programmes more targeted and increase the number of participants, to direct funding into those active labour market policy programmes that have a long-term effect and create conditions for people to find permanent employment as well as improve their qualifications and provide them with knowledge and skills that correspond to market needs. More effective analyses of labour market and qualification needs will be combined with the development of new training programmes.

In implementing the activities equal opportunities for men and women will be ensured in terms of access to and balanced representation in the active labour market policy measures.

More specifically, priority will be given to activities such as:

Vocational information, guidance and counselling, providing target groups with appropriate services in order to help motivate the unemployed, increase their knowledge and skills, self-confidence and chances to enter into and compete in the labour market.

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Vocational education and training providing the unemployed with the possibility of acquiring a profession, improving professional qualifications (including language, ICT, etc) or undergoing retraining in accordance with labour market demands including updating professional knowledge and practical skills. Training will be combined with practical on-the-job training and placement support.

Employment support that covers such active labour market policy programmes as Supported Jobs, Support To Creation of New Jobs, Local Employment Initiatives, Support to Setting up New Business, Public Works. All these actions are aimed at helping the unemployed to find temporary or permanent jobs, to acquire initial working skills and practical experience or to upgrade them. In the implementation of all these programmes the employers are encouraged by financial subsidies payable to cover expenses related to the creation of new jobs or adjustment of working places for special needs.

Unemployment prevention aims at assisting the employees, who have been given notice of dismissal because of their low qualifications or ill-preparedness for new skills requirements, to undergo retraining or to maintain their jobs by being employed in the same or in a different enterprise.

The following activities are closely related to the 2nd objective of the measure. In order to develop the quality, scope and efficiency of active programmes and increase participation of the unemployed in the these programmes there is a great need to increase the institutional capacities of the labour exchange system and improve the efficiency of its services.

Thus, the measure will invest in research into the efficiency of the activities of the labour exchange and its services in order to assess which programmes under implementation should be improved or modified and what new services for which groups of clients should be introduced. Investments will also be directed to the development of new services, methods and instruments (including broadening the use of IT), improvement of the methods of work organisation and work with unemployed people, introduction of quality assurance systems.

To ensure successful implementation of the defined goals, it is necessary to strengthen the administrative capacity of the Lithuanian Labour Exchange. Therefore the measure will invest in the training and qualification upgrading of the labour exchange staff. Capacities of the labour exchange will also be strengthened through broader application of information technologies because their shortage significantly limits the possibilities of territorial offices to offer adequate self-service tools which could considerably reduce the workload of customer service staff and would give them more time for more intensive work with priority groups of the unemployed. This measure is directly connected with Measure 5 in Priority 1 “Development of infrastructure of labour market, education and vocational training, research and study institutions and social services”. This will create the physical and material pre-conditions necessary to achieve the following objectives: to develop active labour market policies and improve the quality, scope and accessibility of services provided to the unemployed and employers.

To summarise, the measure will invest into the following groups of activities:

Development and implementation of active labour market policy measures which lead to the increase of employability and possibilities to find employment, ensure unemployment prevention (vocational information, guidance, counselling, vocational training, employment support, local employment initiatives, etc);

Development of self-search information systems and “mini” labour exchanges in companies likely to make significant job losses as a result of structural changes;

Analysis and research into the efficiency of labour exchange activity;

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Introduction and development of new services for jobseekers and employers, new methods and tools in the labour exchange;

Development of administrative capacity of the Lithuanian Labour Exchange

State aid

Any state aid granted under this measure will be compatible with the de minimis rules, the Commission Regulation (EC) No 2204/2002 on the application of Articles 87 and 88 of the EC Treaty to State aid for employment or Commission Regulation (EC) No 68/2001 on the application of the Articles 87 and 88 of the EC Treaty to training aid.


Intermediary body– Ministry of Social Security and Labour

Implementing agency- Human Resources Development Support Programmes Foundation

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MEASURE 2.2 DEVELOPMENT OF LABOUR FORCE COMPETENCIES AND THE ABILITY TO ADAPT TO CHANGES

Goal of the measure

To increase the competitiveness of businesses across the whole Lithuanian economy through investment in training and skills development to help employees adapt to labour market changes and the rapidly evolving skills needs of employers.

Objectives of the measure

to bring the training of specialists at all levels into line with the changing needs of the economy;

to raise the qualification and knowledge level of employed population; to strengthen social partnership; to introduce new forms of work organisation in companies such as flexible working

practices, part-time working etc.

Measure description

The implementation of this measure is directly linked to the measures provided for in other priorities of the SPD, particularly Priority 1 and 3 and partly in Priority 4 since this measure will help to develop labour force skills and qualifications needed to contribute to the implementation of those priorities. In contrast to Measure 1, which targets the unemployed, this measure will target the employed population.

The measure will invest to remove gaps in the skills of employed persons in such priority areas as tourism, industry and business, especially SMEs, energy, transport, IT, etc. Priority will also be given to the companies which plan to introduce new technologies or new products or carry out restructuring. Support will be provided to the initiatives of individual companies or their associations to draw up and implement personnel development plans linking them directly to the upgrading of technologies.

The implementation of this measure will include support to the training of managers and employees of the companies that plan to introduce new technologies or new products and the provision of new basic skills (IT, foreign languages, entrepreneurship, social skills, etc. as provided for in the Memorandum on Life Long Learning) to employees. Financing will also be provided for the training organised by various education institutions and aimed at specialists who meet the needs of the country’s economy and business and are able to adapt in the rapidly changing market.

In addressing the issue of insufficient practical training of employees, full support will be provided to companies (including farming enterprises) that undertake to promote practical training in enterprises covering both apprenticeship and on-the-job training and accept schoolchildren and students for traineeships. Funding will be provided for the implementation of traineeships and internships at industrial and business enterprises as well as on farms. Innovative ways will be sought to encourage employers to participate in and promote training of employees.

Retraining or upgrading of qualifications will be organised for the population living in the areas undergoing essential transformation of economic activities (eg. Ignalina NPP region) and privatisation of state enterprises. Training will be combined with the acquisition of practical skills. Development of entrepreneurship will be promoted and support will be provided for start-up entrepreneurs. Here a priority will be given to support and encouragement of women willing to start-up their own businesses.

As one of the methods of adapting to changes on the market, modernisation of work and work organisation in companies, application of flexible forms of work and remuneration, strengthening of social partnership on the industry/branch/sector level and training and

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information to social partners will receive support. The latter will be supported to ensure awareness-raising and capacity building of social partners so that they are able to take more active participation in labour relations and deal with all issues related to employment, work organisation, payment, etc.

Introduction of flexible forms of work (such as tele-working, flexible working hours) in the enterprises will be supported in particular with regard to such groups of employees as disabled people, persons having family responsibilities, employees combining work and training at the same time, etc. Application of flexible work arrangements will help to increase employment opportunities, reconcile family and working life, study and working life. In broader terms, these activities will be aimed at ensuring greater flexibility in work organisation, better adaptation of employees and managers to technological changes and more effective regulation of employment relations.

The measure will also support the development of administrative capacity in the public sector at all levels. Support will be provided to the training and upgrading of qualifications of staff working in state institutions in the areas of public administration, regional and local administration, health care, education, etc. These institutions organise continuous training courses for their staff; however, due to decreasing funding, such training is becoming fragmented and does not meet current needs.

The measure will also support activities aimed at increasing ICT literacy among the population if these activities influence the increase of competitiveness of trained persons or their groups on the labour market, improve access to information sources necessary for successful work and provide broader training opportunities. In this regard, Lithuania significantly lags behind the European Union member states. While delivering this type of training, it is important to ensure that all regions receive sustainable support to prevent the emergence of areas facing the so-called information exclusion. In the implementation of the measure equal opportunities for men and women will be ensured in terms of access to and balanced representation in the measure-supported actions.

To summarise, the measure will invest in the following groups of activities:

Implementation of training, retraining and skills development programmes aimed at employees in industry and business companies as well as in public sector; Spread of training, retraining and skills development programmes aimed at employees in industry and business companies as well as in public sector; Implementation of on-the-job training and apprenticeship in industry and business companies;. Introduction of flexible work and work organization arrangement methods; Development of population competence in the ICT field; State aid

Any state aid granted under this measure will be compatible with the Commission Regulation (EC) No 2204/2002 on the application of Articles 87 and 88 of the EC Treaty to State aid for employment or Commission Regulation (EC) No 68/2001 on the application of the Articles 87 and 88 of the EC Treaty to training aid.




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MEASURE 2.3. PREVENTION OF SOCIAL EXCLUSION AND SOCIAL INTEGRATION

Goal of the Measure

To help prevent and reduce levels of social exclusion and to help promote equal opportunities in the labour market.


to increase the integration of social risk groups in the labour market; to promote equal opportunities for men and women to create conditions for reintegrating women in the labour market.

Measure Description

The measure is aimed at increasing social inclusion through the integration of different risk groups in the labour market and into communities, thus preventing social exclusion. As is highlighted in the Joint Inclusion Memorandum, reductions in levels of social exclusion will primarily be achieved through improvements in access to vocational education and training services, vocational counselling services and life-long learning, together with increased opportunities provided by the development of the information society. To ensure that the labour market is accessible to all, consideration will be given to the specific needs of these groups of people and additional measures will be applied to assist them in the acquisition of necessary skills and integration into the labour market and society.

In implementing this measure, priority will be given to the development of the system of occupational and work rehabilitation of the disabled, including the training of specialists to work with disabled people and improve their qualifications. Support will be provided for activities such as vocational guidance, counselling and vocational education and training (including basic skills and practical training) for disabled people, the adaptation of training and higher education curricula for disabled people as well as distance learning adapted to their special needs.

These activities will be supplemented by active labour market policy measures for ensuring better integration of disabled people into the labour market. Investment will be made to support development of self-employment, subsidized employment, creation of new jobs or adaptation of existing ones for the disabled.

Another important area of support under this measure is ensuring equal opportunities for men and women. The principle of equal opportunities is a horizontal priority across the Single Programming Document. This measure will deal with the theme of gender equality and equal opportunities in much more specific terms by seeking to provide equal opportunities for women and men in the fields of employment, education, policy and decision-making; to consolidate, improve, and develop tools, mechanisms and methods, including statistics, strengthening of institutional capacities, so increasing representation of women and men in those areas where they are underrepresented, trying to achieve that services and financial resources reach both genders as equally as possible and to raising and resolving specific issues faced by women and men, such as human rights issues including the combating of violence against women and trafficking in women, etc.

Gender mainstreaming combined with specific actions to support the achievement of gender equality are a powerful tool. Concrete steps will be taken in order to change societal stereotypes as regards the role of men and women in society and in the workplace and to create the right conditions for women and men to better reconcile their work responsibilities with family obligations to promote fixing equal pay for men and women for work of equal value in the private sector, to increase the legal literacy of

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women and men, to promote balanced participation in decision making both in political and economic spheres.

In addition, investment will be made to support specific activities that should improve women’s position in the Lithuanian labour market. A separate target group will include women returning to the labour market after a long absence and older women who face difficulties in integrating into professional life. The measure will support such activities as consulting services and the organisation of special training (including basic skills) to reintegrate women into the labour market after a long absence.

Support will also be provided for the implementation of social adaptation and occupational rehabilitation programmes for groups such as prisoners, ex-prisoners, alcoholics, former drug abusers / addicts, ethnic minorities and refugees. The measure will also support a new initiative in Lithuania, i.e. the establishment of social employment enterprises (for disabled persons and other target groups) and their activities.

Training and skills development of specialists working with all target groups supported by this measure will also be implemented.

This measure is closely linked to and supplemented by Measure 5 “Development of the labour market, education, vocational education and training, scientific and higher education institutions and social services infrastructure” of Priority 1 as the latter creates the necessary infrastructure (eg. infrastructure for vocational rehabilitation of disabled, adaptation of learning and working environment for special needs) and allows for the implementation of the activities provided by the current measure.

The issues of social exclusion and inequality in the labour market will also be addressed by the ESF funded EQUAL Community Initiative Programme. The EQUAL programme is designed to address the problems of the most vulnerable population groups in the Lithuanian labour market. Lithuania has chosen three themes A,G and I – the objective of the EQUAL programme will be to facilitate access to the labour market, in particular through the development, piloting and adaptation of assistance mechanisms facilitating access and return to the labour market. EQUAL will also support actions to develop and pilot measures to help reconcile family and professional life and to provide better opportunities to have a career break and to return to the labour market. In addition, mandatory theme under EQUAL is support for asylum seekers through better education and vocational training designed to improve access to labour market opportunities – assuming asylum is granted. The EQUAL programme is different from the Objective 1 programme in that it is characterised by an innovative and experimental approach to solving social exclusion problems that places an emphasis on social partnership (EQUAL partnerships are known as Development Partnerships or DPS). Therefore EQUAL will ensure additional value in terms of helping to develop and pilot new innovative ways and methods of addressing the issues of discrimination, inequality and social exclusion, broader partnership involved, transnational co-operation and exchanges of experience.

This measure is designed to help reduce social exclusion, to carry out its prevention and to increase the integration of social risk groups into the labour market. The measure will partly be co-funded by poverty-stricken NGOs dealing with social exclusion (particularly with inclusion of disabled into labour market) as well as by municipalities. Both NGOs and municipalities have very limited financial resources to co-fund ESF activities therefore the 80 % structural funds grant rate will be used with a view to increase their role and possibilities to contribute to the implementation of this measure.

To summarise, the measure will invest in the following groups of activities:

Vocational guidance, the provision of information, careers counselling; vocational training, retraining, upgrading of qualifications; Adjustment of training curricula and study programmes adapted to those with special needs requirements;

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Adjustment of distance learning to meet special needs requirements; Development of vocational rehabilitation system of disabled; Development of activity of social employment enterprises; Training and qualification upgrading of specialists to work with social risk groups, in particular with the disabled; Development and implementation of active labour market policy measures for disabled and other social risk groups; Implementation of social adaptation and vocational rehabilitation programmes for groups as convicted persons and people who have returned from places of imprisonment, persons dependant on alcohol, drugs and other substances, ethnic minorities and refugees and others; Support to start up own business; Activities aimed at promoting equal opportunities.

State aid

Any state aid granted under this measure will be compatible with the de minimis rules, the Commission Regulation (EC) No 2204/2002 on the application of Articles 87 and 88 of the EC Treaty to State aid for employment or Commission Regulation (EC) No 68/2001 on the application of the Articles 87 and 88 of the EC Treaty to training aid.




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MEASURE 2.4. DEVELOPMENT OF CONDITIONS FOR LIFELONG LEARNING

Goal of the Measure

Developing the system of education and vocational education and training, science and higher education and creating high-quality conditions for lifelong learning.


to create possibilities for every young person to acquire education corresponding to his/her abilities;

to ensure that the system of education, vocational education and training, science and higher education meets the changing needs of the economy and business;

to develop the human capital of the system of education, vocational education and training, science and higher education;

Measure Description

This measure seeks to increase the capacity of the system of lifelong learning so that it can guarantee the successful and high quality implementation of the planned and future human resources development measures.

Lithuania has a high number of school “drop-outs”. Thus by seeking to create possibilities for every young person to acquire education, the measure will give a high priority to activities dealing with this problem. It is foreseen that mechanisms will be developed and promoted to help reduce the numbers of school “drop-outs”, i.e. encouraging young people to remain in education system until they have acquired professional qualifications, including actions targeted at increasing the cooperation between teachers, parents and local communities. Low income and poverty of families, especially in rural areas, negatively influences child motivation concerning education. Therefore seeking to improve school attendance as well as child motivation, a certain form of financial support (subsidies for textbooks, club enrolment, extra computer, language training) is foreseen. The measure will also support activities reducing the number of existing “drop-outs”, i.e. development of second chance opportunities. In addition, seeking to make education more attractive for both young people and adults, implementation of innovative training methods and forms as well as development of provision of vocational guidance and counselling would be supported.

A high priority will also be placed on activities intended to ensure a better match of the qualifications of trained specialists with the needs of the economy, including the development of a national system of qualifications. The measure will support the accreditation of educational establishments, training and higher education curricula and the development of the knowledge and competence assessment system (including official validation of non-formal learning experiences). Development of a quality assurance system is also of high priority, seeking to increase correspondence between education and the needs of the economy. Lack of materials necessary for the successful implementation of services provided in the system of lifelong learning has a negative impact on education and training quality. Thus the development and publication of these materials is to be supported. In addition, to ensure the timely adaptation of the lifelong learning system to rapidly changing economy needs, the measure will support comparative and prognostic surveys of the need for specialists and qualifications and research necessary to ensure optimum development as well as monitoring of the lifelong learning system.

Qualification of pedagogues and teachers does not meet the needs of modern vocational training and education and slows down introduction of new training methods. The majority of pedagogues lack basic skills (for example computer literacy, languages etc.)

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as well as knowledge in new technologies. There is also an insufficient number of teachers and trainers trained to work with groups having special needs (drop-outs, people with disabilities etc.) as well as with adults. Therefore the measure will primarily support activities dealing with these problems. The measure will, moreover, promote the preparation of counseling and guidance as well as accreditation specialists. Seeking to improve management of the lifelong learning system, support will be given to activities improving the managerial skills of the systems’ human capital. In addition, identification of the skills that teachers and trainers should have, given their changing roles in the knowledge society, would be supported.

This measure is linked closely to Measure 5 Priority 1 – investment in physical infrastructure in the education and vocational training sector – a necessary pre-condition to the successful implementation of this measure.

In summary, the measure will invest in the following groups of activities:

Development of a national system of qualifications; Development of the knowledge and competence assessment system; Development of a quality assurance system; Development of second chance opportunities; Implementation of innovative training methods and forms; Development and publication of training materials; Improvement of teacher training system; Development of vocational guidance and counselling system.

State aid

No state aid will be granted under this measure.


Intermediary body– Ministry of Education and Science


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MEASURE 2. 5. IMPROVEMENT OF HUMAN RESOURCES QUALITY IN SCIENTIFIC RESEARCH AND INNOVATIONS

Goal of the Measure

The overriding objective of this measure is to increase the capacity of researchers to develop scientific knowledge at an international level which is critical to domestic business and industry in Lithuania, and to train specialists meeting the needs of the economy (capable of applying new innovations).


upgrade qualifications of postgraduate and doctoral students, postdoctoral scientists and other researchers and maintain their competence;

carry out programmed development of scientific research and experimental development (R&D) in priority areas;

develop the R&D evaluation system; develop and improve competitive funding for R&D; promote dialogue between science and society.

Measure Description

The measure will support the training of postgraduate and doctoral students, postdoctoral scientists and other researchers and maintenance of their competence in R&D including fundamental science branches targeted to the needs of the knowledge-based economy. This will include improvement of qualification of scientists at scientific institutes, higher education establishments and business entities as well as other researchers, including retraining, as appropriate. Investments, funding programmes into research in the strategic areas will create possibilities for young researchers and scientists to continue scientific work after graduation and to maintain and upgrade their scientific qualifications.

Support will be provided to support the development of R&D programmes in priority areas such as: improving the quality of life (genomics and biotechnologies for health and agriculture; safe and environmentally friendly food technologies; citizens and governance in a knowledge-based society; the preservation of national identity in the context of globalisation); scientific research into the development of nanotechnologies (nanoscience; nanotechnologies; development of multifunctional nanostructural materials).

New curricula at universities (including integrated, interdisciplinary curricula) in the field of biotechnology, laser technologies, IT and other strategic sectors of research will be developed, improved and implemented.

In universities and state research institutions horizontal activities are planned. Entrepreneurship education and other horizontal gaps (e.g. EU languages, project/programme management, research management, ICT, communication skills, networking and teamworking) will be developed and implemented in postgraduate and doctoral studies.

For the successful integration into the European Area of Scientific Research (ERA) various social dialogue initiatives between research institutions and business entities, interactions between scientists, policy-makers and society at large; reduction of segregation by gender in the academic labour market will be promoted.

Activities under this measure are based on: the R&D priority areas, which are approved by Government (2002); recommendations of the World Bank report “Lithuania. Aiming for a Knowledge Economy” (2003); the first stage of a Long-term R&D strategy; actions of the Lithuanian White Paper on Science and Technology implementation programme; High–Technology programme.

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Creating systematic elements (primarily fundamental science targeted to the needs of the knowledge-based economy in universities, state research institutions) of the national innovation system, the implementation of the measure (the measure is administrated by the Ministry of Science and Education) is also inseparable from the measure 5 “Development of infrastructure of Labour market, Education, Vocational training, research and study institutions and social services” in Priority 1.

This measure complements measures under other priorities in the SPD, particularly Priority 2 (measure 2 “Development of Labour Force Competencies and the Ability to adapt to changes”, measure 4 “Development of conditions for lifelong learning”) and directly linked to measures, administered by the Ministry of Economy, in Priority 3 (measure 1 “Direct support to Business, measure 2 “Improvement of Business environment”, measure 3 “Development of Information Technologies Services”).

To summarise, the measure will invest into the following groups of activities: Postgraduate, doctoral, postdoctoral research and mobility; Improvement of qualification of scientists and other researchers; Development of R&D programmes and basic research; R&D evaluation;

Science and society actions.

State aid

Any state aid granted under this measure will be compatible with the de minimis rules, or the Commission Regulation (EC) No 68/2001 on the application of the Articles 87 and 88 of the EC Treaty to training aid.


Intermediary body– Ministry of Education and Science


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3.3. PRIORITY 3: DEVELOPMENT OF PRODUCTIVE SECTOR

Lithuanian industry and business are gradually adapting to competing in increasingly competitive EU and international markets. However, the competitiveness of Lithuanian businesses and the pace of development of industry is still insufficient. The development of business is hindered by the low level of entrepreneurship and insufficient growth in business competitiveness.

Whereas the first two priorities and their implementation form the pre-requisites for attaining the main goal of this development plan, the third priority, i.e. Development of Productive Sector, covers active measures intended to support the restructuring of the country’s economy and the strengthening of its competitiveness. As shown in the SWOT analysis, the processing industry and services sector is characterised by considerable weaknesses. The Lithuanian Industrial Competitiveness Survey carried out in 2000 and 2001 and the EU Competitiveness Survey revealed the existence of a number of problems the solution to which will require an integrated and coordinated strategic approach by different institutions and adequate levels of publicly funded investment. The current low level of competitiveness of Lithuanian industry and business is the result of low levels of entrepreneurship, an underdeveloped business infrastructure, outdated industrial structures oriented towards low-tech industry left over from Soviet times (as well as capital-intensive industry with outdated technologies). Industry is dominated by companies that use predominantly unskilled labour, and business support services are insufficiently developed to meet the evolving needs and requirements of Lithuanian businesses.

While applying the gender equality principle, a special focus will be placed on preventing the exclusion of women from the knowledge society and the promotion of women to use information technology, especially in rural areas. This dual approach to gender mainstreaming and specific measures will be applied to support SMEs set up and managed by women, to improve the business environment for women, to raise awareness of gender sensitivities and to maximise the employment opportunities open to women in rural areas provided through the tourism sector.

Given limited human and financial resources and the short programming period, this priority’s main objective is to increase industrial and business competitiveness and to develop the potential of the tourism sector and information technologies.

Priority 3 will involve investment to achieve the following objectives:

- direct support to industrial and business competitiveness;- quality development of business environment;- use of the information services potential;- more effective use of tourism potential.

Attempts to find ways to promote such changes have led to the conclusion that both direct and indirect support to business will be important. Generally, it is expected that intervention measures listed below will allow taking better advantage of (and will promote) strengths identified such as increasing business internationalisation (as well as FDI), cooperation, the formation of clusters and the development of new technologies. A qualitatively new situation that is the target of the present plan should help take better advantage of the export opportunities offered by the EU single market and the recovering Russian and CIS markets and help overcome the threat identified in the SWOT analysis, i.e. the emigration of individuals within the labour force particularly those with high skills levels. Direct Support for Industrial and Business Competitiveness

The strategic goal of the Industrial Development Strategy is to try and ensure that as many Lithuanian enterprises as possible become internationally competitive and that he

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structure of industry and related business as well as the share of gross national product is close to the EU average. It is planned to increase industrial and business competitiveness by promoting the entry of companies into foreign and international markets and encouraging change in the industrial structure by increasing the share of hi-tech industry in the overall industrial structure, bringing it closer to the EU structural model, promoting the manufacture of products with great added value and increasing competitiveness of science-intensive, hi-tech and medium-tech knowledge-based sectors using highly skilled labour force.

These measures, however, are also oriented towards horizontal industry and business needs: promotion of entrepreneurship and development of small and medium-sized business, innovations, information technologies and scientific research and experimental development. Attempts to find ways to promote such change have led to the conclusion that both direct and indirect support and coordination of the provision of both types of support would be important to achieve a synergy effect.

The first measure of this priority is aimed at providing direct support. There are several reasons to justify the introduction of this measure. The number of newly established enteprises in Lithuania is smaller than the number of those under liquidation. The processes of economic development and recovery are slow.

The low level of competitiveness among companies is also determined by:

Insufficient investment in modernising companies, renewal of technologies, implementation of innovations and development of new products; and higher profitability is impossible without investments into renewal; The cost of industrial production and services is relatively high if compared with the cost of production in the EU, since companies lack money to implement cost reduction measures, measures to increase energy efficiency and environmental measures needed to successfully operate and withstand the competitive pressure on the EU common market; Insufficiently rational use of indigenous resources and recyclable materials; Negative impact of industry on the environment. EU integration sets stricter environmental requirements and requirements for the quality of goods and services that is relatively lower than in the EU Member States, which results in a significant demand for new investments by the companies into the implementation of these requirements; Available resources are used inefficiently leading to low productivity levels; The Lithuanian production and export structure is dominated by goods and services with low or medium added value. This is why the Lithuanian manufacturing and services sector receives a low profit margin and is unable to generate sufficient profits to invest in business development and modernisation. Direct support to business would at least partially leverage the limited access to (commercial) financial resources which is primarily determined by low levels of profitability of Lithuanian companies, thus compensating for this market shortcoming and stirring up the situation which is stagnant in a certain sense when lack of access to finance does not enable investment in modernisation which in turn prevents a shift by Lithuanian manufacturing companies towards products of higher added value, which would help to increase profitability. A very important line of direct support will be promoting cooperation between industry and scientific institutions thus raising the level of scientific research, technological development and innovations and also promoting existing strengths in certain sectors (biotechnologies, lasers, etc.).

These provisions are in line with the 2000 Resolution Regarding the Programme of Innovations in Business of the Government of the Republic of Lithuania that has the aim of increasing international competitiveness of Lithuania’s business through the implementation of latest scientific achievements, technological solutions and

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organisational initiatives in business, to remove barriers that limit the development of innovations and to promote strategic partnership contacts between Lithuanian scientific and economic entities for the implementation of innovations, to increase companies’ readiness to accept, form and implement innovations. The innovations programme contains a provision stipulating that on the enterprise level priority is given to innovative activities: implementation of innovative projects at enterprises, internationalisation of business and participation in international programmes, changing the approach towards innovations and provision of intellectual and qualification expertise to business.

The more appropriate use of the results of publicly funded R&D in particular and its transfer from Higher Education and Research Institutes into industry and business is one of the main conditions for achieving the development of a knowledge-based economy characterised by hi-tech industry and business. It is obvious that such a transformation will require human resources with adequate skills (from the manager to the lowest level), which once again emphasises the close link between the development of human resources and development of productive sector. The project of the Ministry of Economy on the Sustainable Industrial Development foresees the creation of conditions promoting sustainable industrial development and the enhancement of technical potential, support to industrial enterprises in implementing sustainable industrial development measures as well as promoting advanced scientific research and innovations.

Thus, the main aim of the support for the development of scientific research and technologies is to create conditions for the national economy to produce competitive products, develop hi-tech in the manufacturing sector by providing high-level research and development services necessary to it. With this purpose in mind, there is willingness to create an intellectual environment that would be attractive to foreign companies to invest in knowledge-intensive branches of the economy in Lithuania. No doubt, this will require the mobilisation of a sufficient contingent of professional researchers (including those with scientific degrees) who are able to meet the needs of economic entities and create new jobs and establish new economic entities. In this case the close link with the human resources development priority is important where investments should generate this sufficient contingent of researchers.

Moreover, taking into account the growing focus on sustainable development and the policy emphasis placed on minimising environmental impacts, there are plans to apply measures of the sustainable industrial development programme that promote cleaner production and efficiency and the introduction of environmental management systems, more rational use of resources and reduction of the impact of production on the environment.

Quality Development of Business Environment

Direct support would be supplemented by indirect support to business environment (public services for business and investments into the physical business support infrastructure) that would target the existence of the relative lack of business services and information. This also includes entrepreneurship promotion measures, as the lack of entrepreneurship (especially among women) is an important reason behind the relative decrease of SMEs.

The second measure of this priority is aimed providing indirect support, i.e. improving business environment by enhancing the business services infrastructure, providing subsidised loans to business and strengthening the associated business structures. The system of business support to start-up entrepreneurs, newly established or growing enterprises is underdeveloped and does not cover the whole territory of Lithuania, the range of services offered is limited and their quality does not meet the needs of modern business. In the areas with an established business services infrastructure business is developing more successfully, the number of start-up enterprises is growing, their lifecycle is increasing and the unemployment rate among the population does not exceed the national average.

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Lithuania’s enterprises face a shortage of accessible specialised high-quality services. This measure would help various business competence centres to develop and provide specialised high level services for business in the areas of business internationalisation, quality management, certification, innovations, transfer of technologies, IT, marketing etc., and would help to establish and strengthen contacts between science and business.

It is especially important to create conditions for investors to transfer their production fast and at a low cost by using the relative advantages of the whole country and its separate regions for strengthening their competitiveness on international markets. The attractiveness of the country for investors can be enhanced by industrial zones with good infrastructure and communications allowing easy access to markets. Currently industrial zones and the available unoccupied premises are used irrationally and are often contaminated. If not used, they deteriorate and there are less possibilities of using them for production without considerable capital investments.

One of the key elements of a favourable business environment is a strong business support structure providing relevant and specialist information, advisory and consultancy services that are necessary to help small businesses develop and grow. Lithuania’s business associations and organisations provide their members with considerably fewer and lower quality services than those typically associated with business support structures in current EU-15 Member States.

Efforts to raise the level of entrepreneurship in Lithuania – particularly in more peripheral regions includes the creation of a favourable business environment (development of a support network for SMEs, the provision of support to projects of associated business structures), the enhancement of subsidised non-financial (information, consulting and training) and financial (guarantees for credits, soft and micro loans, risk investments) services for business.

In addition to the aforementioned strategies, one of the national documents which justifies indirect support measures for business is the 1999 Resolution of the Government of the Republic of Lithuania regarding the National Quality Programme. This document foresees the following lines of work to be undertaken in order speed up integration into the economic area of the European Union: ensure sustainable state support to quality; enhance standardisation activities by transposing relevant European and international standards into Lithuanian standards; improve metrological activities by developing and maintaining a national database of measurement standards; implement calibration of measurement devices; enhance the conformity assessment (testing, certification, accreditation, control) system seeking its international recognition; enhance training of quality specialists of all levels; consumer training, promote total quality management and the latest quality achievement and assurance methods; develop and implement a quality promotion system based on the provisions of the EU quality promotion programme.

Use of Information Services Potential

Seeking to achieve competitiveness levels comparable to EU Member States, Lithuania has chosen to focus strategically on developing a knowledge-based economy dominated by new technologies. The Lithuanian information technology and telecommunications market is characterised by rapid growth and is increasingly important to Lithuania’s economy, however, in the case of failure to ensure appropriate state administration and implementation of work in this sector, the country’s current large lag in terms of the main information society development indicators will increase further.

In order to enable Lithuanian businesses and the wider population to make better use of the information technology services potential, support will be provided to the acquisition of knowledge, skills and qualifications that would allow Lithuanian inhabitants to adjust to rapidly changing living and working conditions in a more flexible way and to compete on

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world markets more successfully by using the advantages offered by communications and information technologies. This would create conditions for the development of business and economy based on knowledge, information, communications and information technologies and also to even out the disparities of the information infrastructure in urban and rural areas and to provide equal opportunities to all population of the country to use information technologies to satisfy their social and public needs.

The aim will also be to modernise public administration by using computerised information sources to develop e-government and e-democracy and to give people real opportunities to freely obtain information from all public authorities and create favourable conditions to develop Lithuania’s information society, submit proposals, criticize and participate in decision making.

Lithuanian culture, cultural heritage, the Lithuanian language will be fostered and attempts will be made to preserve them in the world information society environment.

As stated in the SPD strategy, the promotion of information society is a complex task that will be assisted by all the priorities of the SPD (relevant human resources development programmes in particular). On the other hand, this area of investments plans to eliminate market distortions that limit access to the Internet in rural parts of the country (this will be sought by establishing public internet access points and supporting the development of the broadband data transmission networks in rural areas) and also to motivate people to become interested in and to use information technologies as well as to increase efficiency of public administration activities. The rationale behind this is the shortcoming identified in the SWOT analysis that the IT potential has not yet been discovered and is not well known in Lithuania. Thus, in this area that supplements other SPD priorities, investments will be made into the removal of shortcomings and restrictive factors such as the underdeveloped IT infrastructure (especially in rural areas) and the low level of IT use.

People will be encouraged to use IT through investments into the computerisation of public services provision giving an interesting and useful content to information systems that would promote their use. Investments are also planned into one more means of improving access to IT: the development of Lithuanian information environment and Lithuanian computer and Internet products for educational, cognitive and consumption purposes, as well as other measures.

More Effective Use of Tourism Potential

Finally, taking into account the need to combat unemployment emphasised in the SPD, this priority foresees investment in the development of tourism, as a labour-intensive sector. As shown in the SWOT analysis, the tourism sector in general has considerable potential for growth. The country is rich in numerous natural resources, especially rivers and lakes, forests and a unique coast (the Curonian spit) and a few world-class natural reservations and national parks. The capital Vilnius is a suitable location for tourists and services for business and its position in the less developed part of the country could become a driver for the growth of the surrounding regions. The use of such tourism potential presupposes corresponding investment needs.

To be able to capitalise on the growth potential of the tourism sector, thus taking advantage of the opportunities opened up by increasing tourist flows, it is very important to improve the quality of tourism services, enhance tourism information and marketing services and use targeted vocational training for tourism purposes. Other priorities are also focused on these objectives (for example, the priority on social and economic infrastructure foresees the preservation of cultural properties and their adaptation for tourism and the human resources priority emphasised the need to improve qualifications of those working in the area of tourism), and there are plans to supplement investments into tourism related to this priority with the support to the

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development of the public tourism infrastructure and marketing of tourism products. In this case the major focus will be the formation of the image of Lithuanian tourism mentioned in the SWOT analysis.

The Lithuanian industry and business are gradually adapting to the conditions of international economic activities, however, industrial competitiveness and development remain insufficient. Business development is slowed down by the low level of entrepreneurship and insufficiently rapid growth of companies’ competitiveness. In essence, this priority aims to promote changes in the structure of the Lithuanian manufacturing and services sector and the transition from business generating low and medium added value to business that generates great added value. It is namely low productivity and inappropriate and non-viable structure of economy that the SWOT analysis identifies as one of the main weaknesses of the Lithuanian economy. Therefore, these measures are first of all intended for the sectors of production, processing industry, services for business, information technologies and tourism.

All the objectives of this priority correspond to European enterprise, industry, innovation and tourism policies and strategies, mainly reflected in:

Lisbon Strategy

European Charter for Small Enterprises

Multiannual programme for Enterprise and Entrepreneurship, 2001-2005

“Towards Enterprise Europe”, Work Programme for enterprise policy 2000-2005

Green Paper, “Entrepreneurship in Europe”

“Thinking Small in an Enlarging Europe”

“Innovation policy: updating the Union’s approach in the context of the Lisbon Strategy”

Charter of Cultural Tourism

Helsinki Declaration regarding political importance of cultural heritage in Europe

Commission Communication “Working together for the future of European tourism”

Commission Communication “Basic orientation for the sustainability of European Tourism”

The objectives relating to this priority will be implemented through the measures below.

Measure 3.1. Direct Support to BusinessMeasure 3. 2. Improvement of Business Environment Measure 3.3. Development of Information ServicesMeasure 3.4. Public tourism infrastructure and services

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MEASURE 3.1. DIRECT SUPPORT TO BUSINESS

Goal of the Measure

To increase competitiveness of companies and the level of entrepreneurship, to balance equal opportunities in business; to increase the potential of scientific research in business.


to promote entrepreneurship and creation of enterprises;

to strengthen the viability and competitiveness of operating companies on both domestic and foreign markets;

to increase the productivity level of the industry, to adjust the structure of production and export of goods and services to the EU structure.

Measure Description

This measure is targeted at some group of activities, which are extremely relevant for Lithuania and allow achieve the concrete results and effects, both in short term and long term period. A demand driven measure providing direct support to companies will be given for activities described below:

the creation and development of new products and services in companies, the implementation of new technologies and innovations will have a highly desired effect of competitiveness enhancement on companies. These processes will be strengthened by the development of modern information technologies and electronic business, modernisation of facilities, improvement of production and services’ provision processes, creation and implementation of IT methods, information systems and databases in companies;

research and development activities (industrial research and pre-competitive development) for the industry and business (activities carried on by companies and contracting works), formation of links between the industry and business entities and scientific research institutions. Preferences will be given for the projects involving more than one company.

the implementation and development of quality management systems and new quality improvement methods in companies will also contribute to enhancement of their competitiveness;

promotion of corporate internationalisation and enhancement of accessibility to world markets, financing of activities intended for the formation and improvement of the image of the industry and business as well as goods and services, development of the industry and business co-operation networks and clusters, implementation of cost-effective measures in companies, implementation of standards and certification of products and services;

the construction and equipment of new or development/upgrading of existing accommodation, conference and leisure facilities as well as the adaptation of existing buildings and private heritage entities for tourism needs. Combination of this group of activities (supported by current measure) with activities for public tourism infrastructure development and services (supported by measure 4 in the same priority) gives the synergetic effect in tourism sector development.

environmental measures in companies. An implementation of environment management systems and various environmental measures in companies, development of eco-labelling, development and installation of environment-friendly production technologies will reduce negative impact on environment.

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This measure is directly linked with the Measure 2 of priority 2 of SPD “Development of labour force competencies and the ability to adapt to changes” concerning improving skills of employees and also linked with Measure 5 priority 2 of SPD “Improvement of human resources quality in scientific research and innovations” as the latter measure seeks to train specialists meeting the needs of the economy (capable of applying innovations).

State aid

State aid rules will be applied in the implementing of this measure:

state aid for all activities, except research and development, will be granted according to de minimis rules, SMEs block exemption regulation, and state aid scheme for regional aid.

state aid for research and development activities will be given according to state aid scheme for research and development.

Institutions responsible for the implementation of the Measure

Intermediary Body– Ministry of Economy

Implementing Agency- Public Institution Lithuanian Business Support Agency

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MEASURE 3.2. IMPROVEMENT OF BUSINESS ENVIRONMENT

Goal of the Measure

To improve the business environment by developing the structure of services to business and improving their quality, ensuring availability and accessibility of services and developing physical infrastructure for business.


Develop infrastructure and service provision to industry and business and improve their quality;

Increase accessibility of SMEs across Lithuania to business services;

Ensure that business services encourage enterprises to switch to high value-added production.

Measure Description

A supply side measure providing support to public institutions, non-profit organisation or institutions for delivering public services to business (“soft activities”) as well as for creation and development of physical infrastructure for business. Special attention will be drawn for networking, strengthening of interconnection between existing networks and ensuring complementarity with one another - SMEs support network (Lithuanian small and medium-sized enterprise development agency (SMEDA), business information/ advisory centres (about existing 30 units across Lithuania), business incubators (6 across Lithuania), innovation support network (Lithuanian Innovation centre (LIC) with co-ordination office and 5 regional units across Lithuania), complementary of 5 science and technological parks and business associations (the Lithuanian industrialists confederation, which includes several sectorial business associations), the Lithuanian employers confederation, the Chamber of Commerce, Industry and Crafts, etc.) to both aforementioned networks (SMEs support and innovation support) as well as other public institutions, participating in delivering of services to business.Supported activities are grouped according to the existing services delivering structures (formal and informal) in Lithuania.Groups of activities, supported by this measure, are as follows:

SMEs support system

The great attention is paid to the development of SME support system, which includes public services to business and development of related physical infrastructure. The services to business – advisory services, studies, researches, competitiveness observation, rating, development of information systems and databases, awareness and promotion campaigns, as well as entrepreneurship campaigns and programmes and similar will be delivered via Lithuanian small and medium size enterprise development agency (SMEDA), business information / advisory centres, business incubators, business support centres and other business support institutions and agencies. Investment into related physical infrastructure will focus on improvement of facilities of existing business information/ advisory centres, business incubators, business support centres and other business support institutions and agencies with limited investment into new facilities.

Innovation support system

Development of innovation support systems, including the development of innovation centres with co-ordination by Lithuanian Innovation Centre (LIC), development of technology transfer and technology dissemination systems and provision of related services, including information, promotion of any type of innovation (in technologies, processes, marketing, management, etc.), consulting services for innovative start-ups

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and their development issues, promotion and awareness of opportunities to finance innovation. Strengthening and development of existing Lithuanian Innovation support network will include an improvement and development of assortment and quality of delivering innovation services to business as well as investment into physical infrastructure related to aforementioned services, but supporting of services will prevail.

Science and technological parks, technological centres

Ths includes the development of science and technology parks (for example, 4 existing STPs in Vilnius, Kaunas and Klaipėda, which have status of companies limited by guaranty, in most cases owned by Ministry of Economy or local municipality and don’t belong to any other business services delivering structure), including promotion and facilitation of scientific research oriented towards business and strengthening of co-operation between business and science. Establishment and further development of technological demonstration centres (for example, planned establishment of the Competitiveness centre in Vilnius with technology demonstration facilities, which also will have a status of company limited by guaranty) or similar will also contribute to strengthening co-operation between business and science.

Industrial zones, “green fields”

The attractiveness of the country for investors can be enhanced by industrial zones with good infrastructure and communications allowing easy access to markets. Currently industrial zones and the available unoccupied premises are used irrationally and are often contaminated. Investment into industrial zones, owned by municipalities or public institutions, usually companies limited by guaranty will include development of infrastructure, communications and roads inside the zone. Zones will be set up and developed near the existing roads. Concerning green fields, the access to facilities in remote areas will be supported.

Associated business structure, including clustering activities

One of the elements of a favourable business environment is strong associated business structures and services provided by them. Lithuania’s business associations and organisations provide to their members considerably fewer and lower quality services than associated business structures in the EU Member States. This group of activities plans to support business associations and business co-operation structures, which contribute to business development (including development of information systems and databases, fostering of co-operation between the private and public sector, various studies and research, awareness campaigns, competitiveness monitoring, rating, organisation of industrial and business exhibitions and missions, etc.), also entrepreneurship-fostering campaigns and programmes. Such services will be complementary to SME, innovation support systems because will be aimed more at specific needs of different sectors. The main role here will be played by Lithuanian branch business associations as they know the needs of certain industry enterprises best and have a possibility to provide services to particular industrial sector in a centralized way. Support to branch business associations will ensure that enterprises will receive the services corresponding to the needs of certain industry.

Projects initiated by public institutions, especially by associated business structures, will contribute to faster development of clusters and networking of SMEs (supply chains, etc.). Depending on the prevailing component of the project (infrastructure or services), possible applicants are municipalities or associated business structures as well as science research institutions, other public institutions. Priority will be given to services provided in formation of links between components of the cluster (enterprises and institutions). There is a potential for clusters (incl. cross-sectorial) to be formed in wood, electronic, textile, biotechnology, laser, modern artificial materials industries and IT sector.

Promotion of environmental measures for business

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Seeking to implement the norms of the European Union, it is important to create conditions for the development of environment management systems; promotion in development of production capacities for processing of secondary raw materials, development of cost reduction, eco-labelling and environment-friendly production technologies, drafting and implementation of respective programmes, which could be prepared and delivered by, for example, Institute of Environmental Engineering, Integrated Coastal Zone Management Information Centre, Klaipėda University and other institutes or public institutions.

Improvement of the image of Lithuanian products and servicesThe creation and improvement of the image of products and services developed by the country and within the country, attracting of foreign investments targeted at internationalisation enhancement are the fields which have received insufficient attention until now, but these activities are included in the economy development strategies and could be carried out by, for example, Lithuanian Development Agency, various regional agencies or other public institutions.This measure is directly linked with Measure 5 priority 2 of SPD “Improvement of human resources quality in scientific research and innovations” as the latter measure seeks to increase the capacity of researchers to develop scientific knowledge of an international level necessary for business and industry that will be extremely important in development of science and technology parks.

State aid





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MEASURE 3.3 DEVELOPMENT OF INFORMATION TECHNOLOGIES SERVICES AND INFRASTRUCTURE

Goal of the Measure

To create the necessary conditions for the development of an ‘information society’ which encourages economic development and growth and the transition to a knowledge-based society, the members of which have an opportunity and are able to use effectively modern ITT means in all spheres of life. The information society will help foster a culture of lifelong learning.


to modernise the public administration sector by increasing the efficiency and openness of activities of public authorities, by developing electronic public services and expanding public information sources available on-line.

to ensure possibilities for the country’s residents to gain ITT knowledge and skills, to obtain information, to study and improve the competence by using new technologies and by this to secure the creation of sustainable jobs.

to adapt software to the needs of the domestic users and ensure possibilities for them to receive extensive, reliable and urgent information in the Lithuanian language.

to ensure access for all residents of the country, irrespectively of their social or geographical condition, to information technologies and information resources accessible through such technologies.

Measure Description

The measure will concentrate on the following activity groups:

e-Infrastructure – in compliance with EC competition rules and in accordance with guidelines for financing electronic communications, support shall be given to the larger scale infrastructure projects, e.g. development of broadband data transmission networks in remote rural areas, establishment of rural IT access points, securing Government intranet.

Within this group it is foreseen to support the following activities:

- Development of data transmission networks (including broadband in remote rural areas)

- Establishment of public Internet access points in remote rural ares

e-Applications – in accordance with priorities in e-Europe 2005, compliance with EC competition rules and intellectual property rights, support shall be given, on one hand, to projects of that following type e.g. e-Procurement, e-City, etc. that shall secure sufficient number of public e-services circulating around government, businesses and citizens and, on another hand, implementation of various “content creation” projects, e.g. directly – by supporting digitisation of existing Lithuanian content (virtual library, digitisation of maps, etc.) or indirectly – creating tools enabling access to information in foreign language (web—based translation robots, etc.) shall result in significant increase of content in Lithuanian language.

Within this group it is foreseen to support the following activities:

- Development of official information source system- Development of electronic public services- Development of information technologies

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- Creation of the Lithuanian information environment (creation of the Lithuanian Internet contents, etc.)

- Implementation of safe Internet contents means

Measure will as well support:

Preparation of project documentation (technical specification, feasibility and eligibility studies and analyses, preparation of tender documentation, etc.)

Work related to information of individuals and business entities about the development of the information society (this activity supplements all the above-listed ones in terms of provision of information to the public)

Structural funds grant rate to the projects supported under this measure will be in conformity with Art. 29 of EC Regulation 1260/99.

In order to ensure possibilities for the country’s residents and businesses to gain ITT knowledge and skills and improve the competence in using new technologies, projects shall be actively submitted to to the measures within the Priority II of the Single Programming Document (this priority supports ICT literacy and skills development training, broadening the use of IT, etc.).

Institutions responsible for implementation of the measure

Intermediary Body– Information Society Development Committee under the Government

Implementing Agency- Central Project Management Agency

State Aid

No state aid will be granted under this measure.

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MEASURE 3.4. PUBLIC TOURISM INFRASTRUCTURE AND SERVICES

Goal of the Measure

To promote incoming and domestic tourism by creating more favourable conditions for active recreation.


to create the public tourism infrastructure and services, which would attract private investment and ensure sustainable job creation:

to form new tourism attraction centres by using nature, cultural and heritage objects

to develop tourism information systems

to improve the image of Lithuania as tourism country

Measure Description

Creation of suitable public tourism infrastructure enables the development of active leisure, historical, cultural tourism, sightseeing areas. Development of public tourism infrastructure stimulates rapid development of private tourism service sector (accommodation, supply, transport services, leisure, small-scale attraction infrastructure and services, etc.), creates sustainable working places, creates conditions for alternative activities (rural tourism, traditional handicrafts, horse breeding, recreational hunting and fishery), reduces seasonal prevalence of tourism activities and ensures sustainable job creation. Furthermore, development of public tourism infrastructure has a direct positive effect to the establishment and development of SMEs.

In this measure the support will be given to state, municipal and public institutions developing public tourism infrastructure whereas private tourism services providers will be supported by 1 measure of this priority.

With the view to use the country’s tourism potential more effectively and to develop competitive tourism products that would be on demand and allow for the increase in incoming and domestic tourism flows, the priorities of tourism development are as follows:

- Create public tourism products and services in order to reduce seasonality and attract private investment;

- Create new tourism attraction centres near the existing ones in order to improve the balanced development of the regions across Lithuania (preferences will be given to existing tourism attraction centres);

- Promote incoming tourism;

- Develop tourism information services

The Measure provides for support to:

- Use of nature resources for tourism needs and development of resort and health tourism, i.e. spa resorts, sea side resorts etc.;

- Modernisation and building of active tourism infrastructure (bicycles roads, walking paths, skiing routes, water tourism, sportive tourism infrastructure,

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targeted at reducing of seasonality; public small scale infrastructure, multifunctional sport objects with national wide relevance, etc., which directly contribute to sustainable job creation );

- Rebuilding, restoration and adaptation of the public heritage assets and unused buildings for tourism purposes, ensuring sustainable job creation;

- Development of tourism information services (i.e. map boards, internet based information system, public internet access point for tourism needs, tourism signing, etc. and related activities;

- Tourism promotion services and marketing activities.

Structural funds grant rate to the projects supported under this measure will be in conformity with Art. 29 of EC Regulation 1260/99. This measure is directly linked with the Measure 2 of priority 2 of SPD “Development of labour force competencies and the ability to adapt to changes” as the latter measure will help to develop labour force skills and qualifications needed in tourism area.

State aid


Institutions involved into implementation of the Measure



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3.4. PRIORITY 4: RURAL AND FISHERIES DEVELOPMENT

Although the share of GDP accounted for by the agricultural and fisheries sector is relatively small, agriculture nevertheless accounts for a large proportion of employment amongst those residing in rural areas. The high quality of arable land and the natural environment, the rich fish resources in the Baltic Sea combined with long agricultural traditions should (with the necessary investment to support sectoral rationalisation and modernisation) enable productivity levels in the agriculture and fisheries sectors, which are still relatively low, to be increased. Investing in the development of sectors that will provide new income sources from non-traditional agricultural activities such as ecological agriculture and other alternative businesses such as rural tourism and crafts should help the Lithuanian agricultural and fisheries sector to modernise.

Despite its evident strengths, the economic potential of the agricultural and fisheries sectors is severely limited by structural limitations – small average farm size is linked to the high number of small farms. Similar problems in terms of sectoral fragmentation can be observed in the forestry sector: the majority of Lithuanian forests are state owned (71 percent), whereas the structure of the private forestry sector (29 percent) (i.e. a lot of small farms) is not favourable to the intense development of the forestry development.

Turning to the issue of fisheries, the outdated fishing fleet is not adjusted to available fishing resources, and the necessary facilities are currently lacking to improve fish quality and to minimise environmental pollution. The sector is undergoing a process of modernisation but this is taking place very slowly in large part due to the inefficiency of fishing vessels and the under-developed fish wholesale sector, which impedes structural reform in the fisheries sector.

New development paradigm integrates environmental sustainability with gender equality and justice. Women play an important role in the development and of sustainable and ecologically sound consumption and production patterns. Women’s contribution to management and the use of natural resources, potential in agricultural activities, especially non traditional agricultural activities, including ecological agriculture is recognized and will be taken into account in the implementation of all measures under Priority 4 so as to help economically empower rural women, ensuring their access to productive resources and capital.

Taking into consideration all the factors outlined above, the overriding goal of this priority was formulated – on the basis of natural resources and existing residents’ traditions, the creation of a modern agriculture, forestry and fisheries sector with investment in alternative activities to traditional farming and in economic diversification to help mitigate the negative social and economic consequences in rural and coastal areas caused by modernisation.

Seeking to achieve this goal, the following objectives have been set:

- creation of competitive EU market-oriented agriculture, encouraging of food safety and development of marketing allowing to use the existing possibilities more effectively and to ensure employment in rural areas;

- creation of possibilities to diversify economic activities in rural areas; for agricultural producers – engagement in additional economic activities by fostering the biological diversity, landscape and environment;

- creation of the resource-based and market-oriented modern and competitive fisheries sector complying with the EU requirements by lightening social consequences of the restructuring.

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Creation of the competitive agriculture, encouraging of food safety and developments of marketing

Pre-conditions for the development of agriculture and alternative businesses are created by the relatively extensive natural resources and biological diversity, relatively low soil, water and air pollution, existing production potential (irrigation constructions, roads, building), rural residents’ experience and traditions in the field of agriculture and the developed and equally distributed science, education and consulting network as well as by the strengthening self-governance of rural residents. On the other hand, as it was mentioned above, the agricultural and rural development is currently being hampered by several factors: the not sufficiently functioning land market, small farms (fragmented production), under-developed infrastructure (in particular social), unfavourable demographic situation, insufficient residents’ education, lack of alternative activities and low purchasing power of residents.

Thus, investment in this area will be targeted at improving farm structure and ensuring the development of economically strong and competitive agricultural units. It will also be sought that the production efficiency at farms would be increased, modern equipment and technologies would be purchased, production quality and safety would be ensured and hygienic and environment standard would be complied with. In addition to that, it will be sought to diversify agricultural activities. The expectations are that the quality of agricultural products will improve and income of residents employed in the agricultural sector will increase as a result of these initiatives. The adaptation of new technologies and development of human resources will create conditions for the enhancement competitiveness in the farm sector, resident income growth and improvement of life quality in rural areas. When improving the farm structure, the growth in the number of young farmers will be promoted in order to enhance competitiveness in the farm sector as young farmers tend to adapt better to modern technological changes and new competitive environment. Also, it will be aimed at stabilising the demographic situation in the countryside, as young people will be encouraged to remain in rural areas.

The greatest attention will be paid to farm restructuring. Mainly, the following three inter-related Measures will be aimed at achieving this objective: “Investment in Agricultural Holdings”, “Setting up of Young Farmers” and “Reparcelling” activity in the Measure “Promoting the Adaptation and Development of Rural Areas”. The rest of the measures are intended for the improvement of both: farm restructuring and the quality of life in rural areas.

The Measure “Investment in Agricultural Holdings” will create conditions for the implementation of one of the objectives of this priority: to create a market-oriented competitive primary agriculture ensuring food safety and marketing development which allows to use existing multi-functional sector possibilities more effectively and to ensure employment in rural areas.

The agricultural reform, which has been carried out for the past decade, based on the restoration of private ownership rights and transition to market economy conditions caused the formation of relatively small agricultural holdings. In 2001, the average farm size in Lithuania amounted to 4.5 ha. In comparison with the EU, the average Lithuanian farm is small and of low competitiveness. The Measure support will create conditions for the strengthening and growth of farms as well as more favourable conditions – for enhancement of their competitiveness.

Recently, the age structure of farmers unfavourable to development has prevailed in Lithuania. The bulk of registered farmers are 55-60 years of age. The number of young registered farmers (under 40) (in 2002 – 4,120) accounts for 14% of the total registered farmers. Although the majority of young farmers who have been registered over the past few years have completed agricultural education programmes or minimum farming

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courses, they lack initial support for the development of the farm. It has been noticed, that there is a great deal of young people who own land or could acquire it for the establishment of a farm, but they do not resolve to establish it as they do not have start-up capital. Another problem named by young farmers is that credit institutions also do not have a very favourable attitude to young farmers and do not give them credits for the development of their farms.The implementation of the Measure “Setting-up of Young Farmers” is aimed at the increase of the number of young farmers. Simultaneously, it is sought to improve competitiveness in the farm sector as young farmers are able to adapt to the changes in modern technologies and new competitive environment more effectively. Also, this Measure will help to stabilise the demographic situation in the countryside, as young people will be encouraged to remain in rural areas.

The Lithuanian industry is capable of finding a niche in the EU single market, but extents are not satisfactory yet. In the future, a lot will depend on the number of processing companies complying with all the EU veterinary and sanitary requirements, the number of which must be further increased. Along with the functioning of strong and economically viable farms, companies processing agricultural produce will be provided with quality raw materials meeting the consumers’ needs. Currently, the most urgent problem is meat processing companies, slaughter-houses and fish processing companies which have been granted a transitional period until 2007. Investments are also necessary to modernise companies processing grain, milk, fruits and vegetables, however, the problems faced by these companies are relatively smaller than those in the meat sector.Support provided by the Measure “Improving Processing and Marketing of Agricultural Products” is aimed at further modernising companies processing meat, grain, fruit and vegetables, milk and other products, reducing production costs, implementing quality and environment management systems, improving hygienic conditions and product quality as well as product marketing. This will allow improving competitiveness of the industry.

Creation of possibilities to diversify economic activities in rural areas by fostering biological diversity, landscape and environment

With the view to achieve the goals of the balanced development of rural areas in Lithuania, particular attention will be paid to the improvement of the infrastructure and promotion of alternative activities. The following measures have been foreseen to achieve this objective: “Forestry” and “Promoting the Adaptation and Development of Rural Areas”. The latter comprises a wide range of activities such as agricultural water resources management, land reparcelling, farm advisory and extension services, diversification of agricultural activities and activities close to agriculture to provide multiple activities or alternative incomes, encouragement for tourist and craft activities.

Restructuring of the multifunctional agriculture is closely linked with all the groups of rural residents. Therefore, this Measure comprises support intended for the adaptation and development of rural areas by creating appropriate conditions for rural residents to engage in farming or other activities ensuring income and appropriate standard of life and creating additional jobs in the rural area.

Agricultural reform and land restitution in the immediate post-independence period led to the forming of a large number of small and fragmented land plots. Therefore, particular attention will be placed on supporting land consolidation projects in order to bring about an increase in average farm size/ landplot size enlarge them and to form rational land use in farms and to improve their structure.

A major focus will also be put on improving rural engineering infrastructure, which is a must for successful farming, engagement in other activities or ensurement of proper living. This includes the renovation of agricultural drainage systems, renovation of

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artificial water bodies’ hydraulic structures, construction of flood control works, renovation of polders.

A great number of farms do not keep books and accounts and farmers find it complicated to obtain the most recent information, but they will have to comply with stricter land management obligations as part of new cross-compliance requirements, which will be applied to the standards established in the fields of environment protection, food safety, animal welfare and health and work safety. Taking into consideration the aforesaid circumstances, it is necessary to activate the provision of advisory services.

The development of activity related to rural tourism and crafts, as well as that of other alternative businesses, comprises support intended for the development of services in rural areas, creation of conditions suitable for the diversification of activities and provision of possibilities to rural residents to earn additional income and improvement of life and work conditions in the countryside. Support for the preservation of ethnic cultural values will not only help to retain the uniqueness of the Lithuanian rural regions, but it will also promote tourism in the country’s ethnographic regions and contribute to the development of the economy of rural areas and creation of attractive image of the country’s regions.

The Measure “Forestry” is targeted at the economic, ecological and social value of forests in the development of rural areas by focusing the main attention on the capital investments in the private forest holdings. This Measure is scheduled to create conditions for the development of private forests by providing them with investment support for the improvement of the forest infrastructure. The intentions are to create new jobs by promoting investments, and thus, to reduce unemployment in rural areas. Benefit derived from other forest products (animals, mushrooms, berries, herbs) also gives an opportunity to rural residents to obtain additional income.

Significant attention will be paid to the principles of balanced forest sector management and improvement of the landscape and environment. Support for forest fire prevention will be provided under the Forest Fire Prevention Plan drafted by Lithuania, which classifies forest areas according to the risk of a fire. In compliance with the provisions of Chapter VIII of the EC Regulations No. 1257/1999, support will be provided for prevention measures to be taken in forests with medium fire risk. In Lithuania there are 2,05 million ha (which correspond to 100 %) of the actual forest surface, which would be classified as area with risk of fire.

Implementation of the provisions of the General Plan of the Territory of the Republic of Lithuania approved by the Resolution No. IX-1154 of the Seimas (Parliament) of the Republic of Lithuania and those of the Lithuanian forestry policy and its implementation strategy approved by the order No. 484 of 17 September 2002 of the Minister of Environment regarding the expand the country’s woodlands, support will be also provided for afforestation of non-agricultural land. This Measure does not comprise afforestation of agricultural land (financed under the Rural Development Plan from the “Guarantee” Section of the European Agricultural Guidance and Guarantee Fund).

The following two Measures have been foreseen to foster human resources and to strengthen self-confidence of rural residents, namely, “Leader+ type measure” and “Training”.

Lithuania intends to apply the model combining the two alternatives of the implementation of LEADER+ initiative proposed by the EC to candidate countries. The essence of this model is that the actions of preparation for the implementation of this initiative will be taken. These actions will comprise the institutional and methodological preparation, area studies and development of integrated rural development strategies and creation of local action groups as well as the actions of the second alternative by

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implementing strategies formulated on the territorial basis in pilot areas. This choice is based on the fact that the actions of Lithuanian institutions and self-government organisations, which have been carried out together with international support projects until the present, allow to believe that certain preparation work has already been done in the country, in particular pilot areas in which partnership groups (prototypes of local action groups) are being formed and they are ready to help to resolve issues of territorial rural development.

Human resource development in the countryside is one of the most important factors in implementation of the main tasks of rural development. Therefore, the “Training” Measure has been developed; this Measure comprises development of rural residents’ abilities to adapt to the technology and market changes, which is necessary for active participation in all Measures intended for rural development. Training of farmers and other persons related to agricultural, forestry or alternative activities is necessary in order to acquaint persons employed in the agricultural sector with the most recent quality, environmental, hygienic, bio-diversity and landscape preservation requirements, new production technologies, economic farming methods and alternative activities in rural areas as well as to provide other knowledge required for the adaptation to the quality and quantity changes taking place in the countryside.

Creation of Modern and Competitive Fisheries

The Common Fisheries Policy (CFP) covers conservation, management and sustainable exploitation of living aquatic resources, aquaculture, and the processing and marketing of fishery and aquaculture products, where such activities are practised on the territory of Member States or in the Community waters or by Community fishing vessels.

The principle objective of the CFP is the sustainable exploitation of fisheries resources, where a longer-term approach to the management of the resources is applied on the basis of sound scientific advice and the principles of precaution. Fleet management system conferring more responsibility on the Member States was adopted in order to limit fishing capacity of the Community fleet. This system is supplemented by provisions on emergency measures for the protection of fisheries resources or marine ecosystems.

The long-term objective of the CFP is to add to the Community’s policy of sustainable development at the same time maintaining the balance of environmental, economic and social aspects.

The reform of the CFP of 20 December 2002 led to the adoption of new Regulations. Council Regulation (EC) 2371/2002 on the conservation and sustainable exploitation of fisheries resources gives outlines and objectives of the CFP and is the basic regulation implementing the policy. Structural interventions in the framework of this SPD concerning the fisheries sector must be in conformity with the objectives of the Common Fisheries Policy. These interventions are particularly subject to specific requirements and provisions fixed in Council Regulation (EC) No 1263/1999 and 2792/1999, lastly amended by Council Regulation (EC) No 2369/2002 of 20 December 2002. These provisions have to be respected even in the exceptional case of a fisheries action being financed by another fund. The interventions concerning the aquaculture, processing and marketing, and inland fisheries should have sustainable economic effect. The envisaged structural actions should give a sufficient guarantee of technical and economic viability and should particularly avoid the risk of creating any production over-capacity.

Fisheries measures under the SPD Priority “Agriculture, fisheries and rural development” are based on the structural policy of the CFP. The primary focus is on the adjustment of fishing capacity. Other targets are bringing all the links in the fish-handling chain (vessels, ports, industries) into conformity with food safety, occupational safety and environmental protection requirements. None the less is important to create favourable conditions necessary for the development of fishing activities, to ensure the development

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of valuable fish resources, to develop aquaculture by enchancing its competitiveness as well as to create conditions for the common market organisation and lighten social consequences of cessation of fishing activities.

With a view to restructuring the Lithuanian fishing fleet (Measure “Fishing fleet related actions”), the most important task is to balance fishing activities with available fish resources and new EU quotas through a reduction in the size and capacity of the Lithuanian fishing fleet. The priority is to reduce the Baltic Sea fishing fleet (vessels fishing in the offshore Baltic Sea and coastal area). Fishing vessels register is installed in the Fisheries Department and is now operational. The entry-exit scheme of fishing vessels will be followed as it said in the Regulation 2371\2002.As part of vessels is too old and inefficient, and their modernisation will not pay off, it would be economically useful for the owners of vessels to stop fishing activities scrapping of the vessels. Thus, the overall fishing fleet capacities will be reduced and negative environmental impact caused by fishing will be diminished. Quotas per one vessel will increase and will rise fishing profitability.

Within the same measure the fishing fleet will be modernised helping to ensure more sustainable fisheries development. By modernisation of fishing vessels it is necessary to adapt them to catch pelagic fish as quotas of this fish species are not fully utilised. The profitability of fishing vessels will increase through the installation of new equipment to preserve fish quality, allowing vessels to stay out at sea for longer periods, to land more rarely, to use their capacities more effectively, to save fuel and to improve work conditions.

In order to create more favourable conditions for the development of sustainable fishing activities (Measure “Protection and development of aquatic resources, aquaculture, fishing port facilities, processing and marketing and inland fishing”), investment will be made in improving fishing port facilities, which should help improve fish landing and sale conditions and expand the possibilities for the sale of fisheries products by forming a reasonable price at the auction, and thus, profitability of the fishing would be enhanced. Investment in port facilities is also very important from the perspective of helping to implement the Common Fisheries Policy provisions concerning the control of fish catches and Common Market Organization. Investments to the fish processing enterprises are aimed at modernisation, implementing quality and environment management systems, improving hygienic conditions and quality of fishery products as well as marketing. Priority will be given to companies which have been granted a transitional period until 2007. Seeking to re-orientate aquacultural farms to the breeding of new fish species and ecological production, to reduce production costs and to increase business profitability and competitiveness, thus promoting aquaculture development investments are necessary for modernisation and intensification of farms by implementing new technologies and innovative solutions. Moreover, investments are necessary for the construction of fish ladders, elimination of obstacles and implementation of other measures for improvement of fish migration and spawning conditions, which would increase migratory fish (first of all, salmon) resources in the Baltic Sea and inland waters. Also there will be support for inland fishing. The priority will be given to Curonian Lagoon vessels.

In order to help alleviate the social and economic impact of restructuring in the fishing fleet severance grants will be available to those affected by the cessation of fishing activities (Measure “Other (fisheries related) measures”). Fishermen, who worked on the scrapped vessels, will lose their regular income. In case of unforeseeable events or technical restrictions fishermen and ship owners may be forced to suspend their activities. In order to solve this socio-economic problem, it will be necessary to provide for them compensations. Producer’ organisations are the essential part for the implementation of common market organisation. Taking into consideration conditions favourable to the functioning of producers’ organisations and positive impact on ensuring fishermen’s income, it is necessary to promote the establishment of producers’

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organisations as well as for implementation of programmes for improving quality of fish products. As coastal fishing enterprises are small, they find it hard to deal with competition and to develop their activities separately, and therefore, support will be provided for integrated collective projects to develop and modernise this fishing activity and improve coastal fishing conditions.

Seeking to implement the set tasks and taking into consideration the EU regulations stipulating the rules for the use of funds of the “Guidance” Section of the European Agricultural Guidance and Guarantee Fund and the Financial Instrument for Fisheries Guidance, investments under the rural and fisheries development priority have been scheduled in ten Measures. The preliminary shares of these funds allocations are summarized in tables below.

In addition to the measures of structural funds, the four accompanying and three additional measures co-financed from the “Guarantee” Section of the European Agricultural Guidance and Guarantee Fund, which supplement each other, have been foreseen for the implementation of the priority tasks. The information on financing sources have been summarised in the table below.

Financing sources of agriculture and rural development measures

Measures financed from the “Guidance” Section of the European Agricultural Guidance and Guarantee Fund and Financial Instrument for Fishing Orientation

Measures financed from the “Guarantee” Section of the European Agricultural Guidance and Guarantee Fund

1. Investment in agricultural holdings2. Setting-up of young farmers3. Improving processing and marketing of agricultural products4. Promoting the adaptation and development of rural areas5. Forestry6. Leader + type measure7. Training8. Fishing fleet related actions9. Protection and development of aquatic resources, aquaculture, fishing port facilities and processing and marketing10. Other (fisheries related) measures

4 accompanying measures:Agri-environmentAfforestation of agricultural LandLess favoured areas and areas with environmental restrictionsEarly retirement

Other measures:Technical assistanceSupport for semi-subsistence farmsMeeting EU standards

Support for Annex 1 products will be provided in compliance with the relevant measures of this SPD or will be notified for approval in accordance with the terms of Regulation (EC) 659/1999. In the latter case, no support will be provided to the recipient prior to approval by the Commission.

Other support from rural development measures will be granted in conformity with the application of Articles 87 and 88 of the Treaty either as 'de minimus' aid (Regulation (EC) 69/2001) or as aid to SMEs (Regulation (EC) 70/2001) or as training aid (Regulation (EC)

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68/2001). Otherwise the support must have been approved already or will be notified to the Commission for approval prior to implementation.

State aid in agricultural sector is not in direct relation to the measures presented in SPD. The information on state aid is presented in Annex VII.

Monitoring and Evaluation

Monitoring will be carried out following the common monitoring indicators for monitoring rural development programming 2000-2006, which is indicated in the Commission Working Document VI/43512/02 FINAL of 26 February 2002.

Evaluation of the Programme will be carried out regarding the purpose and use of the common questions with criteria and indicators, indicated in the Commission Working Document VI/12004/00 FINAL of December 2000.

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MEASURE 4.1. INVESTMENT IN AGRICULTURAL HOLDINGS

The legal basis for this measure falls under Chapter I (Articles 4 to 7) of Regulation (EC) No 1257/1999; Articles 1 to 3 and point 9 in Annex II of Regulation (EC) No 445/2002.

Goal of the MeasureTo accelerate restructuring of agricultural holdings, to increase farmers’ income from agricultural and related activities and to improve life, work and production conditions.

Objectives of the Measure To reduce production costs; To accelerate the restructuring and modernisation of production; To improve product quality; To maintain and improve environment quality, hygiene and work conditions and

livestock welfare standards; To promote the diversification of agricultural and related activities.

Measure DescriptionSupport is provided for investments in the following sectors, listed in sequence of priority:

- Milk;- Meat (production of beef, pork, lamb, horsemeat and poultry, including eggs)43;- Arable crops (crops, flax, grass fodder, feeding root vegetables, albuminous

and oil seeds (including rape planting));- Fruits, berries, vegetables (excluding potatoes for starch) and mushrooms;- Animal breeding for producing fur, breeding of game animal, bee-keeping.

Investments under this measure should not stimulate the increase in the production for which no market outlets can be found. In order to ensure that exceptions from this general rule meet the stated requirement, the market shall be monitored taking into account official statistics on production, foreign trade, consumption etc. and if there is a need the conditions for aid will be adjusted. Within particular sectors relevant demands may include:

- Milk – the production is lower than the national milk quota. Due to possible structural changes within this sector (possible movement of small milk producers out from the market) there is no risk foreseen in the increase of milk production during the whole programming period;

- Meat – there is a growing market on beef and lamb taking into consideration the actual producing volume and quota given. The marketing possibilities for beef produced with organic methods are good and aid can be granted for enlargement. The production quota for suckler cows breeding is not fully used at the national level. The production of

43 For those keeping cattle for the production of milk and meat, to provide support for forage production and equipment of cultural meadows and pastures.

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bulls, ewes, and calves slaughter is less than the quota provided. The efficiency of the sector, compared with the EU countries is low. Most of animal production farms are small and the need of investments, especially in the improvement of the production quality. Due to that fact there is a big demand for new technologies in pig and egg sector as well. Finally, the consumption of poultry in the country increases too and it gives a good opportunity to market poultry production;

- Arable crops – there is a shortage of fodder grain for livestock breeding due to the disproportion in the supply and demand of nutritional and fodder grain. The quality of other kinds of arable crops demands improvement and therefore there is a need of investments. There is a big demand for arable crops, grown in organic agriculture manner. Due to increased demand of rape, aid can be granted for enlargement of basic areas of rape;

- Fruits, berries, vegetables and mushrooms – consumer consumption is currently growing.

To this end, any restrictions on production or limitations of Community support under the Common market organisation (CMO) must be taken into account.Diversification into other agricultural activities is primarily expected to involve the redeployment of land/or other farm resources from production of the ‘mainstream’ agricultural commodities to the production of new, alternative or niche products and to alleviate the unemployment problems in rural areas securing additional income for farmers.

Support will be given to the renovation/construction of agricultural drainage and irrigation systems on private land in agricultural areas, which serves as a basis for farming and other alternative activities.

To avoid the overlapping of funding no support will be granted for the same type of expenditure for projects falling within the scope of support schemes under Common market organisations (CMO) (ref. EC Regulation (EC) 1257/1999, Art. 37).

The detailed information on intended support intensity and/or amounts under this measure is provided in the Programme complement respecting the maximum aid intensities and/or amounts indicated in Regulation (EC) 1257/1999 under Article 7 (modified by Article 331 of the Treaty). The option to increase support for young farmers by 5% is applied as well.

The requirements for beneficiaries, the assessment of economic viability as well as legal basis for minimum environment, hygiene and animal welfare standards are provided in the Programme complement. For determining the level of economic viability the following criteria will be used: total debt ratio, liquidity ratios (the solvency over short-term liabilities, acid test), debt coverage ratio, profitability ratios, project’s internal rate of return must exceed the cost of borrowed capital. All ratios must meet determined minimum (maximum) expressions adopted by the Order of the Minister of Agriculture.

State aid


Institutions responsible for implementation of the MeasureIntermediary body- Ministry of Agriculture

Implementing agency- National Paying Agency under the Ministry of Agriculture

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MEASURE 4.2. SUPPORT FOR YOUNG FARMERS

The legal basis for this measure falls under Chapter II (Article 8) of Regulation (EC) No 1257/1999; Articles 4 to 5 and point 9 in Annex II of Regulation (EC) No 445/2002.Goal of the MeasureTo encourage young farmers to go into the agricultural sector in order to help the process of modernising agricultural holdings and to help counteract ageing demographics amongst farmers in many rural areas.

Objectives of the Measure to promote growth in the number of young farmers; to provide start-up support to young farmers as a basis for further farm

development; by adapting to the modern technology changes and new business environment; to create possibilities for young farmers in order to ensure sufficient income and

appropriate level of living to themselves, their family members and other persons employed on the farms.

Measure DescriptionThe start-up grant will be provided to young farmers under 40 years of age who are setting up a farming business for the first time and who have registered their farms over the past 12 months in accordance with the laws of the Republic of Lithuania. The requirements for applicants relating to occupational skill and competence, economic viability, the minimum standards regarding the environment, hygiene and animal welfare set in the Programme complement should be fulfilled within three-year period. Detailed requirements for the beneficiaries are included in the Programme Complement. For determining the level of economic viability the following criteria will be used: total debt ratio, liquidity ratios (the solvency over short-term liabilities, acid test), debt coverage ratio, profitability ratios, project’s internal rate of return must exceed the cost of borrowed capital. All ratios must meet determined minimum (maximum) expressions adopted by the Order of the Minister of Agriculture. The detailed information on intended support start-up premium amount under this measure is provided in the Programme Complement respecting the maximum aid amount indicated in the Annex of the Regulation (EC) 1257/1999 (modified by Article 331 of the Treaty).To avoid the overlapping of funding, no support will be granted for the same type of expenditure for the projects falling within the scope of support schemes under Common market organisations (CMO) (ref. EC Regulation (EC) 1257/1999, Art. 37).

State aid


Institutions responsible for implementation of the MeasureIntermediary body- Ministry of AgricultureImplementing agency- National Paying Agency under the Ministry of Agriculture

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MEASURE 4.3. IMPROVING PROCESSING AND MARKETING OF AGRICULTURAL PRODUCTS

The legal basis for this measure falls under Chapter VII (Articles 25 to 28) of Regulation (EC) No 1257/1999; Articles 22 to 24 and point 9 in Annex II of Regulation (EC) No 445/2002.

Goal of the MeasureTo modernise and rationalise the processing and marketing of agricultural products, to improve their competitiveness, and to increase value added.

Objectives of the Measure To improve or rationalise marketing channels and processing processes; To improve preparation and delivery of products; To promote waste reduction and a more effective use of waste and sub-products; To implement new technologies; To create conditions for innovative investments; To improve quality, control and monitoring; To improve and monitor health and hygienic conditions; To preserve the environment.

Measure DescriptionSupport will be provided for investments to help modernise agricultural products processing enterprises, implementation of environmental, hygienic and animal welfare standards and improvement of marketing. The Measure comprises all agricultural products listed in Annex I to Rome Treaty (EC Regulations (EC) 1257/1999, Art. 27, p.1) which according to primary production sectors are divided into:

- Meat (beef, pork, lamb, horsemeat and poultry) and eggs;- Arable crops (crops (excluding malt barley), flax, albuminous and oil seeds

(including rape processing for bio-fuel production));- Milk;- Fruits, berries, vegetables (excluding potatoes for starch) and mushrooms.

Investments in retail level and products from third countries are excluded from support.The detailed information on intended support intensity and/or amounts under this measure is provided in the Programme Complement. The proposed interventions comply with the maximum aid intensities and/or amounts indicated in the Regulation (EC) 1257/1999 under Article 28 (modified by Article 331 of the Treaty).Investments under this measure should not stimulate an increase in production for which no market outlets can be found. In order to ensure that exceptions from this general rule meet the stated requirement, the market will be monitored using official statistics on

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production, foreign trade, consumption etc. and if the need arises, the conditions for aid will be adjusted. Within regard to particular sectors: Meat – there is a growing market on beef and lamb taking into

consideration the actual production volumes and quotas. The efficiency of the sector, compared with the EU countries is low. There is a need of investment to improve production methods and to meet EU standards. Due to this, there is high demand for new technologies in all sectors of meat processing. The consumption of poultry in the country is increasing which creates favourable opportunities for poultry production;

Arable crops – there is a shortage of fodder grain for livestock breeding due to the mismatch in the supply and demand of nutritional and fodder grain. The quality of other kinds of arable crops needs improving and therefore there is a need for investment. There is a high demand for products made from grain grown in ecological manner. Due to the increased interest in preserving the environment, it will be possible to grant aid for primary processing of rape for bio-fuel;

Milk – there is an increasing market for added value products (e. g. cheeses) as well as for other high quality dairy products (e. g. milk desserts);

Fruits, berries, vegetables and mushrooms – consumer consumption in this area is currently growing; there are health reasons for encouraging consumption. To this end, any restrictions on production or limitations of Community support under the Common market organisation (CMO) must be taken into account.

Detailed requirements for the beneficiaries, the assessment of economic viability as well as legal basis for minimum environment, hygiene and animal welfare standards are included in the Programme Complement. For determining the level of economic viability the following criteria will be used: total debt ratio, liquidity ratios (the solvency over short-term liabilities, acid test), debt coverage ratio, profitability ratios, project’s internal rate of return must exceed the cost of borrowed capital. All ratios must meet determined minimum (maximum) expressions adopted by the Order of the Minister of Agriculture.

State aid



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MEASURE 4.4. PROMOTING THE ADAPTATION AND DEVELOPMENT OF RURAL AREAS

The legal basis for this measure falls under indents 2, 7, 8, 10 Chapter IX (Articles 33 and a new article 33(a) of Regulation (EC) No 1257/1999 (modified by article 331 of the EC Treaty); point 9 in Annex II of Regulation (EC) No 445/2002.

Goal of the Measure

To create suitable conditions to live and work in the countryside.


Improvement of rural residents’ living and work conditions;

Improvement of rural infrastructure;

Creation of conditions suitable for economic and social development;

Increase in rural residents’ and farmers’ income;

Employment enhancement and creation of new or alternative jobs;

Promotion of rural activities and service diversification;

Development of rural tourism and crafts.

Measure Description

This measure covers the following activities:

- Diversification of agricultural activities and activities close to agriculture to provide multiple activities or alternative incomes;

- Encouragement for tourist and craft activities;

- Agricultural water resources management;

- Land consolidation projects;

- Farm advisory and extension services.

The major focus will be put on the development of diversification of agricultural activities and agriculture-related activities as alternative businesses which will contribute to increasing the incomes of rural residents’ and improvement of life and work conditions in the countryside. The detailed list of eligible agricultural activities and agriculture-related activities are approved by the Order of the Minister of Agriculture.Part of the support will be allocated to promotion of tourism activities and crafts: development of rural tourism and development of traditional and non-traditional crafts. Beneficiaries receiving support from other Structural funds are not eligible for the support under this measure, as the conception of rural tourism is defined in Law on Tourism (1998-03-19, No VIII-667).The third significant activity is agricultural water resources management. The support will be granted to non-profit generating investment projects of public benefit: renovation/construction of agricultural drainage systems and their hydraulic equipment; renovation of artificial water bodies’ hydraulic structures; renovation/construction of flood control instalations; renovation of polders.

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Part of support will be allocated for the organization, preparation and implementation of land consolidation projects and for legal registration of newly formed land parcels.Significant attention will also be devoted to the provision of advisory services in preparing application for support under the SPD and Rural Development Plan (RDP) and implementing Good Farming practice (necessary to participate in environmental and “less favoured areas” schemes under RDP measures). In addition to that, support will be provided for the advising on implementation of implementation of hygiene and animal welfare standarts. The detailed information on intended support intensity and/or amounts under this measure is provided in the Programme complement, together with detailed requirements for the beneficiaries as well as legal basis for minimum environment, hygiene and animal welfare standards.

State aid

This measure will be implemented in compliance with Council regulation (CE) No. 1257/1999 of 17.5.1999. Any state aid granted under this measure will be compatible with the de minimis rules, the Commission Regulation (EC) No 70/2001 on the application of Articles 87 and 88 of the EC Treaty to State aid to small and medium-sized enterprises.


Intermediary body- Ministry of AgricultureImplementing agency- National Paying Agency under the Ministry of Agriculture

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MEASURE 4.5. FORESTRY

The legal basis for this measure falls under Chapter VIII (Articles 29 and 30) of Regulation (EC) No 1257/1999; Articles 25 to 28 and point 9 in Annex II of Regulation (EC) No 445/2002.Goal of the MeasureTo retain and develop economic, ecological and social functions of forests in rural areas. It is also sought to improve the infrastructure of private forest holdings, to increase their productivity, to enhance possibilities of rural residents’ alternative activities and to improve environmental quality and biological and landscape diversity.Objectives of the Measure To ensure development of forestry and to improve sustainable forest management; To preserve and improve forest resources; To increase forested areas.Measure DescriptionThis measure covers the following activities:- Investment in forests aimed at significantly improving the economic, ecological

or social value;- Restoration of forest areas damaged by natural disasters and fire and

introducing appropriate prevention instruments;- Investment to improve and rationalise the harvesting and logging of round

wood;- Afforestation of non-agricultural land.First of all, this Measure will be aimed at increasing the economic, ecological and social value of forests. Support will be provided for the improvement of the infrastructure of private forest holdings, i.e. forest roads and their facilities, drain ditches and their facilities, information signs, recreational equipment and other infrastructure. Pre-commercial thinning will be promoted.The next important activity includes restoration of forests affected by natural disasters and fires and prevention measures. Support will be provided in compliance with the Forest Fire Prevention Plan, which classifies forest areas according to the risk of fire. Lithuania has proposed to the Commission to classify the whole Lithuanian territory as medium risk area. In addition, Lithuania started to prepare forest-fire protection plan considering this proposal - the draft of forest-fire protection plan is being prepared and shall be completed till the end of 2003.44 The description of the current situation in Lithuania as regards the system of prevention and monitoring of forest fires, the methods and techniques used to protect forest against fires, the main objectives for the elimination or reduction of the principals and improvement of systems of prevention and monitoring are being designed and will be included in this plan.In compliance with the provisions of Chapter VIII of the EC Regulations No. 1257/1999, support will be provided for prevention measures to be taken in forests with the medium fire risk. In Lithuania there are 2,05 million ha (which correspond to 100 %) of the actual forest surface, which would be classified as area with risk of fire.

44 After the Commission approves the list of Lithuanian territory according to degree of forest-fire risk, Lithuania will update the prepared draft of forest-fire protection plan and will send it to the Commission for approval as according to EC Regulation 2158/1992 the Commission shall approve the forest-fire protection plans only after the Commission’s decision on the lists of areas classified by degree of risk.

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Furthermore, the support will be provided for individual or cooperative projects with the aim to rationalize the harvesting and logging of round wood. Purchasing of new forest machinery and equipment prior to industrial processing will be promoted. Moreover, support will be provided for afforestation of non-agricultural land. Afforestation of non-agricultural land, which is not included in the definition of agricultural land given in Article 31 of the Council Regulations (EC) No. 1257, will be supported. This will comprise afforestation of forestry land where forests were not growing previously (forest grounds, former wood warehouses, etc.), re-cultivated pits, peat-bogs, dumping grounds and other land of private holdings45 not attributed land plots for agricultural purposes. The latter mentioned support is scheduled only in such cases if it is compatible with local conditions and environmental requirements. Support will be provided to afforestation project, for costs for seedlings and its transportation and for afforestation costs including plantation supplementing and plantation protection measures.Lithuanian Forest Policy and Implementation Strategy was approved by the Minister’s of Environment order No 484 on 17th September 2002. This crucial document covers the forest policy formulation principles, guidelines of the forest policy, SWOT analysis and the vision of the forest sector, the mission of the state and strategic forest development objectives. The requirements for beneficiaries, the assessment of economic viability as well as the legal basis for minimum environmental standards are provided in the Programme Complement. In the case of investments for determining the level of economic viability the following criteria will be used: total debt ratio, liquidity ratios (the solvency over short-term liabilities, acid test), debt coverage ratio, profitability ratios, project’s internal rate of return must exceed the cost of borrowed capital. All ratios must meet determined minimum (maximum) expressions adopted by the Order of the Minister of Agriculture.

State aid



45 Land scheduled for foresting must be classified in the Real Estate Cadastre as land for non-agricultural purposes.

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MEASURE 4.6. LEADER + TYPE MEASURE

The legal basis for this measure falls under Chapter IX (a) (new Article 33) of Regulation (EC) No 1257/1999; Commission Notice of 14 April 2000 (2000/C139/05).Goal of the MeasureTo develop the LEADER+ methodology by implementing integrated rural development strategies formulated on a territorial basis.

Objectives of the Measure To develop the institutional framework and the skills base necessary to stimulate the

endogenous potential of rural actors and communities through the programmes targeted for community development;

To provide technical support for the preparation of local area studies; To devise integrated development strategies on territorial basis; To provide support for drafting of applications and implementation of pilot area

strategies; To promote and strengthen LAG international co-operation.

Measure DescriptionGiven the pilot character of local rural development strategies, the implementation of this LEADER+ type measure during the current programme will mainly focus on the implementation of the first paragraph of Article 33f (“Acquisition of skills”). Under the second paragraph of Article 33f support for adopting integrated territorial rural development strategies is restricted to regions where administrative capacity and experience in local development can be demonstrated. The different types of support are set out below:1. “Acquisition of skills”

Support will be provided for the following activities:

- technical support for studies of the local area, territorial diagnosis and drawing up integrated pilot strategies taking into account the wishes expressed by the population concerned;

- informing and training of the population to encourage an active participation in the development process;

- training of administrators, community actors and members of the LAG in building representative partnerships as well as administrative and financial matters;

- preparation and dissemination of information, methodological material and good practices.

Selection of service providers will be organised by the National Paying Agency at least twice a year with a prior assessment of needs using tendering procedures approved by the Ministry of Agriculture. A prior assessment of needs will be based on consultation with social partners and regional municipalities. After selection procedure the National Paying Agency signs a contract with the service providers following the guidelines of EU public procurement procedures. After fulfilment of terms of the contract, National Paying Agency will make the relevant payment to the service provider.

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2. “Pilot integrated strategies”

There were a number of actions carried out in Lithuania as a result of national and bilateral efforts which built up a basis for the implementation of a bottom-up approach.

The main key players in this field at the national level are the Ministry of Agriculture, Ministry of Social Security and Labour, Ministry of Interior, which together with other related authorities and NGOs at regional level which took part in various national and international projects promoting communities’ initiatives. The main social partner, the Lithuanian Rural Communities’ Union, covers all territory of the country and represents around 350 rural communities. The aim of this organisation is to tackle exclusion problems between towns and rural areas, to help rural people to make use of the support provided through rural development partnership projects and to prepare them for the implementation of local initiative projects.

At the moment there is a twining project “Preparation for the Community Initiative Programmes and Increasing the Absorption capacity for Structural Funds in Lithuania” (PHARE-SPP III) up and running which aims to enhance existing institutional networks including the local actions groups/local partnerships for the implementation of the Community Initiative Programmes.

The experience gained from the bilateral project “Rural Partnerships Programme” together with the aid of the United Kingdom Government has made a significant contribution to expanding capacity and knowledge at various levels. In the framework of this programme, three partnership groups in Švenčionys, Šalčininkai and Ukmergė districts, which operate on broadly the same principles as LAGs, were established; local strategies for a reduction of poverty and social exclusion were prepared; actions to implement the strategies and granting small grants were undertaken; volunteer community leaders were trained; a core technical support team, which has three years of practical experience in assisting the Partnership groups, Community groups and Community networks were established; a group of 12 Rural Development Specialists at national, regional and NGOs levels were trained and awarded of the Rural Development Diploma, conferred by Galway University of Ireland.

The Seagull project run by the member regions of the Euroregion Baltic (that includes regions in Denmark, Sweden, Poland, Russia, Latvia and Lithuania) and funded under the Baltic Sea Region INTERREG III B Programme is among other issues focusing on the programming and implementation of the Leader method. Currently, the formation of Local Action Groups based on the Leader principles in the region of Klaipeda is being supported.

Experience of dealing with community programmes and projects was also gained through the implementation of two SAPARD measures “Improvement of rural infrastructure”, which promoted rural communities to submit projects based on their own needs and “Vocational training”, which to some extent facilitated capacity building of communities.

The community partnership program funded by Lithuanian and US foundations also made a considerable input to the establishment of bottom-up approach. The aim of this program is to foster cooperation between businesses, local government and NGOs in four regions of Lithuania - Utena, Kupiškis, Kėdainiai and Kelmė. The program supports community meetings, strategic planning, networking, and other trainings for community groups working on projects such as establishment of community foundations, organization of volunteer actions, development of infrastructure for business and etc.

The Open Society Fund Lithuania has introduced an Information Programme, which initiated new projects – Information Technologies for Rural Communities; Strengthening the Connection between Communities and their Network, and Steps toward Digital Communities in Lithuania – which have sought to speed up the integration of information

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technologies into rural communities and to promote their use to maintain ties with other communities and organizations as well as with government institutions.

Support will be provided for the following activities:

- adoption and implemention of integrated territorial rural development strategies, of a pilot nature, that are prepared by local action groups in accordance with the principles laid down in items 12 and 14 of the Commission Notice of 14 April 2000 (see in particular criteria related to areas concerned (14.1) and the development strategy (14.2));

- participation in trans-national cooperation actions in accordance with the principles laid down in items 15 to 18 of the Commission Notice. Simple exchanges of experience will not be supported.

LAG participation in the implementation of strategies devised on the trans-national basis and opportunities to use good practice examples in the Rural Area Observatory (see item 23 of Commission Notice of 14 April 2000) and participate in its activities.Selection of LAGs:

For the programming period 2004 – 2006, up to seven LAGs will be selected through the evaluation of the strategies submitted. Open calls for tender will be announced in the first half of 2005 by the National Paying Agency under the Ministry of Agriculture. All applications must demonstrate that they meet the eligibility criteria set out below. Eligibility criteria:

- Legally constituted common structure, which is representative and consist of the following: at the decision-making level the economic and social partners and associations must make up at least 50 per cent of the local partnership; up to 25 per cent business representatives; up to 25 per cent local government representatives;

- Administrative, methodological and finance management capacity to deal with LEADER+ type measures and administration of public funds is demonstrated;

- The territory covers rural area with population 10.000 - 100.000 inhabitants, including small towns with population up to 6.000;

- The integrated strategy must be based on one of the themes listed below;- Projects funded under the strategy and programme of proposed activities

must not benefit simultaneously from funding from other Structural funds, Rural Development Programme, PHARE or other common agricultural policy (EAGGF Guarantee) schemes. But it does not exclude the fact that LAGs might apply for aid from different Structural funds on a project - by - project basis.

Selection criteria:

- The administrative capacity and experience of the LAG to administer public funds, methodological and financial management capacity and experience to manage LEADER+ type operations;

- The quality of the strategy or business plan, including its coherence and complementarity with national and regional strategies. It should be demonstrated that it is locally based with broad participation of local people, expressing local needs.

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Specific selection criteria (detailed description is included in the Programme Complement):LAG:

- Is locally based;- Demonstrate an age and gender balance (women and young people would be

target group); - Demonstrate environmental competence;- Demonstrate balance between management and animation tasks.

Territory:

- Territory is homogenous in economic, social and physical (geographical) terms;

- The same location must not belong to more than one LAG. Strategy:

- Is coherent and complementary with national and regional strategies;- Is worked out locally with broad participation of local people and thus

expresses local needs;- The strategy shall be prepared on one provided theme.

Themes, which LAGs can choose:

- the use of know-how and new technologies to make the products and services of rural areas more competitive;

- improving the quality of life in rural areas;- adding value to local products, in particular by facilitating access to markets

for small production units via collective actions;- making the best use natural cultural resources, including enhancing the value

of sites of Community interest selected under Natura 2000.LAGs will set priority criteria (strategy specific criteria) according to the chosen strategy and theme themselves and will be responsible that the themes of the projects submitted correspond the regional problems of the area.

Specific conditions:

The value of the administrative costs of the LAG will not exceed 15% of the recourses to be allocated to the development plan. The details of the financial resources to be allocated to these pilot integrated strategies will be provided in Programme Complement.

The decision on granting financial support for a specific project will be taken by the LAG and will be confirmed formally by the National Paying Agency under the Ministry of Agriculture.

Detailed selection procedure, including the weighting and scoring system, will be included in the Programme Complement.

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State aid


Institutions responsible for implementation of the MeasureIntermediary body- Ministry of Agriculture


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MEASURE 4.7. TRAINING

The legal basis for this measure falls under Chapter III, Article 9 of Council Regulation (EC) No 1257/1999; Chapter I, Section 3, Article 6 and Annex II, point 9 of Commission Regulation (EC) No 445/2002.

Goal of the MeasureTo enhance professional qualification of people employed in the agricultural sector and related to other activities of rural development measures, as well as to provide them with an opportunity to adapt to new market changes meeting high EU standards in the environment protection, human, plant and animal welfare and food sector.

Objectives of the Measure To provide farmers and other persons related to agricultural, forestry or alternative

activities to agriculture with theoretical and applied knowledge which they could use when adapting to quality and quantitative changes in the agricultural and food sector;

To acquaint farmers with environmental, landscape preservation, hygienic and animal welfare standards and food quality requirements;

To inform farmers about economically viable farm management concept; To teach forest owners and other persons related to forestry how to develop forests

in order to improve their economic, environmental and social function; To teach farmers how to shift from farming to other activities.

Measure Description Training will be carried out in the following fields listed according to the sequence of priority:

- environment protection, water system, ecological and environment-friendly farming;

- animal welfare, hygienic, sanitary, food quality requirements;- business economy, management, accounting;- new agricultural and forestry production technologies;- information technology training;- alternative businesses in rural areas (rural tourism and recreation, traditional

crafts);- co-operation and business development.

State aid

Any state aid granted under this measure will be compatible with the de minimis rules.


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MEASURE 4.8. FISHING FLEET RELATED ACTIONS

Goal of the Measure

To adjust fishing effort to available fish resources and create a modern and competitive, more cost-efficient fishing fleet.


To ensure sustainable fishery; To increase competitiveness and profitability of the remaining fishing vessels; To utilize all fishing quotas set for Lithuania fully; To improve fish storage and fishermen’s work conditions, as well as navigation

safety.

Measure Description

Under this Measure, priority will be given to scraping of the fishing vessel by paying compensation to the owner of the vessel. Thus, the gradual reduction of fishing capacities will be ensured. Priority will be given to older vessels fishing in the Baltic Sea (in the offshore Baltic Sea and in the coastal waters). Also the modernization of vessels will be supported: investment intended for re-orientation of vessels to catch pelagic fish, improvement of sanitary fish storage conditions, ensuring their quality for a longer period, navigation safety and improvement of work conditions. For the modernisation of fishing vessels the priority will be given to the vessels fishing in the Baltic Sea (in the offshore Baltic Sea and coastal waters).

State aid

State aid schemes concerning actions financed under FIFG within this programme are governed by the provisions of Art. 19(2) of Council Regulation (EC) No 2792/1999 as amended by Council Regulation (EC) No 2369/2002 of 20 December 2002.


Intermediary body- Ministry of Agriculture


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MEASURE 4.9. PROTECTION AND DEVELOPMENT OF AQUATIC RESOURCES, AQUACULTURE, FISHING PORT FACILITIES, PROCESSING AND MARKETING AND INLAND FISHING

Goal of the Measure

To create favourable conditions necessary for the development of fishing activities, to ensure the development of valuable fish resources, to develop aquaculture by enhancing its competitiveness and to modernise and rationalise processing and marketing of fishery products, to improve their competitiveness and to increase the value added


To improve vessels servicing, fish landing and sale conditions; To ensure the formation of an reasonable fish price; To protect aquatic resources and to promote their development. To promote implementation of innovations on aquaculture farms; To expand the range of aquaculture products and their sale possibilities; To modernise aquaculture farms in compliance with the EU requirements; To improve quality, control and monitoring of fish processing; To implement new technologies; To ensure the implementation of veterinary and environmental requirements for the

fish processing enterprises. To modernise inland fishing vessels with regard to veterinary, hygienic and sanitary

requirements

Measure Description

Priority will be given to developing fishing port facilities, as investment in improving infrastructure in this area will have a significant impact on the development of the fisheries sector overall. Investment in fish auction construction is particularly significant, as this entity will make it possible to charge a reasonable fish selling price, to increase fishermans’ incomes and to facilitate the activities of competent authorities.

The second prioritised activity will be investments intended for the re-orientation of production of ecological aquacultural products, as markets for this production are rapidly expanding in the whole Europe. The breeding of new fish species, as the market for these products has not been fully taken up will be supported as well. Traditional aquacultural farms will be modernised in order to implement new technologies and to reduce the product cost and the negative environmental impact made by enterprise.

The third activity will be modernisation of fish processing companies and improvement of fisheries products marketing chain. Finally (the fourth activity), support will be provided for investments to clear-out and maintain migratory routes of salmon and other valuable fish species. The scientific monitoring of the development of aquatic resources will be carried out Also there will be possibility to improve the veterinary, hygienic and sanitary requirements for inland fishing vessels.

State aid




262


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MEASURE 4.10. OTHER (FISHERIES RELATED) ACTIONS

Goal of the Measure

To create conditions for the common market organisation, to improve conditions for coastal fishing and lighten social consequences of cessation of fishing activities.


To compensate the looses from imposed temporary cessation of fishing activities; To promote fishermen’s co-operation; To promote the development of coastal fishing activities and to increase its

competitiveness; To reduce the negative impact of permanent cessation of vessels fishing activities on

the fishermen’s level of living; To create conditions for the common fish market organisation.

Measure Description

Priority will be given to the support of the establishment of producers’ organisations and for implementation of programmes for improving quality of fish products. The second activity is intended for support the development of small-scale coastal fishing by financing integrated collective projects.

The third important activity will be socio-economic measures for financing of individual compensatory payments for cessation of fishing activities related with restructuring of fishing fleet and compensations for the temporary cessation of fishing activities in case of unforeseeable events, in particular of biological impact, the suspension of, or failure to renew, a fishing agreement, the introduction of a recovery plan or emergency measures, the adoption of technical measures restricting the use of certain types of fishing gear or fishing methods.

State aid





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3.5. PRIORITY 5: TECHNICAL ASSISTANCE

Council Regulation No.1260/1999 requires that SPD should be monitored and evaluated; that Structural Funds are subject to proper financial controls and that due publicity is given to the Structural Funds. The Technical Assistance Priority supports the meeting of these requirements. The Priority support is open to all sectors, covered by SPD, and all institutions, involved in management and administration of the program, needs.

According to regulations a proportion of Structural funds resources can be utilized for the purposes of the implementation, management and assessment of the Objective 1 programme. The technical assistance measures would be co-financed expenditure foreseen under Rule 11.2 and 11.3 of the Commission Regulation No 1145/2003.

Technical assistance is an essential resource for effective delivery of the programme. The aim of the priority is to improve, enhance, promote and maximize the impact of the SPD in Lithuania.

The investment of Priority 5 of the SPD will be directed to support and ensure the proper administrative capacities in the structural funds administration and management, to provide the information about assistance from the Structural Funds, raising public awareness campaigns and transparency regarding the activities of both Lithuania and the European Union and create a coherent picture of the assistance concerned across all Member States.

The Priority will facilitate the development of evaluation capacity within national authorities during the period 2004 – 2006 so that all evaluations in the future are carried out to a high standard at an appropriate time, in a cost effective manner. A number of studies relating to specific themes or system issues will be supported in order to improve programme implementation and preparation. The Technical assistance priority will also serve to ensure the proper work of Structural Funds and Cohesion Fund computer system.

The Technical assistance priority will be implemented through the following measures:

Measure 5.1. Support for Programme management, implementation, monitoring and control (ERDF)Measure 5.2. Publicity and evaluation of the Programme (ESF)

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MEASURE 5.1. SUPPORT FOR PROGRAMME MANAGEMENT, IMPLEMENTATION MONITORING AND CONTROL (ERDF)

Goal of the measure

The general objective of the measure is to ensure the quality and effectiveness of all steps of preparation, evaluation, monitoring of the Structural funds assistance at all levels of administration. The processes involved will also facilitate the development of more substantial partnerships for both development of appropriate strategies and their delivery.


The main objectives of a measure are:

- Ensure proper resourcing of delegated management functions;

- Ensure proper audit of the programme;

- Ensure the proper preparation and effective running of the programme;

- Ensure the proper work of computerized information system for management, monitoring and evaluation;

Measure description

Support under this measure will be provided to co-finance management actions of Management authority and those who have management actions delegated to them. It will also co-finance expenditures on meetings of monitoring committees and sub-committees relating to the implementation of assistance. This expenditure may also include the costs of experts and other participants in these committees, including third-country participants, where the chairperson of such committees considers their presence essential to the effective implementation of the assistance. The measure will co-finance expenditures on civil servants seconded to or working on the part-time basis in the programme management and other staff hired for programme or projects management, evaluation or control purposes.

Possible activities supported include those categories of expenditure set out in Rule 11.2 of the Commission Regulation relating to eligibility of expenditure. This may include: expenditure relating to the preparation, selection, appraisal and monitoring of the SPD including these costs if delegated to other bodies. Similarly expenditure related to audits and on-the spot checks of operations are included.

Assistance as well will be used for maintaining operations of the computerized information system of Structural funds and the Cohesion fund management and monitoring, and its further development. Eligible expenditure associated with the system, as connections, staff and maintenance cost of the system will be EU co-financed under measure.


Intermediate Body – Ministry of Finance

Implementing Agency - Central project management agency

266

MEASURE 5.2. PUBLICITY AND EVALUATION OF THE PROGRAMME (ESF)

Goal of the measure

The main goal of the measure is to raise public awareness about structural funds assistance, to involve a wide range of partners in EU assistance planning and monitoring processes and also to ensure effective planning of future investment.


Raise awareness about the outcomes of the programme across the country; Provide information about the programme and provide widen access to the use of structural funds to the to the maximum range of eligible partners; Support programme evaluation, studies, organizations of seminars, including those aiming at the improvement of administrative capacity at all levels; Support research and studies (including territorial planning), which will improve and focus present and future areas of Structural Funds support, and prepare documentation which create bases for sustainable development Provide clear guidance and information about the programme administration and support strategically driven, well informed management of the funds Support acquisition and installation of computerised systems for management, monitoring and evaluation Facilitate development of evaluation capacity

Measure description

The success of the programme depends to a large degree on a wide understanding among the partnership of its contents, governing regulations, aims and objectives. Without this understanding implementation will be a slow and inefficient process. Actions must be taken to ensure that potential applicants, administrators of the programme at all levels are aware of how it works. It is also important that the benefits and achievements of the programme are widely publicized. Workshops and seminars will also play an important role in publicizing the programme and enchancing understanding of the new mechanisms for implementation. These events will satisfy a number of objectives:

Promote greater public understanding of the objectives and achievements of the Structural funds and SPD in the country; Provide guidance and support on aspects of the funding process such as selection criteria, eligibility and project evaluation; Promote the aims and achievements of the Programme to a wide audience.

It will be important to make extensive guidance available to potential applicants. This will involve both further research and the production of high quality support materials. This will include written guidance on all aspects of the programme, including the application and claims processes, as well as technical guidance on issues such as estimating economic effects of projects. Special guidance on issues such as eligibility will also be made available.

Evaluation also plays a crucial role in improving the effectiveness and efficiency of the Programme. The measure will support organization of SPD evaluation at all stages and levels and facilitate development of evaluation capacity in Managing Authority and Intermediate bodies.

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The measure will also support studies and researches in the fields of possible Structural Funds intervention and their impact on the development of the region. The choice of studies to be funded would be determined by the Monitoring Committee, following consideration of detailed Terms of Reference.

Possible activities that can be supported under this measure include studies, seminars, information actions, evaluation activities, and the acquisition and installation of computerised management, monitoring and evaluation systems, as indicated in Rule 11.3 of the Commission Regulation relating to eligibility of expenditure.


Intermediary Body – Ministry of Finance

Implementing Agency - Central project management agency

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4. FINANCING

4.1 FINANCIAL PLAN

While implementing Single Programming Document, to meet its national co-financing needs, Lithuania might borrow from International Financial Institutions. In particular, the European Investment Bank (EIB) could contribute during the current programming period in the order of EUR 60 million. This figure is of an indicative nature and will depend on the actual needs. International financial institutions, including EIB, may also assist the Lithuanian authorities and private sector entities who may benefit from SPD funds in the preparation, implementation and monitoring of projects and programmes included in the SPD, particularly for those co-financing.

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Table 56: Financing of the Lithuanian Single Programming Document for 2004-2006 by Priority, Structural Fund and year46 (in EURO, current prices)

PRIORITY 1 Public Funding Private EIBDevelopment of Social & economic

Total Total Community Support National public

Funding47 loans

infrastructure Total ERDF ESF EAGGF FIFG funding

2004-2006 459109457 459109457 347058803 347058803 0 0 0 112050654

2004ERDF-related 119368459 119368459 90235289 90235289 0 0 0 29133170ESF-related 0 0 0 0 0 0 0 0EAGGF-related 0 0 0 0 0 0 0 0FIFG-related 0 0 0 0 0 0 0 0



46 The grant rate is calculated on the basis of public expenditure, with the exeption of the FIFG47 Private sector participation is shown only in case of FIFG

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PRIORITY 2 Public Funding Private EIBHuman resource Total Total Community Support National Funding loansdevelopment Total ERDF ESF EAGGF FIFG public

funding

2004-2006 217053681 217053681 163814098 0 163814098 0 0 53239583




271

PRIORITY 3 Public Funding Private EIBDevelopment of Total Total Community Support National Funding loansProductive Sector Total ERDF ESF EAGGF FIFG Public

funding

2004-2006 300662206 300662206 222429209 222429209 0 0 0 78232997




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PRIORITY 4 Public Funding Private EIBRural and Fisheries Total Total Community Support National Funding loansDevelopment Total ERDF ESF EAGGF FIFG public

funding

2004-2006 198788729 192005274 135015394 0 0 122898628 12116766 56989880 6783455

2004ERDF-related 0 0 0 0 0 0 0 0ESF-related 0 0 0 0 0 0 0 0EAGGF-related 45257067 45257067 31953643 0 0 31953643 0 13303424FIFG-related 623509 4468811 3150359 0 0 0 3150359 1318452 1763698



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PRIORITY 5 Public Funding Private EIBTechnical assistance Total Total Community Support National

publicFunding loans

Total ERDF ESF EAGGF FIFG funding

2004-2006 35806906 35806906 26855180 14451727 12403453 0 0 8951726




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TOTAL Public Funding Private EIBTotal Total Community Support National Funding loans

Total ERDF ESF EAGGF FIFG public

funding

2004-2006 1211420979 1204637524 895172684 583939739 176217551 122898628 12116766 309464840 6783455

2004 288588846 286825148 213198004 141458098 36635904 31953643 3150359 73627144 1763698

ERDF-related 188524422 188524422 141458098 141458098 0 0 0 47066324ESF-related 48574848 48574848 36635904 0 36635904 0 0 11938944EAGGF-related 45257067 45257067 31953643 0 0 31953643 0 13303424FIFG-related 6232509 4468811 3150359 0 0 0 3150359 1318452 1763698

2005 411890839 409584464 304401702 205294695 53201772 41785534 4119701 105182762 2306375


2006 510941294 508227912 377572978 237186946 86379875 49159451 4846706 130654934 2713382


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4.2 ADDITIONALITY STATEMENT

The verification of additionality is to take place at two points in time for the programming period 2004-2006: ex ante and at the end of the period.

Ex ante verificationAs indicated in Additionality Table below on the basis of information provided by the Lithuanian authorities, the Commission services and Lithuanian authorities have determined the annual average of national public eligible expenditure to be maintained in the period 2004-2006 in the sum of all Objective 1 regions at 274.61 million € (at 1999 prices). This is an increase of 8.6 % compared to the average expenditure of the reference period . The reference period is defined as the average of the two most recent years for which final spending figures are available. In the case of Lithuania these are 2001-2002.

The Lithuanian authorities will provide the Commission with appropriate information and inform the Commission at any point during the programming period of developments likely to call into question its ability to maintain this level of expenditure.

Verification at the end of the periodA verification shall take place before 31 December 2007. Additionality is regarded as verified if the annual average of national public eligible expenditure in the years 2004 to 2006 has at least reached the level of expenditure agreed on ex ante. The submission of no or methodologically insufficient information shall be regarded as non-compliance. Therefore, the Lithuanian authorities will present information according to the following calendar:

by 31 July 2007: presentation of aggregate and annual tables with final data on the years 2004 and 2005 as well as provisional data for the year 2006;

by 31 October 2007: if necessary, methodological improvements on the basis of the Commission’s comments;

by 31 December 2007: deadline for the submission of any additional information.

The Lithuanian authorities will inform the Monitoring Committee of the results of the verification, which will be taken into account in the preparations of the subsequent programming period.

Additionality table: Public or other equivalent expenditute in Objective 1 region – Lithuania (in million € at 1999 prices)Annual average reference period (2001-2002) Annual average 2004-2006

Total(1)

of which: public

enterprises (2)

SPD Not EU co-financed Total Total

Of which: public

enterprises (2)

SPDNot EU

co-financed

Total

Nat. Nat. EU Nat. Nat. Nat. Nat.+EU Nat.+EU

EU Nat. Nat. Nat.

1 2 3 4 5 6 7=2 8 9 10 11 12 13=11+12

=8-101. Basic infrastructure

128,45 N N 19,46 128,45 168,40 39,95 21,51 106,94 128,45

-Transport 61,19 O O 18,64 61,19 82,94 21,75 11,71 49,48 61,19

-Telecommunication 10,50 T T 10,50 10,50 10,50 10,50

-Energy 8,14 8,14 17,32 9,18 4,94 3,20 8,14

-Environment 28,98 A A 28,98 32,75 3,77 2,03 26,95 28,98

-Health 19,64 P P 19,64 24,89 5,25 2,83 16,81 19,64

2. Human resources 114,80 P P 114,80 152,49 37,69 15,25 99,55 114,80

-Education & RTD 90,41 L L 90,41 96,96 6,55 3,53 86,88 90,41

-Training 22,55 I I 22,55 49,76 27,21 10,41 12,14 22,55

-RTD 1,84 C C 1,84 5,77 3,93 1,31 0,53 1,84

3. Productive environment

9,31 A A 1,27 9,31 84,88 54,74 29,48 0,66 30,14

-Agriculture/rural development/ fisheries

2,65 B B 1,27 2,65 31,72 20,62 11,10 11,10

-Industry 0,27 L L 0,27 13,00 8,45 4,55 4,55

-Services 0,27 E E 0,27 23,91 15,54 8,37 8,37

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-Tourism 6,12 6,12 16,25 10,13 5,46 0,66 6,12

4. Other 0,38 0,38 3,49 2,27 1,22 1,22

Total 252,94 20,73 252,94 409,26 134,65 67,46 207,15 274,61

Including national co-financing of Pre-Accession Instruments.

Due to advanced and planned process of privatisation, state enterprises are not included in the calculations.

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4.3. EX-ANTE EVALUATION OF THE MACROECONOMIC IMPACT OF THE PROGRAMME

This chapter presents a macroeconomic evaluation of the SDP impacts, which is required by the Commission guidelines. As Lithuania prepares Objective 1 SPD for whole country only macroeconomic modelling can simulate the complex interdependencies between economic variables at this level. However, for a time being Lithuania lacks the sophisticated model for impact analyses of structural interventions, so both currently used calibration model adopted to SPD purposes and impact assessment have been carried out by the Fiscal policy department of the Ministry of Finance.

Following assumption have been made for purposes of estimation and analysis:

- Only demand side impact is assessed

- Average propensity to use imported goods and services does not change

- Baseline scenario assumes that without the Structural Funds real growth of GDP would average at 5 per cent in the long term

- Expert-based matrix of sectoral sales-inputs has been used

- Sectoral labour productivity rates (data from 2001) were used

- Only impact of EU assistance has been estimated

Impact on GDP and numbers of employed labour

Successful absorption of Structural Funds assistance would cause an increase in GDP over the baseline scenario from 1.2% in 2004 to 1.8% in 2006, or from 690 mio Litas in 2004 to 1139 mio Litas in 2006. These calculations support the assumption that the multiplier effect is close to 1.02.

Table 57: Impact of SPD on GDP and value-added in various sectors (change compared to baseline scenario, per cents)

Construction Manufacturing Trade, transport, communications Education GDP

2004 6,0 1,3 1,4 2,0 1,2

2005 8,0 1,8 2,0 3,0 1,6

2006 8,7 2,2 2,5 4,8 1,8

The number of employed workers would increase by 28 200; however, a higher multiplier would mean even larger number of work places.Table 58: Impact of SPD on number of employed workers in various sectors (change compared to baseline scenario, thousands)

Construction Manufacturing Trade, transport, communications Education Other

sectors Total

2004 4,4 3,5 4,0 3,4 1,0 16,2

2005 5,8 4,8 5,6 5,0 1,2 22,5

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2006 6,3 5,9 7,0 7,9 1,0 28,2

The largest amount of work places would be generated in construction and service sectors as well as education. These sectors currently feature unused surplus capacities. Therefore, Structural funds would partially help to restore work places, which have been lost due to the restructuring and rationalisation process over the last decade. During the restructuring process between 1995 and 2002 the workforce decreased by 300,000. Compared to the largest number ever present, the decrease accounted to 149,000 work places in industry, 35,000 – in construction, 41,000 – in trade as well as transport and communications, 5,000 – in education. Therefore, because of job losses resulting from structural readjustment, the Lithuania economy today has a labour force that has the potential to absorb much larger amounts of structural funds.

The most significant impact of Structural Funds interventions would be increase in the level of value-added in the construction sector, also (although more limited) in industry and education. Due to the increased number of working places secondary impacts would also occur in three main sectors: trade, transport-storage and communications. Secondary impacts would also affect industry and albeit to a much lesser extent – construction and education. Having estimated the impact of the Structural funds by sector, it emerges that around 80 per cent of the increase will occur (almost in equal proportion), first of all, in trade-transport-storage-communications, secondly, construction, thirdly, in industry. The rest of the increase would mostly occur in education and other sectors. The structure of increase would remain unchanged throughout almost the whole three-year period.

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4.4 QUANTIFICATION OF OBJECTIVES

Context

The analysis of the social and economic situation, which is presented in the first part of this document, includes a number of context indicators, which are summarised (as well as compared to the EU average) at the end of each chapter. Subsequent to the performed SWOT analysis of the whole plan and elaborated vision and strategy of this document, a number of most essential context indicators have been selected and presented below. These were mostly selected according to the logic of the summary SWOT table in the SPD. These indicators are the ones upon which the SPD will have an impact; however, there will also be other factors influencing them.

INDICATOR (measurement unit) BASELINE (year)GDP real growth (per cent) 5.9 (2001)Number of casualties in traffic accidents (no. per 1000 population) 18.4 (2000)SME value added per employee (added value generated by 1 conventional worker per 1 hour, Lt.)

5.1(2001)

Business expenditure on R&D (per cent of GDP) 0.02 (1999)Farm structure (average size of all types of agricultural holdings, ha)

4.5 (2001)

Unemployment rate (per cent), of which: - Male/Female - Under 25/25-49/50-64

13.6% (2003 1Q) 1

14.8%/12.4%24.4/12.6%/13.0%

Share of long term unemployed in total unemployment (per cent), of which: -Male/Female

50.8% (2003 1Q) 1

47.6%/54.8%

Share of those taking part in continuous education and training among population within 25 to 64 age group (per cent)

3.7 (2001)

At risk-of poverty rate 16.9%(2002)Regular Internet users (per cent of population) 15 (2002)1 Population employment survey data, I quarter, 2003

Quantification of objectives

The forecasting of benefits occurring due to the implementation of the programme presents particular problems, particularly in relation to results and impacts. There are also difficulties arising from interrelationship between priorities, measures and individual projects. This requires some account to be taken of the potential for double-counting of benefits, and also the synergistic benefits of the activity supported.

There are essentially two methods of quantifying outputs, results and impacts Structural Fund interventions. The first is to make estimates based on a top-down approach – looking at projected changes in key macro-economic indicators, while the second, the bottom-up approach, is based on an aggregation of output estimates at the measure level up to the priority and programme level.

The estimation below attempts to combine both approaches so as to provide a comprehensive assessment of the likely outcomes of interventions supported by the Lithuanian Objective 1 programme. ‘Bottom-up’ assessment has been provided and verified by the ex-ante evaluators of the Lithuanian Objective 1 programme. In terms of the methodology used to calculate expected outcomes/ impacts, the ex-ante evaluators used a mixture of EU benchmarks from previous evaluation studies (with adjustments for the Lithuanian context) and, where available, information from local sources (e.g. on typical costs of business support provision etc.). Top-down estimates have been made through macro-economic forecasting by the Fiscal policy department at the Lithuanian Ministry of Finance.

The Commission has produced guidance on the quantification of objectives through the MEANS Guidelines for the Evaluation of Structural Fund Interventions and, more recently,

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Working Paper 3 Indicators for Monitoring and Evaluation. The latter was produced by the Commission for the 2000-06 programming period and deals specifically with quantification - the indicators listed below are taken from this source.

The following table presents expected aggregate benefits at the programme and priority levels, taking account of the breakdown of total public expenditure between priorities.

Programme levelIndicator Measu-

rementBaseline (year) Target (by the

end of 2008)Increase in real GDP growth over the baseline scenario due to the SPD

Percenta-ge points

5% annually in the long term

1.5 percentage points

Net additional jobs Number 19000Increase in employment rate

Percenta-ge points

Employment rate* – 58.8%:male-61.1%; female-56.7%

59.8 %

*Population employment survey data, I quarter, 2003

These global indicators will be evaluated at the end of the programme by the Managing Authority with the assistance by Intermediate bodies. The main sources of information will be official statistics and evaluation studies.

PRIORITY 1 – DEVELOPMENT OF SOCIAL AND ECONOMIC INFRASTRUCTURETYPE INDICATOR (measurement unit) Quantified targetsImpact Net additional jobs (number) 5000Result Gross jobs created (number) 7000

Increase in total volume of goods transported by all means of trabsport

17% (baseline - 87 mln

tonns in 2002)Output Roads constructed/reconstructed (km) 650

Energy saving / energy efficiency projects implemented (number)

15

Length of constructed / renovated water supply / waste water networks (km)

25

Health-care institutions modernised (number) 10Human resource development facilities upgraded (number)

20

PRIORITY 2 – DEVELOPMENT OF HUMAN RESOURCESTYPE INDICATOR (measurement unit) Quantified targetsImpact Increase in share of those taking part in continuous

education and training among population within 25 to 64 age group (change in percentage points)

6.7 % (baseline – 3.7% in 2001)

Reduced school drop-outs rate (change in percentage points)

16.4% (baseline – 16.9 % in

2002)Result Gross placement rate after activation (per cent):

-Male/Female40 %

Share of employers providing in-house training for the first time (per cent)

5%

Output Number of beneficiaries trained (number at the end of activities)

20000

Projects dealing with modernisation of training/study systems implemented (number)

10-15

PRIORITY 3 – DEVELOPMENT OF PRODUCTIVE SECTORTYPE INDICATOR (measurement unit) Quantified targetsImpact Net additional jobs (number) 10000

Share of assisted start-ups surviving after 12 months 90

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(per cent)Result Gross jobs created (number) 8000

Leverage effect (million euro of private capital attracted)

200

Output Number of SMEs assisted (number) 12500Industrial / technological parks developed (number) 5Public e-services development supported (number) 15Newly developed/ improved tourist attraction sites 80

PRIORITY 4 – RURAL DEVELOPMENT AND FISHERIESTYPE INDICATOR (measurement unit) Quantified targetImpact Net jobs created/maintened (number) 4000

Increase in income level in agricultural sector (per cent)

4.5% (baseline - in 2002 average

disposable income in rural areas was 320.4 Litas per

capita per month)Result Gross jobs created/maintened (number) 5500

Share of supported farmers from the total number of registered farms (per cent)

2% (baseline - according to the survey there

were 59363 registred farms in

Sept. 2003)Reduction in size of Lithuanian Baltic Sea fishing fleet (%)

10% (baseline - 18 328

GT)Output Number of young farmers supported (number) 400

Modernisation projects for processing and marketing of agricultural products supported (number)

30

Number of beneficiaries trained (number at the end of activities)

2000

Baltic sea vessels modernised (number) 8Modernisation projects for processing and marketing of fisheries and aquaculture products supported (number)

9

The monitoring system will be based on a bottom up approach from the measure level covering financial inputs, outputs, results and impacts. The data will be primarily received from the supported projects. This will allow the Monitoring Committee to regularly review progress towards achieving Programme and Priority objectives. The Programme Complement, in line with the Regulations and Commission’s guidance, contains detailed indicators and targets for each measure. The coherence between indicators systems defined in the SPD (programme and priorities level) and in the Programme Complement (measures level) will be ensured. The coherence between indicator systems defined in the SPD (programme and priorities levels) and in the Programme Complement (measures level) will be ensured. There is a commitment to follow this guidance (from Commission services) and use respective indicators when preparing annual implementation reports during the implementation of the Programme.

The data on the priority level indicators presented above (with exception of impact indicators) will be predominantly collected from the level of projects by institutions responsible for implementation of a given measure. Where necessary, data sources can be supplemented by surveys and external statistical data. Data on impact indicators will be established by evaluation.

Given the short time period of the Programme, impact indicators will be measured once, at the end of the Programme, while result and output indicators will be collected from

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supported projects in regular time intervals (at least twice a year) and will be reported to the Commission annually, in annual implementation reports.

Indicator on gross jobs created includes all direct jobs created in the projects supported by the Programme, including temporary jobs in the construction sector. Consequently, indicator on net additional jobs covers only additional, permanent, full time equivalent (FTE) jobs, created due to the Programme, therefore net of:- temporary jobs,- redistribution effect (some of the jobs created will be jobs redistributed i.e. those

finding alternative employment in a pre-existing job as a result of training/ retraining and unemployed individuals finding an existing job rather than a newly created job),

- job losses due to rationalisation (rationalisation resulting from interventions in some sectors (e.g. some areas of agriculture, energy and industry) might see a number of job losses as a result of efforts to support modernisation, economic restructuring and diversification).

It should be emphasised however that overall, job losses across the four priorities will be more than compensated for by new gross job creation resulting from Structural Fund interventions.

Finally, indicators on number of SMEs assisted includes both existing SMEs and start-ups.

HORIZONTAL THEMES Effects of the Programme on its horizontal themes – information society, sustainability and equal opportunities – will be monitored by ensuring a necessary mainstreaming of aforementioned programme, priority or measure level indicators, such as gross jobs created, number of beneficiaries trained and other. Moreover, a small number of output core indicators will be used; they are predominantly qualitative, and their values will be established during evaluation of a project.

Information societyTwo indicators are foreseen to be used to monitor this theme:- Number of Internet hosts per 1000 inhabitants (output indicator, quantitative, value

to be established by RIPE Network Coordination System); baseline: 15 internet hosts per 1,000 population in 2001

- Number of Internet users (result indicator, quantitative, value to be established by surveys); baseline: 21% of Lithuanian population were Internet users in summer 2002.

- Improved IT literacy of the population (impact, value to be established by evaluation)

SustainabilityTwo indicators are foreseen to be used to monitor this theme:- Number of projects with positive effect on environmental sustainability (output,

qualitative, value to be established during evaluation of projects and after the completion of the programme)

- Reduced impact on environment: reduced emissions of CO, CO2, SOX, NOX, per cent (impact, value to be established from official statistics); baseline: emmisions (in 2001): NOX– 55 038 tons, SOX– 48 747 tons, CO – 228 569 tons, and CO2 – 16 015 660 tons.

Equal opportunitiesAt least three indicators are foreseen to be used to monitor this theme:- Number of beneficiaries trained (number at the end of activities):

male/female(output, value to be established by collecting data from projects)- Number of gross jobs created: male/female (result, value to be established by

collecting data from projects) - Increase in female labour force activity (impact, value to be established from official

statistics); baseline: female labour force activity rate - 65.9% in 2001.

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5. PREPARATION OF THE SPD

5.1. PARTNERSHIP

The first steps towards the creation of partnership relations in Lithuania were taken during the preparation of the National Development Plan for 2000-2004. At that time, partnership was understood primarily as the co-operation of Lithuanian state institutions with the European Commission with the minimal information given to the social and economic partners on the preparation process. It has to be noted that Lithuania lacks deep traditions of partnership.

During the preparation of the SPD, the process of consultations was expanded. Not only the Ministries, but also municipalities and social-economic partners were involved in the preparation process. The relevant Resolution of the Government of the Republic of Lithuania approved the membership of the SPD Working Group, which included not only state institutions, but also the major regional and social partners. These include the associated organisations that represent the best the widest interests, such as Association of Lithuanian Municipalities, Confederation of Lithuanian Industrialists, Association of Lithuanian Business Employers, Association of Lithuanian Trade Unions, Association of Lithuanian Chambers of Industry and Trade, etc. Furthermore, all the partners without exception, interested in the participation in the process of SPD preparation, were invited to take part in the work of SPD sectorial sub-groups, led by branch Ministries. Branch Ministries were encouraged to apply the “open partnership” principle, to take intensive consultations with the partners in their respective sectors and take their opinion into consideration when planning investment in their respective fields.Figure 31: Organisational scheme of SPD preparation.

Active consultation with the partners was started by the conference “Partnership in the Planning of EU Financial Assistance”, held on 9 May 2002, where about 150 representatives of the partners took part. In the conference, the SPD priorities and implementation measures were presented for the first time, and the public discussion with the partners initiated. Also, the first opinions and comments from the partners were received concerning the social-economic development directions most relevant them and the opportunities to pursue further partnership.

Several months thereafter, informational-consultation seminars were organised in each of the ten Lithuanian Counties. The main aim of the events was to present the SPD preparation process and status, institutional scheme of the EU Structural Funds’ management, discuss how the regional strategic development plans could relate to the SPD and be used for the preparation of it, present practical examples of EU Structural

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Funds’ projects and eligible expenditures. In total, 419 representatives of the partners took part in these seminars which were held in the period of 10 September – 10 October 2002.

This cycle of seminars largely increased the activity from the part of partners, and they began to organise consultations and seminars on their own initiative, inviting representatives of the Ministry of Finance and branch Ministries, and to propose ways of using EU Structural Funds’ assistance. Seminars can be mentioned, organised by the Chambers of Trade and Industry, Association of Lithuanian Clothing and Textile Enterprises, Lithuanian Chamber of Agriculture, Association of Lithuanian Municipalities, Confederation of Lithuanian Industrialists, Conference of Rectors of Lithuanian Universities, as well as round table discussion with the representatives of Ignalina Nuclear Power Plant and other numerous events. The number of events, where the Ministry of Finance alone took part, was about 70. The complete list of events is presented in Annex V.

In co-operation with the Ministry of Education and Science, two national conferences were organised: “Knowledge society and the Structural Funds” and “Culture and the Structural Funds”. About 200 people participated. Beside national lecturers, presenting Lithuania’s preparation for the Structural Funds and the expected investments into various sectors, also representatives of the European Commission and EU Member States took part, who discussed the opportunities offered by the Structural Funds and the rules of their usage, presented practical examples of successfully implemented programmes and projects.

In order to encourage and enhance the partnership, a special website was created by the Ministry of Finance (http://www.esparama.lt), where information can be found about the SPD preparation, proposals might be made and separate parts of the SPD commented. The site also presents information on EU regional policy, the management and objectives of EU Structural Funds. Also, various kinds of information on SPD preparation have been published.

Each of the 11 sectorial sub-groups, which took part in the SPD preparation, was asked to provide a description of its consultations with the partners – especially the sectors where the absorption of financial assistance strongly depends on the partners’ interest and activity, such as industry and business, information society, rural development, employment and education. Below, several examples of sector partnership are provided.

During the preparation of SPD part “Industry and business”, wide discussions were held with associated business structures, representatives of enterprises, representatives of business support institutions, regional partners and non-governmental organisations. Seminars, round table discussions, meetings were held. Partners were also asked to provide written comments. The discussions focused on such issues as the complexity of aid, tax policy, measures of financial engineering, possibilities of introduction of technologies, environmental-protection measures in enterprises, tourism.

During the preparation of the SPD part “Rural development and fisheries”, the Ministry of Agriculture co-operated with more than 40 interested institutions and social-economic partners, including various associations of agricultural products processing industry, institutes of agriculture and veterinary, unions and societies of farmers, agricultural enterprises. The issues discussed included support to young farmers, raising of competence and training of agricultural workers, LEADER+ projects, other topics of rural social and economic development.

The authors of the SPD part “Employment, education and vocational training” held consultations with the Council of Vocational Preparation (consisting of representatives of institutions representing employers and employees), representatives of science and study institutions, unions and associations of the disabled, municipalities. Issues discussed include social partnership, deficiencies of the system of professional orienting and consulting, physical and moral obsolescence of buildings and equipment of training institutions, needs to improve the training materials and lecturers’ competence, reinforcement of links of the industry and business with science, other topics relevant to the partners.

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http://www.esparama.lt/

After a process of SPD preparation, which took one year, one can conclude that there was a significant change in the knowledge level of the partners, their activity level, the attitude of the drafters and the partners to the co-operation process itself. The beginning of the process was characterised by the provision of information by the drafters and criticism by the partners, but later on the interaction changed to the discussion of practical questions and efforts to assess in an objective way one’s needs and capacities to use EU Structural Funds’ assistance. The main issues, raising the partners’ concern, have been the complexity of assistance, sufficiency of national financing, transparency of project selection, insufficient skills of project preparation and management.

It is planned to further pursue active co-operation with the partners during the SPD implementation phase. Not only will the partners will be the main implementers and co-financers of Structural Funds’ projects – they will also take part in the supervision of effectiveness and eligibility as members of the Monitoring Committee. Stable long-term links with various partner groups and their willingness to jointly engage in the solution of the country’s social-economic development questions should form a solid basis for the successful use of EU Structural Funds’ assistance.

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5.1. EX-ANTE EVALUATION

The ex-ante evaluation was carried out by an independent team of evaluators from the Centre for Strategy and Evaluation Services (CSES). The Lithuanian Ministry of Finance, as the Managing Authority, had overall responsibility for over-seeing and co-ordinating the ex-ante evaluation process. The purpose of the ex ante evaluation (based on Commission guidance in Working Paper 2 – Guide to Ex-Ante Evaluation) was primarily to:

Assess whether the overall programme is an appropriate means for addressing the issues confronting Lithuania;

Check whether the programme has well defined strategic axes, priorities and objectives that are relevant to Lithuania’s needs and is achievable;

Advise on the quantification of objectives and the establishment of a basis for both monitoring and future evaluation work;

Review the adequacy of the Objective 1 programme's implementation and monitoring arrangements and help with the design of project selection procedures and criteria.

CSES addressed the issues set out above in a series of Working Papers that were presented to the SPD Steering Group at a number of workshops. The ex-ante evaluators worked closely with the Lithuanian Ministry of Finance and other key Line Ministries throughout the evaluation process. As recommended by the Commission, the evaluation process has been fully interactive – CSES have commented on different versions of the SPD and made a number of recommendations in order to help improve the quality, coherence and relevance of the formal draft submission. Follow-up meetings have been held with the Ministry of Finance and individual Ministries to discuss and agree suggested changes.

Consequently, a number of substantive changes were made to the SPD as a result of the ex-ante evaluation process - some restructuring of the document was also undertaken. Detailed comments by the evaluators together with an assessment of whether or not these have been taken on board is provided in the final ex-ante evaluation report. Where appropriate, the evaluators also made a number of direct inputs to the SPD.

Please note that while the final ex-ante evaluation report is an integral part of the SPD submission, given its length it has been bound separately.

5. 2. MID-TERM EVALUATION

Following the Regulation (EC) No 1260/1999, there is not a requirement to carry out mid-term and final evaluations for Lithuania.

However, the Regulation sets out that the ex-post evaluation should be done "on the basis of the evaluation results already available". Therefore thematic and/or small-scale evaluations will be carried out within the programming period. Results of these evaluations will be used as an information source for the ex-post evaluation and will contribute to the evaluation capacity building.

5. 3. EX-POST EVALUATION

In accordance with Article 43 of the Council Regulation No 1260/1999, the ex-post evaluation will be the responsibility of the European Commission in collaboration with the Managing Authority.

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The ex-post evaluation will be carried out by independent assessors and will be completed not later than three years after the end of the programming period.

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6. IMPLEMENTING PROVISIONS

6.1. ADMINISTRATIVE STRUCTURE

Three level Structural Funds management and administration structure, which consists of Managing Authority, Intermediate Bodies and Implementing Bodies, is envisaged.

The general framework of Structural Funds administration is set by the Government Resolution Nr. 1166 (SF resolution), which has been approved on 11.09.2003. The Resolution delineates tasks to be delegated to Intermediate and Implementing Bodies by Managing Authority, sets the administrative framework for Structural Fund programming, implementation, monitoring and control and regulate the tasks, responsibilities and rights of each institution participating on the programming and implementation of the Objective 1 programme in Lithuania.

The Structural Fund Manuals based on the SF are to be finalised before the end of year 2003. The Manuals will describe in more detail the procedures to implement specific tasks of involved institutions while administering the Structural Funds assistance. The need for clear separation of functions as well as implementation of the principle of audit trail is being taken into consideration when finalising the administrative system and procedures. Full description of the Structural Fund administration and procedures will be provided for the Commission according to the Regulation 438/2001, Article 5.

6.1.1. MANAGING AUTHORITY

The Managing Authority (MA) for the Objective 1 assistance program will be:

Ministry of Finance of the Republic of Lithuania

Tumo-Vaizganto 8a/2, Vilnius

LT 2600

Financial Assistance Department of the ministry will undertake the functions of MA.

According to the SF Resolution MA will have the “program level” responsibility and in this respect it shall:

co-ordinate and steer the programming of the Structural Fund activities in Lithuania, giving guidance and advice to other institutions, involved in the programming; ensure the efficiency and correctness of management and implementation of Structural Funds; co-ordinate the development of Structural Fund administration, including preparation of Structural Funds manuals, and supervise the functioning of administrative structure; co-ordinate and supervise the implementation of the Objective 1 SPD together with the intermediate bodies and Monitoring Committee; ensure compliance with Community policies in the use of Structural Funds, in accordance with Article 34 (1) g) of Regulation 1260/1999; establish and maintain the electronic monitoring and follow-up system to monitor, follow-up and report on the implementation of the Objective 1 SPD and Programme Complement. The system will include the indicator information required according to the Regulation (EC) No 1260/1999, article 36 as well as the information that are needed in

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evaluation, mentioned in the Articles 42 and 43. The system will allow the direct change of information with the Commission, as stated in the article 18. Prepare annual progress report and submit it to the Commission after the approval of the Monitoring Committee Organise and manage evaluation of structural intervention, collaborate with the Commission when the ex-post evaluation will be carried out as stated in the article 43 and co-ordinate the necessary activities; Ensure that the institutions participating on the administration and implementation of the Objective 1 SPD will use either a separate accounting system or an adequate accounting code for all transactions that are related to the implementation of the Programme Implement internal controls together with the Paying Authority and other institutions participating on the implementation of the assistance to ensure that the principle of sound financial management has been followed and respond to any observations, requests for corrective measures or recommendations for adjustment as mentioned in the Regulation 1260/1999, article 38 (4) (1) Ensure compliance with the obligations concerning information and publicity as referred in the article 46. Review the main outcomes of the previous implementation year together with the Commission based on the annual implementation report and inform the Commission what actions have been taken according to the comments made by the Commission Make a proposal of necessary adjustments on the Programme Complement either by its own initiative or as in initiative made by the Monitoring Committee and will inform the Commission about the made adjustments after the Monitoring Committee has approved them. However, the adjustments cannot be the kind that they will change the financial allocations per priority or that they will change the main targets and aims of each priority. Manage and administer the measures under the Technical assistance priority, coordinate and manage the process of strengthening of the capacity to administrate Structural Funds assistance and development of the absorption capacity. Ensure the communication to the Commission, by 30 June each year, of a report setting out the application of Articles 10 to 12 of Regulation 438/2001 in the previous calendar year and in addition provide any necessary completion or updating of the description of their management and control systems communicated under Article 5 of that Regulation.

If the above mentioned issues so require the MA has a right to give obligatory instructions to the institutions administrating the Funds. In addition it will supervise and give advises to the institutions on matters related on the implementation of the SPD and on the financial management of the SFs.

The MA shall have access to all documents related on the implementation of the funds. In addition it shall carry out checks to satisfy itself that the Funds are used according to the EU requirements and following the principle of sound financial management, in this regard it will have its own control capacities. Moreover it shall receive reports of 5% sample checks that have been carried out by the Intermediate Bodies.

6.1.2. INTERMEDIATE BODIES

Intermediate Bodies (IB) are institutions functioning under the responsibility of the Managing Authority as regards Sub-paragraph 2 of Article 2 of the Council Regulation (EC) No 438/2001. The line ministries, responsible for the relevant SPD economic sector, are designated as IB, having the “measure level” of responsibility. The Structural Funds and

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national co-financing resources for particular measures are allocated in the Intermediate Bodies budgets, and they have the right of final decision upon projects to be supported.

According to the SF Resolution, there shall be the following IB:

Ministry of Economy in the field of business promotion, energy and tourism infrastructure development Ministry of Social Security and Labour and Ministry of Education and Science in the field of human resources and vocational training Ministry of Agriculture in the field of agriculture and fisheries Ministry of Environment in the field of environmental protection Ministry of Transport and Communications in the field of transport infrastructure Ministry of Health Care in the field of health care infrastructure Information Society Development Committee under the Government of the Republic of Lithuania in the field of information society developmentIB will be responsible for the programming, implementation, monitoring, reporting and auditing of the Objective 1 SPD measures in their own sector, more specifically they will be responsible for:

programming of the SF activities in their sector implementation of the SF activities in their sector, namely:

- to establish the rules and procedures of projects submission, evaluation, selection and monitoring in accordance with SF Resolution of the Government and Structural Funds manuals

- to establish measure specific monitoring indicators and project selection criteria, to prepare guidelines for applicants and other documentation for calls for proposals

- to give guidance for the Implementing Agencies how to implement the activities under the respective measure and supervise their implementation

- form and chair the project selection committee and organize the work of the committee

- to approve the final decision about the project to be financed taking into consideration the evaluation report produced by the Implementing Body and opinion of the project selection committee

monitoring and reporting on the implementation of the respective measure

- to follow-up the implementation of the measure

- to analyse the progress of the measure according to the monitoring information, including the result indicators

- to prepare the respective parts of the annual progress reports and final report

- to take up issues related on the implementation and administration of the measure

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- to initiate necessary changes to the measures under their responsibility if needed

implementation of necessary publicity actions concerning the implementation of each measure under their responsibility through a unit independent of implementation and payment procedures concerning operations, execution of sample checks on the operations approved (that shall cover at least 5 per cents of total eligible expenditure) under their sector and system audits, initiation of necessary actions based on the findings that have been made and reporting of the results of the sample checks and system audits to the Managing and Paying Authority as well as preparing reports on irregularities and recoveries on quarterly basis (see section 6.3 below).

6.1.3. IMPLEMENTING AGENCIES

There will be six Implementing Bodies (Implementing Agencies) in Lithuania responsible for the daily management of EU Structural Funds and respective national co-financing during the program period 2004-2006:

Central Project Management Agency; Lithuanian Business Support Agency of the Ministry of Economy; Transport Investment Directorate; Environment Implementing Agency; Human Resources Development Programs Support Foundation; National Paying Agency (ex-SAPARD).

Implementing Agencies will have the “project level” of responsibility. The main functions of Implementing Agencies will be to assist the Intermediate Bodies to implement the activities under the measures by daily administration and supervision of the supported projects:

organising the calls for proposals according to the guidelines given by the respective Intermediate Body carrying out the evaluation of project applications to see that the projects are prepared in accordance with guidelines, provided by Intermediate Body and are eligible under the Objective 1 SPD and the Programme Complement, preparing reports and recommendations on the basis on the evaluation and delivering them together with the project applications to the respective Intermediate Body (line ministry) for selection and approval informing the applicants about the results of the project selection day to day supervising of the implementation of the projects and initiating necessary actions if any problems are envisaged checking the eligibility of expenditures declared with the payment requests, including the provision of required co-financing, in accordance with the Structural Funds manuals and the Intermediate Body’s instructions and preparing the request for payment to Treasury, delivering them to the respective line ministries carrying out on-the-spot verification of the implementation of projects, their compliance with regulations and grant conditions, undertaking necessary actions in order to prevent and remove possible irregularities and reporting to the IB about the findings made entering the project data to the SF monitoring system (on the basis of application form), entering the administrative and monitoring information and decision to the system

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preparing reports on the implementation of the activities under their responsibility to be used on the preparation of the annual progress reports and final report or to some other purposes implementing necessary publicity measures, guidance and information for project promoters and potential applicants

Pursuant to Article 5 of Commission Regulation (EC) No 438/2001, Lithuania shall give detailed information to the Commission on the organisation of the Managing Authority, Paying Authority, Intermediate Bodies and Implementing Agencies/Final Beneficiaries and their management and control systems within three months after approval of SPD.

As a general rule, the Implementing Agencies will not own and/or implement projects supported by the Programme, hence they will act as facilitating bodies, carrying out a number of technical tasks on behalf of the Intermediate body (line ministry) and thereby assisting final beneficiaries in the implementation of their projects. In this capacity they constitute “intermediate bodies” within the meaning of Article 2(2) of Regulation 438/2001. Nevertheless, in some limited cases the Implementing Agencies will fall themselves into the category of “final beneficiaries”, within the meaning of Article 9 l) of Regulation 1260/1999, as they will be in charge of granting state aid to aid recipients. These cases would, inter alia, include Lithuanian Business Development Agency granting direct aid to business, Human Resources Development Programs Support Foundation granting aid to training, employment and other active labour market measures, and National Paying Agency (ex-SAPARD) granting aid to rural sector.

6.1.4. PAYING AUTHORITY

The Ministry of Finance will be the single Paying Authority (PA) for all four Structural funds under the Objective 1 SPD:

Ministry of Finance of the Republic of Lithuania

Tumo-Vaizganto 8a/2, Vilnius

LT 2600

The National Fund Department will undertake the functions of Paying Authority. The PA will be responsible for the functions that are mentioned in the Regulation 1260/1999, Article 32 and Article 9 of Regulation 438/2001. The unit performing the functions of Paying Authority will be functionally separate from the unit performing those of the Managing Authority and units performing tasks on the latter’s behalf.

The functions can be grouped as follows:

Receiving the funds from the Commission: The Commission will pay the payments according to each payment claim to the Paying Authority Transferring the Funds: the Paying Authority will transfer the funds to the Treasury, from where the direct payment for projects (final recipients) will be made. Paying Authority shall take care that the Funds will be paid to the final recipient as fast and efficiently as possible without any suspensions, reductions or additional costs Verification of payment claims received from intermediate bodies in accordance with Article 9(2) of Regulation 438/2001 and preparation, certification and submitting of

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declarations of expenditure and applications for payment to the Commission according to the procedures specified in the article 32 of the Regulation 1260/1999. Preparation and submitting of payment forecasts to the Commission keeping an account of amounts recoverable from payments of Community assistance already made, and ensure that the amounts are recovered without unjustified delay establishing a system to repay the irregular payments recovered, together with interest received on account of late payment, by deducting the amounts concerned from its next statement of expenditure and request for payment to the Commission, or, if this is insufficient, by effecting a refund to the Community

The PA shall have access to all documents related on the implementation of the funds. In addition, after the assessment of the risks associated with implementation of the process, it may carry out checks to satisfy itself that the Funds are used according to the EU requirements and following the principle of sound financial management, in this regard it will have its own control capacities. Moreover it shall receive reports of 5% sample checks and system audits that have been carried out by the Intermediate Bodies. The certificates of statements of interim and final expenditure referred to in Article 32(3) and (4) of Regulation (EC) No 1260/1999 shall be drawn up by a person or department within the paying authority that is functionally independent of any services that approve claims. Requests for the Commission shall be prepared and verified by the separate Financial Control Group of the National Fund Department of the Ministry of Finance while these requests will be approved by the Undersecretary of Ministry of Finance heading the Paying Authority. A separate Accounting Group within the National Fund Department, in its turn, shall make accounts of all transactions.

6.1.5. COORDINATION OF ESF MEASURES IMPLEMENTATION

The Ministry of Social Security and Labour together with the Ministry of Education and Science have taken the initiative of starting the establishment of the ESF Co-ordination Committee. The main goal of this Committee is to contribute to the effective planning and implementation of the ESF support and to coordinate activities of the key institutions involved in the EU structural policy as regards Human Resources Development. The committee shall involve the representatives of the Ministry of Social Security and Labour, Ministry of Education and Science, Ministry of Finance, Ministry of Economy, ESF Implementing body, and others who may become involved in a relevant area. Social partners shall also be invited to take part in the activity of the Committee.

The main aims of the ESF Co-ordination Committee shall be the following:

to ensure clear cross-references and horizontal links between SPD priorities and measures; to secure co-ordination of the activities of different institutions in relation to the ESF implementation, in particular setting up priority actions within the ESF measures, developing projects pipeline, etc. to coordinate the expected results of the ESF supported actions, discuss and evaluate the outputs and results of the measures. to monitor the process of the implementation of ESF supported measures and discuss problems arising, to provide agreed proposals for the Managing Authority and Monitoring Committee concerning changes to the SPD and Programme Complement, allocation or reallocation of financial resources, improvement of administrative system, project selection and evaluation criteria, etc.

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Figure 32: Institutional structure of Structural Funds in Lithuania

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6.2 PROJECT SELECTION PROCEDURES

Implementing Agencies

The full evaluation of project applications will be carried out in the Implementing Agencies, including administrative compliance check, SPD and EU and national policies compliance check, eligibility check, feasibility and sustainability assessment and other. The evaluation process will follow the selection criteria approved by the Monitoring Committee and the rules established by the Intermediate Body concerned and approved by the Managing Authority. According to the evaluation Agency will prepare report and recommendations and deliver them together with the applications to the respective IB responsible for the implementation of the measure concerned.

Intermediate Bodies

IB will have overall responsibility to allocate the EU funds and national co-financing allocated to their sector for SPD measures implementation. For that reason they have the major role when selecting the projects to be financed under the Objective 1 SPD.

The Intermediate Bodies will receive all project applications from the Implementing Agencies together with the evaluation report and recommendations and submit them to the Project Selection Committee, that will be established and chaired by the Intermediate Body concerned. It will also organise the secretariat services for the Selection Committee. Intermediate Body and Implementing Agency will prepare the necessary documentation to the Project Selection Committee and deliver them together with the summaries of project applications (standardised format described in the respective procedure manual) to the members of the Selection Committee before each meeting. As a general rule, one Selection Committee per each measure will be established, however in some cases, due to specifics of some priorities, e.g. Priority of Rural development, Agriculture and Fisheries, are number of measures could be grouped under one Selection Committee Project Selection Committees will be composed from different line ministries, national and regional partners (if there is no conflict of interest), related to the sector of measure implementation. The Composition of the Selection Committee will be agreed with the Managing Authority.

The recommendation of the Selection Committee will be binding to the relevant Intermediate Body. It will not be able to finance the projects, which are not approved by the Selection Committee. Intermediate Body may disagree with the Selection Committee recommendation, justifying its position and asking for reassessment of the respective project.

Managing Authority

Managing Authority ensure that the selection process is transparent and objective by approving the selection criteria, guiding the evaluation process, approving the composition of Selection Committees and participating in the Selection Committees.

6.3. ORGANISATION OF FINANCIAL CONTROL AND AUDITING SYSTEM

Managing Authority has the overall responsibility for setting up the proper implementation, sound financial management and control system of the Structural Funds co-financed operations and ensuring the issuance of appropriate guidance under Article 2

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of Commission Regulation No 438/2001 and a sufficient audit trail under Article 7 of the Regulation.

To this end, the Managing Authority will organise the issuance of Structural Funds manuals containing instructions for the functioning of the financial and administrative control system in the Intermediate Bodies and Implementing Agencies and for the performance of on the spot checks on projects and checks on payment claims, and ensure that the internal audit units of Intermediate Bodies perform the independent sample checks and system audits required by Article 10 of Regulation No 438/2001 in accordance with common standards.

All expenditures which will be reported to the European Commission must be certified as eligible before making an expenditure declaration to the Commission. The responsible body for certification of expenditure and applications for payment to the Commission under Commission Regulation (EC) No 438/2001, Articles 3 and 9 is the Paying Authority.

Verifications on-the-spot

Implementing Agencies are responsible for doing the on the spot verifications under the Commission Regulation (EC) No 438/2001, Article 4

On the spot check procedures will verify:

the delivery of the products and services co-financed the reality of expenditure claimed compliance with regulations and grant conditions Such checks will be based on documentation of individual operations on-the-spot and will be recorded to state:

the work done the results of the verification measures taken in respect of discrepancies.The Managing Authority and Paying Authority also have the rights to carry out on the spot verifications to see and analyze the projects progress and functioning of the Structural Fund administration and management.

Independent sample checks and system audits

The Intermediate Bodies will be responsible for carrying out the sample checks on projects - covering at least 5 % of the total eligible expenditure and based on a representative sample of operations approved - and system audits, as required by Article 10. of Regulation 438/2001. They could be performed by internal audit units of Intermediate Bodies or outsourced to external auditors. will perform in order to:

a) Verify the effectiveness of the management and control systems in place

b) Verify selectively, on the basis of risk analysis, expenditure declarations made at the various levels concerned.

The audits should be spread evenly over the period of 2004-2008. Internal audit units in each intermediate body are independent from other departments. They report directly to the Ministers.

The Managing Authority will ensure that an annual report on audit work is sent to the Commission in accordance with Article 13 of Regulation 438/2001.

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The Internal Audit unit of the Ministry of Finance carries out system audit of Managing Authority, Paying Authority and Treasury (makes all the payments to the Final Recipients). The Financial Control Methodology Department of the Ministry of Finance will be responsible for coordination of the work of sample checks and system audits by intermediate bodies, including establishment of common methodologies, in accordance with the Law on Internal Control and Internal Audit.

Winding up of the programmes

Under Article 38(1)(f)_of Council Regulation (EC) 1260/1999, a declaration must be drawn up by a person of Department independent of the designated Managing Authority at the time of program closure. Winding up of the program will be the responsibility of the National Audit Office of the Lithuania, 7th Financial Audit Department, which acts independently of all bodies involved in managing, auditing and making payments of Structural Funds. The declaration will be based on an examination of the management and control systems, of the findings of checks already carried out and, when necessary, of a further sample check of transactions. The declarant will make all necessary enquiries to obtain reasonable assurance that the certified statement of expenditure is correct and that the underlying transactions are legal and regular. The declaration will be drawn up on the basis of the indicative model in Annex III and shall be accompanied by a report which shall include all relevant information to justify the declaration, including a summary of the findings of all checks carried out by national and Community bodies to which the declarant has had access.

6.4. MONITORING SYSTEM

In order to follow the progress and performance of the SPD implementation, the comprehensive monitoring systems will be established.

The monitoring system will

cover the SPD and give aggregated data at Priority and Measure level as required by Regulation 1260/1999; respond to the specific monitoring and reporting requirements of each Fund; produce aggregated information on implementation at Priority and Measure level (aggregated from data collected at project level) and as agreed in the programming documents (SPD and PC); guarantee that the data collection chain is complete from the bottom up. That implies clear instructions on the data required, the organisation of the data collection, including quality checks and security control, and the precise definition of responsibilities of each actor involved (MA, PA, Intermediate Bodies, Implementing Agencies); satisfy the reporting needs of the national bodies and the COM as well as support audit and controls by the national audit services and COM’s services. ensure the adequate monitoring, financial management and control of co-financing streams. Provide the necessary information to the evaluationThe Managing Authority will ensure coherent and uniform definition and understanding of indicators to be used for monitoring purposes by issuing necessary guidelines. The structure of indicators, applied to the SPD, is based on the Working paper Nr. 3 on indicators for monitoring and evaluation.

Monitoring Committee

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Pursuant to Article 35 of Council Regulation (EC) No 1260/1999, the Monitoring Committee will be set up not later than three months after program approval. The MA is responsible for initializing the setting up the Monitoring Committee in consultation with the partners (Regulation 1260/1999, article 35(1)) and for supporting its activities. The Committee shall be chaired by the representative of the Ministry of Finance.

Social partners are consulted in setting up the Committee. Based on the already existing experience when drafting the SPD, it is estimated that the Committee will include representatives of around 10 most representative socio-economic as well as regional/local partners, which were similarly included in the preparations of the SPD. Moreover, as for membership of the Committee the principle of balanced participation of men and women shall be adhered to.

Other members of the Monitoring Committee shall be representatives of Paying Authority, Intermediate Bodies as well as Implementing Agencies. Representatives of the Commission and the European Investment Bank shall participate on the work of the Monitoring Committee in an advisory capacity. The Monitoring Committee shall prepare and approve its rules of procedure.

The Managing Authority shall function as secretariat to the Monitoring Committee. It shall be responsible for the preparation of documentation relating to monitoring, reports, agenda and summary records of meetings. The Managing Authority can involve the other institutions on the work of the secretariat if it is seen necessary during the implementation period.

The Committee shall normally meet twice a year or more frequently, if necessary. Pursuant to Article 35 of Council Regulation (EC) No 1260/1999, the Monitoring Committee has, among others, the following tasks:

it shall confirm or adjust the program complement; it shall consider and approve the criteria for selecting the operations financed under each measure within six months of approval of the SPD; it shall periodically review progress made towards achieving the specific objectives of the assistance; it shall examine the results of implementation, particularly achievement of the targets set for different measures; it shall consider and approve the annual and final implementation reports before they are sent to the Commission; it shall consider and approve any proposal to amend the contents of the Commission decision on the contribution of the Funds; and it may propose to the managing authority any adjustment or review of the assistance likely to make possible the attainment of the Objectives of the Structural Funds or to improve the management of the assistance, including financial management (although any adjustment would be subject to the procedure set out in Article 34(3) of the Regulation). the periodic review of progress should be carried out annually in conjunction with the preparation of the annual implementation report. Where the Monitoring Committee considers it necessary or desirable, the periodic review may be carried out more frequently. Decide on the annual focus of the funds available according to the proposals made by the Intermediate Bodies.

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6.5. DATA COLLECTION AND ELECTRONIC TRANSMISSION

For storing, aggregating and reporting on data, it is decided, that Lithuania will develop one national Structural Funds Management and Monitoring Information system (SFM IS), which will ensure the transparency and accessibility of the financial and operational data of the activities, supported by the EU Structural Funds assistance, as it required in the articles 36,42 and 43 of Regulation 1260/1999.

The SFM IS will facilitate a smooth data transfer between the Payment information system (National Navision based Budget Management and Accounting System will be used) and the operational database being used by Lithuanian public administration.

The system will ensure the data transfer between the Managing Authority and the EU Commission (as defined in article 18(3) of 1260/1999 and, for audit purposes, Article 18 of Regulation 438.2001).

The system will be as unified as possible for all SF users but taking into account the specifics of different Structural Funds. SFM Information system should allow to follow the operational and financial sides of:

the single project, financed by any Structural Fund and Cohesion Fund, implementation the SPD measure progress the whole SPD progress

The SFM IS will provide support for the following basic functions:

1. Management function: registering of projects, evaluating of the projects, registering of the selection process, monitoring the liabilities and payments, monitoring SPDs and projects implementation and financial flows, including the results of on-the-spot verifications, monitoring revisions and checks. This information service also comprises the provision of aggregated data that allow the easy detection of project problems with respect to time schedule, payments etc.

2. Information function: provide information about the state of EU Structural Funds, informing about rejected and accepted projects, informing about decisions on the approval and monitoring of EU and national funds. The system should reflect the methodology of audit trails.

3. Reporting function: provide information about the project progress, prepare aggregated tables for reports, provide expenditure information, collect information for the needs of ex-ante, mid-term and ex-post evaluations, support electronic transmission of reports to the European Commission (for audit purposes, following the requirements formulated in the annexes IV and V of Regulation 438/2001).

With the support of SFM IS all institutions concerned will obtain sufficient information from lower level to justify their accounting records and the sums reported upwards, so as to ensure a sufficient audit trail from the total summary amounts certified to the Commission down to the individual expenditure items.

The SFM IS will be developed by Managing Authority in close cooperation with the number of institutions (Intermediate and Implementing Bodies, Paying Authority). The design and development of the system has already started. It is planned that the data entering function will be implemented from the beginning of the year 2004, the reporting to the

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Commission in the required format will be functional from May 1, 2004, and the whole system will be fully functional by September 2004.

6.6. MOBILISATION AND CIRCULATION OF FUNDING

The Commission shall pay the respective EU Funds to the Paying Authority’s separate account to be opened in the Bank of Lithuanian (BoL) for each of the Funds.

The Structural Funds money, allocated to the particular measures, is planned under relevant Intermediate Bodies budget lines. The intermediate bodies will also have the necessary national co-financing in their budget lines.

Payment requests from the final recipients will be received by the Implementing Agencies that will be responsible for the technical checking of the payment claims as well as the eligibility checking in accordance with the Structural Funds manuals and the instructions of the responsible Intermediate Body. After the checking the payment request, Implementing Agencies will complete the payment claim for Treasury and submit it for check and approval to the Intermediate Body.

The Intermediate Body will approve the payment claim and submit it to Treasury by entering to the National Budget Management and Accounting System. After the Treasury has received a payment request, it shall perform its checks according to the national procedures described in the Treasury Manual. After the check has been completed the Treasury shall transfers the money (both EU and national co-financing) to the recipients, indicated in the payment claim, submitted by Intermediate Body.

The certification of expenditures shall be given by the Paying Authority. To satisfy itself about the correctness of the payment information and the functioning of the SF management system the Paying Authority shall carry out checks itself, follow the results of sample checks and system audits carried out by the Intermediate Bodies and check from the SF monitoring system the results of the on-the-spot verifications made by the Implementing Agencies. The Intermediate Body will submit periodically the certified statements of expenditures to the Paying Authority.

The payment applications to the Commission shall be based on the information that has been gathered from the Intermediate Bodies responsible for the implementation of certain measures and that has been certified by them. The certified payment information received from the IBs shall be reconciled with the information in the SF monitoring system and to the State Accounting system in Treasury to ensure that the information is correct.

The Paying Authority, having received the statement of expenditures from the Intermediate Bodies and Treasury data about the transfers made to the projects, transfers the same amount of money from the account of a respective Structural Fund to the accumulating account of the Treasury.

In certain cases advances from national co-financing part may be made to projects. For all projects, final payments are not made until projects have been completed and checked under Article 4 of Regulation 438/2001.

The Managing Authority is responsible for ensuring that supporting documents are stored at all levels of administration in an adequate manner.

Irregularities and reimbursements

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According to the Commission the Member State shall ensure investigation and satisfactory treatment of apparent irregularities reported following either national or Community controls. As soon as irregularities are noted, the established principle is to recover (or set off against payments still outstanding) any undue payment together with, if relevant, interest on late payments.

According to the SF resolution the Intermediate Bodies as managers of the different measures are responsible for making financial corrections in cases where irregularities have been found. The Intermediate Bodies shall prepare reports on irregularities and money to be recovered and submit them to the Paying Authority and the Managing Authority on the quarterly basis.

Reimbursements shall be made by the authority that has made the financing decision, e.g. the respective Intermediate Body. The Funds that have been reimbursed during the programming period will be re-allocated. After the closure of the program any remaining funds shall be returned to the State Treasury and further to the Paying Authority and reimbursed to the Commission.

All institutions, having established grave infringements in the use of EU SF and national co-financing money or having received information thereupon, should inform the Financial Crimes Service under the Ministry of Interior, which act as national representative of OLAF in Lithuania.

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ANNEXES

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ANNEX I

HUMAN RESOURCE DEVELOPMENT REFERENCE FRAME(COMPLIANCE OF HUMAN RESOURCE DEVELOPMENT PRIORITY WITH NATIONAL EMPLOYMENT STRATEGY)

1. INTRODUCTION

The assessment of compliance of the Human Resources Development Priority with the National Employment Strategy has been prepared in accordance with the requirements of the Council Regulation No. 1260/1999 laying down general provisions on the Structural Funds and the Regulation No. 1784/1999 of the European Parliament and of the Council on the European Social Fund. The purpose of the assessment is to provide a justification for the strategy for the assistance of the European structural funds in the human resources development area in line with the national employment policy strategy formulated in the National Employment Increasing Programme for 2000-2004 and the Joint Assessment Paper on Employment Priorities in the Republic of Lithuania.

The Human Resources Development Policy Frame of Reference is based on the European Employment Strategy for the year 2002.

European Employment Strategy

Important steps in resolving the European Union’s employment and unemployment problems have been taken at the Amsterdam Summit in 1997. The EC Treaty was supplemented by the Employment Title, which provides for the formulation and implementation of the European employment strategy. One of the most important outcomes of the Amsterdam Summit is that economic and employment policies were closely interlinked on the EU level for the first time in pursuance of job-creation and employment increasing aims. The problem of employment is treated as a common-interest area relevant to all the Member States and, though each of them is responsible for its policies, these policies must be in line with the single European strategy and must be coordinated in accordance with the employment guidelines set by the European Council on an annual basis.

The EU Member States shall prepare annual national employment action plans in line with the European Employment Guidelines. The 2001 European Employment Guidelines include 18 guidelines grouped around four pillars:

development of employment capabilities; promotion of job creation and entrepreneurship; promotion of business and employee adaptation to change; strengthening of equal opportunities for men and women.

Along with the four pillars, horizontal objectives have been established. The EU Member States were guided by these horizontal objectives while implementing their national employment action plans. Firstly, it is recommended that the Member States would set quantifiable targets in the area of increasing employment level. Secondly, the Member States should develop life-long learning strategies and increase investments in human resources with the aim to improve adaptation to socio-economic changes and contribute to the creation of the information society. The third horizontal objective involves development of social partnership needed for the implementation of employment strategies. Fourthly, the Member States must ensure integrated and balanced implementation of the employment policy priorities in line with the Employment Guidelines and the horizontal objectives. The fifth objective centres on the necessity to

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develop coherent indicators for the evaluation of progress in implementing the Employment Strategy.

In 2003 a fundamental review of the Employment Strategy was carried out as a result of which the Employment Strategy has been oriented towards contributing more effectively to the medium-term goals set at Lisbon and Stockholm, that is to say the aim of achieving 70% employment participation rate overall, 60% for women, and 50% for those aged over 55. In the Spring of this year, the European Council confirmed that the Employment Strategy has the leading role in the implementation of the employment and labour market objectives of the Lisbon strategy. The revision of Guidelines should enable the European Employment Strategy to act more clearly as a key instrument in promoting this agenda and in accounting for the challenges of an enlarged European Union.

The revised Guidelines provide for achieving three over-arching objectives: full employment, quality and productivity at work and social and economic cohesion. Instead of former guidelines there are 10 key and equally important priorities, each of which relates to one, two or even three of the overarching objectives. The final component consists of principles for good governance. All three elements of the Guidelines are to be reflected in National Employment Action Plans and will be monitored at EU level. It is relevant to point out that these Guidelines do not represent a radical change from the 2002 Guidelines, but rather a more rational organisation, with a stronger emphasis on some aspects.

Interrelation among the European Employment Guidelines, the National Programme for Promotion of Employment in the Republic of Lithuania during 2000-2004 and the Single Programming Document of the Republic of Lithuania

Although the analysis presented in this paper is based on examination of compliance of the Lithuanian employment policy with the Employment Guidelines of the year 2002 and focuses on four pillars rather than on individual guidelines, it is consistent with the 2003 formulation of the European Employment Strategy, whose principles, as pointed out above, have not radically changed. Attention is focussed on demonstrating the relationship between the National Employment Increasing Programme and the priorities identified in the Single Programming Document (SPD).

The assessment of compliance of the SPD Human Resources Development Priority with the National Employment Strategy reveals specific political priorities forming the basis for the SPD Human Resources Development Priority measures and demonstrates how the SPD strategy both supports the implementation of the National Programme for Promotion of Employment and contributes to the strengthening of socio-economic cohesion in Lithuania.

2. OVERVIEW OF THE EMPLOYMENT POLICY PRIORITIES OF THE GOVERNMENT OF THE REPUBLIC OF LITHUANIA 1.1. Overview of the objectives and tasks in the employment and human resources development areas identified in the Programme of the Government of the Republic of Lithuania for 2000-2004

The main objectives of the Government of the Republic of Lithuania as stated in its Programme for 2000-2004 includes increasing employment, reducing poverty, and focussing attention on investments in human resources, development of information and knowledge society as well as science and technology.

To attain these objectives, the Government intends to devote more attention to unemployment reduction and prevention; promote investments; increase support for business in the regions; address labour qualifications and local-market orientation issues, pursue a pro-active labour market policies; develop vocational and labour market training, vocational guidance for young people, long-term unemployed, disabled persons,

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persons of pre-pension age, women and various risk groups; increase scope of public works and supported works combining them with training; enhance adaptation of both employers and employees to market changes. Other important Government priorities in the area of employment and labour policy include improvement of labour market institutions and development of social partnership.

As regards the professional training area, the Government seeks to ensure that the transition from a secondary school to higher studies would be as smooth as possible and based on agreed requirements and a stable and clear system of checking knowledge and capabilities; implement children’s socialisation and crime prevention programmes; create conditions for children from national minorities to learn (in) the mother tongue; speed up the schools computerisation programme and develop the Schools’ Information System; enable schools to use the Internet. According to the Programme, the Government intends to optimise the network of vocational schools and colleges, formulate the national strategy for the development of education system, create a coherent system of pedagogues’ training, skills improvement and retraining, and provide state financial support for the pedagogues engaged in professional development.

In the area of science and studies, the tasks set by the Government include the formation of a network of universities and third-level colleges in line with the interests and needs of the country and its regions; defining of relations and division of works between the latter and university higher schools; reforming of the network of research and study establishments; start restructuring of public higher schools; seek a balance between the supply and demand of/for trained specialists; ensure high quality of studies by implementing international accreditation of study programmes; ensure that qualifications of trained specialists would meet the market needs; promote establishment of joint research/business undertakings based on results of new researches; develop the network of business incubators; encourage international mobility of lecturers and students.

1.2. Conclusions and recommendations contained in the Joint Assessment Paper on Employment Priorities in the Republic of Lithuania

In accordance with the provisions of the Accession Partnership, the Government has prepared, jointly with the EC Directorate General for Employment and Social Affairs, a joint assessment of Lithuania’s short-term employment and labour market policy priorities. On 12 February 2002 the Joint Assessment Paper on Employment Priorities in the Republic of Lithuania was signed by the European Commission and the Minister of Social Security and Labour authorised by the Government. The document sets out an agreed set of employment and labour market objectives necessary to advance the transformation of the country’s labour market and to make progress in adapting the employment system so as to be able to implement the Employment Strategy and to prepare it for the EU accession.

The focus of the Joint Assessment Paper is on the fundamental challenges in the area of employment. These challenges consist, first of all, in recognising that labour market should reflect the needs of a dynamic market economy as part of a single market, in particular whether labour is mobile, adaptable and skilled. Secondly, there must be policies and appropriate institutions that support the development of a flexible labour market. This includes the need to promote a forward-looking approach to industrial restructuring in order to adapt to knowledge-based economy and to deal with demographic change.

The document contains an analysis and assessment of labour market, wages, taxes, human resources development and equal opportunities policies. It identifies a number of priority policy areas where progress is still needed and where ongoing monitoring should be carried out in the context of the employment policy review:

sustained commitment to successful implementation of current education reforms, with a particular focus on reducing drop-out in basic education, on improving access,

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quality and relevance in vocational education, and on developing and implementing a national strategy for lifelong learning; promoting employment-friendly wage developments through support for the collective bargaining system and through consideration of whether the minimum wage should be differentiated, particularly for young people; reforming unemployment benefits and social assistance for the unemployed in order to improve coverage, eliminate disincentives, and emphasise activation rather than passive receipt of benefits; developing a detailed action plan for the reform of the public employment service, including a necessary increase in the service’s resources so that it can play a more active role in the reintegration of unemployed people; expansion of active labour market programmes while re-balancing provision away from temporary work in favour of training and other measures designed to increase employability; ensuring effective regional management and consultation structures for labour market services in the context of a coherent national strategy for broader regional planning across all areas of economic and social development; further strengthening equal opportunities legislation.On the one hand, the Joint Assessment Paper on Employment Priorities in the Republic of Lithuania represents an important step in Lithuania’s preparations for participation in the European Employment Policy’s coordination process. On the other hand, it is one of the fundamental strategic employment policy documents identifying those employment and human resources policy priorities which will be implement both through national measures and the ESF investments.

3. THE NATIONAL PROGRAMME FOR PROMOTION OF EMPLOYMENT DURING 2000-2004 AND ITS RELATIONSHIP WITH THE EUROPEAN EMPLOYMENT GUIDELINES The National Employment Increasing Programme for 2001-2004 was approved by the Government resolution No. 529 of 8 May 2001. The Programme is a strategic document determining the national employment and labour market policy strategy, the medium-term priority objectives in this area, and the measures to increase employment intended to be implemented by the Government and other authorities. The Programme makes more exact the main provisions of the Government Programme for 2000-2004 in the economic, labour, social, education and other activity areas influencing employment.

The strategic objectives of the National Programme for Promotion of Employment (“the Programme”) are as follows:

eliminate the negative effects of the structural economic reform and external factors upon employment and labour market; increase employment, reduce unemployment and achieve balance in the labour market; prepare for participation in the European Union Employment Strategy coordination process.To attain these objectives, the growth in unemployment is to be halted in the short term, with a later consistent lowering of the registered unemployment level down to 7-8%. In the programme implementation period, favourable conditions for business development and investments are to be provided to ensure creation of 110,000-120,000 new jobs. This would enable to further increase employment up to the EU Member States’ average, the aim being to achieve full employment.

Apart from these objectives, the Programme aims to prepare for participation in the united process of coordination of the European Employment Strategy. The Programme

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has been prepared taking into account the main provisions concerning formulation and implementation of the single employment policy strategy adopted at the Amsterdam Summit in 1997 and the Council recommendations to the Member States for the Employment Guidelines implemented by the Member States by preparing annual national action plans for increasing employment.

By its content and form, the Programme is a response to the European Employment Strategy. It must be noted that the Programme does not follow the European Employment Guidelines in detail but its structure and content are substantially in line with the above-mentioned four pillars; in some cases, the sequence and content of the pillars are slightly different. It should also be pointed out that the Lithuanian Programme has an additional fifth pillar related to the country’s need to develop, in the present stage, the institutional system and strengthen administrative capacities and is intended for the improvement of the employment and labour market policy management system.

The five pillars of the Programme:

1. Development of job system (promotion of entrepreneurship).

2. Improvement of support for employment.

3. Enhancing capabilities to adapt to change.

4. Increasing equal opportunities in the labour market.

5. Integration of employment policy.

1. Development of job system

1.1. Improvement of the job-creation promoting system

1.2. Encouraging local employment initiatives.

The first pillar of the Programme formally corresponds to Pillar 2 of the European Employment Guidelines (Development of entrepreneurship and jobs). The European Employment Guidelines focus on support for enterprises, particularly small- and medium-size enterprises and beginners, elimination of administrative and tax barriers, formation of a tax system favourable for employment, and encouraging of regional and local employment initiatives.

The measures of the first pillar of the Programme provide for the improvement of the system for the promotion of job creation by developing appropriate support structures and pooling funds for this purpose from various sources (programmes financed from the state budget, Privatisation Fund, Employment Fund, local funds, other EU international assistance programmes etc.). Development of local employment initiatives based on cooperation of local partners is to be promoted; this would form a basis for the development of local economy, increasing employment and resolving of problems of unemployment, poverty etc. faced by the most vulnerable social groups.

2. Improvement of support for employment

2.1. Activation of labour market policy

2.2. Enhancement of employment capacities

2.3. Improvement of vocational training

2.4. Strengthening cohesion between employment and social policy

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Pillar 2 of the Programme corresponds to Pillar 1 of the European Employment Guidelines (Improvement of employment capacities).

Just as in the European Employment Guidelines, the pillar of the Programme covers activities and measures designed for increasing employment capacities of young people and long-term unemployed; prevention; improving vocational training and vocational guidance/consulting systems and optimising activities of relevant institutions; making the labour market policy more pro-active; improving the ratio between passive policy (compensation mechanism in case of unemployment) and active policy (vocational training for the unemployed, arranging for temporary employment etc.); increasing activity of the unemployed in the labour market; improving access to training; reducing number of school drop-outs; increase support for those having learning problems; achieve that all young people capable for learning would acquire basic education and vocation in a consistent education system; improve adaptation in the first workplace by young people having acquired professional qualifications and encourage their territorial mobility.

3. Enhancing of capabilities to adapt to change

3.1. Development of flexible work organisation and payment forms

3.2. Improvement of employee qualifications

3.3. Mitigation of effects of structural changes

Pillar 3 of the Programme formally corresponds to Pillar 3 in the European Employment Guidelines (Promotion of business and employee adaptation to change). However, the Guidelines emphasise the importance of social partnership in modernising work organisation, improving health and safety at work, and ensuring conditions for lifelong learning at enterprises, while in the Lithuanian Programme the pillar is focussed on improving employee qualifications and mitigation of effects of structural changes, thus covering issues related to Pillar 2 of the Guidelines.

To implement measures covered by this pillar, flexible work organisation and payment forms are to be developed, fixed-term, home-working and distant-working forms of employment are to be encouraged, self-employment and seasonal work is to be promoted. Measures to encourage employee professional development and preventive training and to form an informal employee training system are envisaged. The pillar also includes measures to mitigate effects of structural changes: improvement of the employee group redundancy mechanism including all interested parties and simplification of the enterprise bankruptcy procedures.

4. Increasing equal opportunities in the labour market

4.1. Achieving equal access to labour market

4.2. Ensuring equal labour market opportunities for men and women

4.3. Support for employment of the disabled

Pillar 4 corresponds to Pillar 1 of the European Employment Guidelines (Improvement of employment capabilities) concerning minimisation of discrimination and encouraging social involvement and to Pillar 4 (Strengthening of equal opportunities for men and women).

The main objectives falling under this pillar include achieving equal access to labour market, ensuring equal labour market opportunities for men and women, and support for employment of disabled persons. To attain these objectives, compulsory quotas for employers employing socially vulnerable persons will be abandoned replacing them with a mechanism of economic incentives; involvement and integration into the labour market by socially vulnerable groups will be increased, linking this with the social assistance system; targeted local labour market programmes will be elaborated to increase

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employment of socially vulnerable groups; implementation of the principle of equal opportunities for men and women will be improved; women’s small- and medium-size business will be supported, economic independence and self-employment initiatives will be supported; conditions for parents to combine work- and family-related duties will be created (flexible work organisation forms, access to quality childcare services, social assistance to families etc.).

5. Integration of employment policy

This part of the Programme covers activities and measures aimed at:

improving employment and labour market management system; increasing policy integration and decentralising employment policy-making and implementation; developing trilateral cooperation; strengthening and reorganising the labour market institutional system and achieving coordination between the labour market institutions’ management structures/activities with the ongoing territorial administrative reform and new conditions under which labour market is functioning: modernise local labour exchanges, increase their capabilities to quickly and flexibly respond to changes in the labour market, diversity services provided by labour exchanges; develop activities of private employment intermediaries and strengthen their cooperation with the National Labour Exchange.

4. THE HUMAN RESOURCES DEVELOPMENT PRIORITY OF THE SINGLE PROGRAMMING DOCUMENT AND ITS LINKAGE TO THE NATIONAL EMPLOYMENT POLICY The ESF investments in the human resources development provided for in Lithuania’s Single Programming Document support and supplement the employment policy pursued by the Government of the Republic of Lithuania, the objectives and targets of which are established in the above-mentioned documents - in the National Programme for Promotion of Employment during 2001-2004 and the Joint Assessment Paper on Employment Priorities in the Republic of Lithuania.

Based on the case study and priorities established in the employment policy strategy documents, the ESF investments will be earmarked for the attainment of the following objectives:

increase labour competencies and capabilities to adapt to labour market requirements; improve quality of and access to education and vocational training; reduce social exclusion and ensure wider social integration.

These objectives are to be gained by investing into the following five measures:

Development of employment capabilities Increasing of labour competencies and adaptation to change Prevention of social exclusion and social integration Increasing of potential of specialists with highest qualifications Promotion of conditions for lifelong learning.

The ESF assistance will cover, to varying extent, all five policy areas identified in the ESF regulations taking into account national priorities.

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ESF policy field I. Active labour market policy to support employment

Regulation 1784/1999, Article 2a:

Developing and promoting active labour market policies to combat and prevent unemployment, to prevent both women and men from moving into long-term unemployment, to facilitate the reintegration of the long-term unemployed into the labour market, and to support the occupational integration of young people and of persons returning to the labour market after of period of absence.

As it has already been mentioned, active labour market policy development, prevention of unemployment and integration of young/long-term unemployed into labour market are main objectives identified in the National Programme for Promotion of Employment during 2001-2004 (“the Programme”). The following measures have been provided for in the Programme to attain these objectives:

development of the system of individual work with the unemployed: ensure that each unemployed person that has registered in a local labour exchange would be included in the active labour market policy measures; development of activities of youth labour centres and independent professional information centres; extending the scope of the programme “First Step in Labour Market” to cover all persons looking for a job for the first time; development of a database of highly-qualified persons starting working activities (“Talents Bank”); improvement of preventive measures to combat long-term unemployment and introduction of new labour market policy instruments; ensuring the following rates of unemployed persons’ involvement in short-term training programs for long-term unemployed after 12 months from registration with local labour exchanges: in 2002 – at least 50%, in 2003-2004 – at least 60-70%; development of local employment initiatives; elaboration of periodic labour market needs analyses and forecasts; strengthening of the labour market institutional system in order to ensure its effectiveness under new labour market conditions: modernise local labour exchanges; increase their capabilities to quickly and flexibly respond to labour market changes, diversify services provided by labour exchanges; improve employee skills.

Improvement of the system of individual work with the unemployed is aimed at increasing their motivation and speeding up their integration into labour market through active labour market policy measures. In 2001, individual employment plans were drawn up for 78.2% of the unemployed on common agreement basis; their participation in the active labour market policy measures and other bilateral obligations have been provided for.

Increasing of unemployed persons’ involvement in the active labour market measures is based on individual employment plans. In 2001, 106,600 persons (42.6% of registered unemployed) participated in such measures, including 34% - starting working activities; 39% - long-term unemployed. 134,000 persons were employed through labour exchanges.

Over 2,600 long-term unemployed improved their skills or acquired profession at labour market training centres in 2001. Non-traditional forms for maintaining working and professional skills of long-term unemployed are developed. Draft procedures for organisation of maintaining of working and professional skills of long-term unemployed have been elaborated. It is planned that in 2002 training of long-term unemployed will be

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organised on the place-of-residence basis, coordinating with job clubs’ activities, public works and other active labour market measures designed for long-term unemployed.

In order for long-term unemployed to retain their professional skills, 5 short-term (1-2 week) periodic vocational training programmes including practical training (modules) have been developed. Their purpose is to strengthen motivation to search for jobs and to maintain working skills/qualifications though individual professional and psychological guidance measures.

Activities of youth job centres are being developed. At the Vilnius Youth Job Centre, the scope of open information services has increased by 14.2% in 2001 as compared with 2001. The network of such centres is expanded based on experience accumulated by the Vilnius Centre: in 2002, youth job centres were opened in Šiauliai and Klaipėda; opening in Alytus and Panevėžys is planned for 2003.

The National Labour Exchange is extending the programme “First Step in Labour Market” for persons starting their working activities. In 2001, 31,800 such persons turned to the NLE for work, including 84% persons under 25 years, half of them without any vocational training. 90% of persons starting working activities have been included in active labour market policy programmes, focussing attention on training in job search methods.

The Talents Bank Programme, aimed at meeting the employers’ demand for highly qualified employees and creating opportunities for youth to make a career, is being expanded. In developing the Talents Bank in 2001, priority was given to the development of a database of career-seeking employees and graduates. The number of participants in the programme increased from 700 to 2,900.

The NLE prepares labour market forecasts on a period basis, which are used for determining professions in greatest demand, labour supply trends, employment opportunities etc. both on national scale and locally. The labour market needs determined on the basis of forecasts are taken into account while improving/developing new training and study programmes.

To achieve closer cohesion between employment and social policy, the draft concept of the Law on Social Employment Enterprises has been formulated. The law should facilitate resolution of the problem of labour market reintegration of the unemployed that have lost incentives to work by combining the functions of vocational training, social assistance and psychological aid.

Increasingly more funds are allotted from the Employment Fund for the financing of the active labour market policy measures. In 2001, LTL 59.5 m were used for this purpose (in 2000 – LTL 39.1 m). In 2002, LTL 75.4 were allotted for financing of the active labour market measures.

However, the Joint Assessment Paper on Employment Priorities in the Republic of Lithuania emphasises that expenditure for active programmes is still relatively low and participation of the unemployed in the programmes is insufficient given the scope of unemployment in Lithuania. The main active measures (excluding retraining of the unemployed) were the temporary programme of public works, subsidies for employers for employment purposes, and job club activities. The structure of expenditure was as follows: retraining 46%, temporary public works 34%, employment subsidies 17%. The average annual number of programme participants in 2000 (excluding job clubs) – maximum 8000, or over 3% of all registered unemployed. The demand for places strongly exceeds supply, particularly in the area of vocational training. The active programmes are over-focussed on temporary works, which account for 1/3 of the total programme funds and for even greater part of programme participants. Short-term employment cannot resolve the problem of permanent employment and adaptation to labour market changes.

The Joint Assessment Paper states that recruitment to labour market programmes must be more targeted in order to achieve greater contribution of these programmes to the implementation of employment strategy. At the same time, the focus of the active

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programmes should be shifted from temporary jobs to training and other programmes intended for permanent employment and acquisition of qualifications/skills; the projected number of participants and expenses should be increased considerably.

The paper also stresses that the staff and other resources and structures of the National Labour Exchange are insufficient for the NLE to provide services meeting the changing needs of the Lithuanian labour market and to effectively contribute to the implementation of the active employment strategy.

Therefore, the ESF funding will be used for elimination of the above-mentioned shortcomings by investing into Measure 1 Development of employability of the Human Resources Development Priority. The purpose of the measure is to increase employment capabilities of the unemployed, improve integration into labour market, and prevent unemployment. The main tasks are as follows:

extend application of active labour market policy measures and increase participation of unemployed and those who are threatened by unemployment; support creation of new jobs by implementing local employment initiatives; increase institutional capacities of the labour exchange system.Attention will be focussed on young and long-term unemployed, unemployed persons without appropriate professional qualifications, and persons threatened by unemployment.

The ESF investments will be earmarked for the application of new methods and instruments aimed at a balanced labour market and better integration of the unemployed into labour market. Effective labour market and qualifications needs analyses will be coordinated with the development of new training programmes; participation of the unemployed in the programmes will be more targeted; funds will be concentrated on those active labour market policy programmes which produce long-term effects, enable people to find permanent employment, improve their skills and provide knowledge/capabilities complying with the market requirements. The activities to be supported include training and skills improvement for the unemployed (particularly in such basic areas as teaching languages and development of ICT literacy), activation and motivation of the unemployed, training in job search methods, drawing up of individual employment plans, vocational guidance and consulting, on-the-job training, training combined with support for employment, and training/support for persons starting their own business.

In order to successfully attain these objectives, capacities of the National Labour Exchange as the public employment agency must be strengthened including staff skills improvement. Wider introduction of information technologies will strengthen labour market capacities since, as it is stated in the Joint Assessment Paper, at present the IT use for intermediation and related services is very limited, which, in its turn, limits the local exchanges’ possibilities to offer appropriate self-help measures that could reduce the workload of the client service staff, freeing them for a more active work with the priority groups of the unemployed. Therefore, this measure will also support the development of the labour exchange institutional capabilities through such activities as development of new services for persons seeking jobs and for employers (including through extended use of ITs), search for and improvement of new work organisation methods and methods of work with the unemployed, specialist training and skills improvement, and introduction of quality assurance systems.

Development of local employment initiatives represents another area of investing ESF funding. Local employment initiative projects, which are currently financed out of the state budget, is an example of successful development of local communities and partnerships. The purpose of such projects is to consolidate efforts by local communities to jointly address problems of unemployment, with the state financial aid to employers that create new jobs for the unemployed. 87 projects were presented in 2001; 16 projects were selected and successfully implemented in 5 districts of Lithuania utilising LTL 1.2 m

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and creating over 150 new jobs. The ESF funding will expand the scope of this aid considerably and create possibilities to extend and share the experience gained.

ESF policy field II. Equal opportunities for all and promotion of social inclusion

Regulation 1784/1999, Article 2b:

Promoting equal opportunities for all in accessing the labour market, with particular emphasis on those exposed to social exclusion.

The following objectives are included in the National Programme for Promotion of Employment during 2001-2004:

reduce economic and social exclusion of socially vulnerable persons, increase their economic and social security and interest in work, facilitate their integration in the labour market, create conditions for continuous improvement of qualifications enabling to adapt to economic and technological change, thus minimising the risk of exclusion from labour market; increase social and economic activity, independence and self-confidence of disabled persons as well as their responsibility for their position in the labour market; develop an employment support system that would be accessible for all disabled persons wishing to and capable for work so that such persons could compete in an open labour market or find employment in specially adapted workplaces or seek self-employment; adapt labour market vocational training programmes (including distant training programmes) to individual groups of the disabled; organise training and skills improvement for staff engaged in professional rehabilitation of the disabled and for labour market consultants working with the disabled.Some measures identified in the Programme have already been implemented. With the aim to improve the legal framework, the mechanism of employment of certain most vulnerable social groups and of job creation compulsory to employers has been replaced with economic incentives by the Law on Amending Articles 5,7,11,13,14,16¹,19,20¹ and 22 of the Law on Support of the Unemployed (Žin. 2002, No. 2-51). The set employment quotas apply only to Group I and II disabled persons – persons whose integration into labour market poses greatest difficulties. Employers who employ such persons in additional jobs established by the quotas receive employment support subsidies to defray the job creation/adaptation costs (the subsidies are paid during the period of employment up to 1.5 year). The employment support subsidies are also granted to employers that have employed, under agreement with a labour exchange, Group I and II disabled persons in enterprises with less than 50 employees.

Jobs for other unemployed persons entitled to additional labour market support are created under agreements between labour exchanges and employers, with the subsidies granted to employers out of the Employment Fund to defray job creation costs. The law also establishes the new principles of additional support for the unemployed. In case if the employment support measures provided for in the law are insufficient to eliminate labour supply/demand disproportion due to structural changes or liquidation/reorganisation of enterprises, employment programmes will be prepared. Financing of the employment programme measures out of the state budget, municipal budgets, the Employment Fund and other regional development funds has been provided for.

In 2001, sociological studies into social and vocational needs of convicted persons were carried out by the Labour and Sociological Research Institute on assignment of the Ministry of Social Security and Labour. The purpose of the studies was to analyse social adaptation problems encountered by persons that have returned from places of imprisonment and to identify social and vocational needs of such persons. The conclusions and recommendations formulated are being used for the development of such persons’ social adaptation system.

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A special mobile vocational guidance centre has been established within the Labour Market Training Services of Panevėžys. The centre focuses on vocational guidance for young convicts. About 300 convicts participated in 4 group programmes organised in 2001. A project “Formation of Social Adaptation Skills in a Youth Group in the Corrective Labour Colony” was implemented in the Panevėžys corrective labour colony. The purpose of the project was to assist convicted women under 30 convicted for the first time in acquiring skills necessary for social adaptation.

A training and employment programme for the Romanies (Gipsies) of Vilnius city has been developed. Taking into account the Romanies’ education levels, 7 relevant work training programmes in line with the labour market demand have been adapted and 3 informal training programmes that may be of use for everyday life of the Romanies were prepared, however, due to specific motivation approaches and lack of activity by this demographic group the programmes are not implemented as yet.

In 2001 the Lithuanian Labour Market Training Services adapted 18 labour market vocational training programmes for the disabled. 22 disabled persons were trained at the LLMTS vocational training centres.

In 2003 the LLMTS will start organisation of training of professional rehabilitation staff and labour exchange consultants working with the disabled. This will enable to improve the quality of employment support services provided to the disabled.

The implementation of many of the measures identified in the Programme is underway. However, one cannot say that the set objectives have already been attained at least partially. Therefore, upon assessment of the achievements, funds will be invested, under Measure 3 “Prevention of social exclusion and social integration” of the Human Resources Development Priority, in the following actions provided for in the Programme:

further develop training and study programmes and adapt them to the needs of the disabled, develop distant training adapted for the disabled, extend the scope of disabled persons’ participation in training programmes and of vocational guidance; create a system of professional rehabilitation for the disabled; train and improve skills of specialists for this work; develop activities of social employment institutions/enterprises for the unemployed that have lost incentives to work and for disabled persons (combining functions of social assistance, psychological aid and vocational training). A Law on Social Enterprises, which will form a legal basis for such institutions, is being drafted; implement the Programme for Social Adaptation of Convicted Persons; implement the Programme for Work Training and Employment of Romanies of the City of Vilnius.

This ESF measure will be closely related to and will supplement the measure Development of the labour market, education, vocational training, research/study institutions and social services infrastructure as part of the Social and Economic Infrastructure Priority and financed by the European Regional Development Fund.

ESF policy field III. Support for and improvement of training, education and guidance as part of the lifelong learning policy

Regulation 1784/1999, Article 2c:

Promoting and improving:― training,― education,― counselling,as part of lifelong learning policy to:― facilitate and improve access to, and integration into, the labour market,

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― improve and maintain employability, and― promote job mobility.

One of the priority policy areas identified in the Joint Assessment Paper on Employment Priorities in the Republic of Lithuania is “sustained commitment to successful implementation of current education reforms, with a particular focus on reducing drop-out in basic education, on improving access, quality and relevance in vocational education, and on developing and implementing a national strategy for lifelong learning”.

The main problems identified in the Joint Assessment Paper are related to insufficient financing, high drop-out rates in basic education, underdeveloped vocational consulting and guidance system, lack of coordination between vocational training and labour market needs as well as low quality of vocational training. It is noted in the paper that physical and teaching resources of institutions providing training services are to be upgraded and a comprehensive national system of qualifications is to be developed.

A case study has shown that the available human and financial resources of the education and vocational training system are not sufficient in order to resolve the problems identified and to properly respond to the structural changes in the economy. Therefore, first of all, capacities must be provided in order to secure successful implementation of the human resources development measures, both identified and to be identified in the future. This objective is going to be attained using the ESF funds all

otted for Measure 5 Development of conditions for lifelong learning of the Human Resources Development Priority. This will allow to resolve, within a relatively short period, the key problems pertaining to the system’s capacities and to provide proper conditions for lifelong learning.

As it has already been mentioned, high drop out rates in the basic education system is one of the most urgent problems identified in strategic documents. It is also stated that the number of young people who seek employment through or registration in local labour exchanges in order to make use of employment privileges and social guarantees/benefits is increasing. Thus, in order to ensure that all those capable for learning would acquire basic education and profession in a consistent education system, support will be provided to such activities as increasing possibilities for alternative teaching/learning and “Second Chance”. This would provide conditions for strengthening unemployment prevention (particularly among young people).

The mismatch between vocational training and the requirements of the economy is emphasised both in the Joint Assessment Paper on Employment Priorities and the Programme for Promotion of Employment. Lack of relevant studies is cited as one of the reasons. In order to rectify the situation investments in comparative and forecast research into employment and qualifications requirements are planned. The results of the research would enable to timely correct the content and supply of academic and study programmes, which is directly related to retaining a job or integration into labour market. Research contributing to optimal development of the lifelong learning system will also be supported.

The quality of any process largely depends on competencies of persons implementing it and on material resources available. Therefore, the ESF funding will be used for the development of human resources of the education and vocational training system and for the improvement of infrastructure in accordance with the objectives formulated in the Programme and the priorities identified in the Joint Assessment Paper.

The case study has shown that current pedagogues’ and lecturers’ qualifications are not in line with modern vocational training and education needs and hinder the introduction of new teaching methods. Vocational guidance and consulting specialists are not specifically trained for these activities, which has a negative effect upon the quality of

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services provided. There are no local specialists capable of professional assessment of training/study programmes and educational establishments. Therefore, investments in the resolution of these problems are required. The activity Training in education management will be supported in order to ensure effective management of education and vocational training system. Investing in the preparation and publishing of materials necessary for teaching/learning and vocational guidance/consulting and in development of relevant databases and information networks will ensure sufficiency of and access to information resources indispensable for training of specialists meeting the market demand. Quality of education and vocational training will be improved by supporting development of the knowledge/competence evaluation system, accreditation of educational establishments and curricula, and development of teaching standards. These activities are in line with the provisions with the strategic employment documents.

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ESF policy field IV. Development of adaptability and entrepreneurship

Regulation 1784/1999, Article 2d:

Promoting a skilled, trained and adaptable workforce, innovation and adaptability in work organisation, developing entrepreneurship and conditions facilitating job creation, and enhancing skills and boosting human potential in research, science and technology.

The Joint Assessment Paper states that though the level of education of the Lithuanian labour force is relatively high, professional qualifications and knowledge of at least part of the labour force do not meet the changing labour market requirements. This results mainly from the Soviet heritage, when the education and professional training system did not emphasise development of general capabilities such as entrepreneurship, critical thinking, decision-making or initiative. Capacity for learning was not developed as well. Therefore, efforts to restructure economy and to increase competitiveness are inseparable from the need to improve skills and to retrain staff. In cases where implementation of strategic economic development plans involves introduction of state-of-the-art technologies and development of knowledge-intensive production/services, investing in primary vocational training is often expedient.

Sluggish development of the job creation system is identified in the Programme as one of the main obstacles to reduction of unemployment and promotion of employment. Development of the small- and medium-business sector – the job-creation leader in developed countries – is slow. This is directly related to the lack of entrepreneurship. Therefore, the production and services priority emphasises the need to support training of managerial personnel in business and industry sectors. Attention should be paid to training of woman entrepreneurs since they are considerably smaller in number.

It is noted in the Joint Assessment Paper that continuing education and training is underdeveloped in Lithuania, in the private sector in particular. Improvement of employee skills and retraining is addressed in the Programme more than once. For example, one of the policy provisions of the Programme states: “encourage employees to learn and employers to take care of professional development of their employees so that there would not be a risk of redundancy in case of change in production technologies”. Therefore, initiatives by individual enterprises or their amalgamations to elaborate and implement HR development plans directly related to technological upgrading will be supported.

Training designed for increasing ICT literacy of the population will be supported in case if such training will increase labour market competitiveness of trained persons or their groups, will improve access to information sources necessary for successful work or will extend opportunities for learning. In this respect Lithuania obviously lags behind the EU Member States. It is important to ensure that all regions would receive appropriate support and no locality would experience exclusion in the area of ICT literacy.

Insufficient practical training is one of the key drawbacks of training at vocational training establishments. The Programme states that “there is no sufficiently close relationship between training and practice. The graduates often lack practical skills necessary to work in the profession acquired and to use latest technologies”. This is testified to by all surveys of employers, young people that have started to work, and unemployed persons employed on completion of training. The statement applies to training of all types (primary training, retraining, skills improvement) and levels (vocational schools, colleges, universities). Therefore, enterprises that undertake apprenticeship and accept students for production practice periods will receive comprehensive support.

The Programme addresses one more urgent problem, which hinders increasing of competitiveness: the scope of introduction of new technologies and using of results of research is limited in industry, business and agriculture. On the one hand, this has been inherited from the planned economy, which was characterised by a wide gap between

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research and production and by giving priority to fundamental research. As a result, the body of researchers of appropriate orientation was formed. On the other hand, the prestige of science was very low in the period of transition, with only a small part of young people choosing the career of a scientist. Furthermore, Lithuania has experienced a brain-drain. There is an obvious lack of young scientists ready to cooperate with business. Thus activities aimed at training of young scientists, focussing on priority lines of economic development, will be supported.

ESF policy field V. Improving position of women in the labour market

Regulation 1784/1999, Article 2e:

Specific measures to improve women’s access to and participation in the labour market, including their career development, their access to new job opportunities and to starting up of businesses, and to reduce vertical and horizontal segregation on the basis of sex in the labour market.

Adherence to the principle of equal opportunities as a priority identified in the Single Programming Document will be ensured within the framework of implementation of all measures. Along with this, investments in specific activities aimed at improving women’s position in the labour market will be made.

In Lithuania, the level of women’s labour market activity is high; women’s unemployment level is lower than that of men - 15.2% and 19.0% respectively (according to the employment survey of February 2002). However, other indicators such as lower employment level (44.7% and 52.2% respectively), much small number of self-employed women or wage differences (the number of women receiving minimum wage is larger than that of men by 33%) show that there still exist obstacles to women’s integration into the labour market. This especially applies to older women and women returning to the labour market after a longer break.

The Programme provides for the following measures in this area:

improve legal acts governing implementation of the principle of equal opportunities for men and women; achieve equal involvement of men and women in all areas of economic activities and equal pay for the same work; support women’s small- and medium-size business, economic independence and self-employment initiatives; create conditions for parents to combine work- and family-related duties (flexible work organisation forms, access to quality childcare services, social assistance to families etc.); elaborate and implement special training programmes for women returning to work after longer break, organise training in business organisation basics, increase awareness of unemployed women seeking self-employment.

To ensure equal opportunities for both parents to combine employment and family duties, the Law on Amending Articles 5,7,11,13,14,16¹,19,20¹ and 22 of the Law on Support of the Unemployed (Žin. 2002, No. 2-51) establishes that any woman or man raising a child under 8 has equal rights to the additional unemployment support and unemployment benefit as established by the law.

A National Programme of Equal Opportunities for Women and Men is being elaborated. It will provide for additional measures to ensure equal opportunities for seeking education, professional development, employment, promotion and equal pay and for organising a business of one’s own.

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The following activities identified in the Programme as measures aimed at improving women’s position in the labour marked will be financed by the ESF means:

support for reintegration of women returning to the labour market after a break including such activities as training and skills improvement combining it with vocational consulting/guidance services; consulting and training for women intending to start own business.

The implementation of these measures will involve support for innovations, strengthening of local partnerships, and attracting of NGOs working in this area.

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Table 59. Interrelationship between the Joint Assessment Paper on Employment Priorities in the Republic of Lithuania, the National Programme for Promotion of Employment during 2000-2004 and the Lithuania’s Single Programming Document

Problems identified / recommendations in the Joint Assessment Paper

Pillars and objectives formulated in the National

Programme for Promotion of Employment

Measures identified in the Single Programming

Document

Pillar 1: Development of job system

Objective:

encourage local employment initiatives

Human resources development priority:

Measure 1: “Development of employability”.

Expansion of active labour market programmes while re-balancing provision away from temporary work in favour of training and other measures designed to increase employability

Pillar 2: Improvement of support for employment

Objectives:

make labour market policy more active

increase employment capabilities of young persons and long-term unemployed


Measure 1: “Development of employability”

Reforming unemployment benefits and social assistance for the unemployed in order to improve coverage, eliminate disincentives, and emphasise activation rather than passive receipt of benefits


Objective:

make labour market policy more active



Sustained commitment to successful implementation of current education reforms, with a particular focus on reducing drop-out in basic education, on improving access, quality and relevance in vocational education, and on developing and implementing a national strategy for lifelong learning


Objective:

improve vocational training system

Social and economic infrastructure priority:

Measure: “Development of the labour market, education, vocational training, research/study institutions and social services infrastructure”.


Measure 4: “Increasing potential of specialists with highest qualifications”;

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Measure 5: “Promotion of conditions for lifelong learning”.

Main problems in the area of continuing training: ensuring quality and relevance of the courses offered; upgrading of physical and teaching resources in provider institutions; development of a comprehensive national system of qualifications


Objective:

improve vocational training system

Pillar 3: Enhancing capabilities to adapt to change

Objective:

improve employee skills



Social and economic infrastructure priority:

Measure: “Development of the labour market, education, vocational training, research/study institutions and social services infrastructure”

Employees’ continuing education and training is underdeveloped, particularly in the private sector


Objective:

improve employee skills


Measure 2 Increasing of labour competencies and adaptation to change

Strengthen administrative capacities and resources of the National Labour Exchange to allow it to deliver services consistent with the needs of the Lithuania’s changing labour market and to contribute effectively to the implementation of the active labour market strategy.

Pillar 5: Integration of employment policy

Objective:

strengthen the labour market institutional system in order to ensure its effectiveness under new labour market conditions: modernise local labour exchanges; increase their capabilities to quickly and flexibly respond to labour market changes, diversify services provided by labour exchanges.



Ensuring effective regional management and consultation structures for labour market services

Pillar 5: Integration of employment policy

Objective:

strengthen the labour market institutional system in order to ensure its effectiveness under new labour market



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conditions: modernise local labour exchanges; increase their capabilities to quickly and flexibly respond to labour market changes, diversify services provided by labour exchanges.


Objective:

develop flexible work organisation and payment systems


Measure 2: “Increasing of labour competencies and adaptation to change”.

Pillar 4: Increasing equal opportunities in the labour market

Objectives:

ensure equal access to labour market;

ensure equal opportunities for men and women in the labour market.


Measure 3: “Prevention of social exclusion and social integration”.

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ANNEX II:

ENVIRONMENTAL IMPACT ASSESSMENT OF THE SINGLE PROGRAMMING DOCUMENT

The objective of the environmental impact assessment of the Single Programming Document is to identify, describe and assess the impact of measures provided for in this document and to demonstrate how these measures will ensure implementation of the overall goals of the European Union environmental policy.

1. SURVEY OF THE CURRENT STATE OF THE ENVIRONMENT

Water Protection

Lithuania’s water fund consists of the territorial waters of the Baltic Sea, the Curonian Lagoon (around 413 km2), the surface internal water bodies and the underground water bodies. In total, there are around 22.2 thousand rivers and streams in Lithuania, the total bed length of which makes up around 76.8 thousand km. The area of all lakes amounts to more than 914 km2, which makes around 1.5 % of the whole territory of Lithuania. In all, there are 1159 ponds in Lithuania that constitute more than 0.5 ha with their surface area amounting to 238 km2.

In 2000, 3,578 million m3 of water was extracted and 3,532 million m3 of water was consumed, 93% of which was used to satisfy the energy consumption (surface water). Of the total amount of water that was extracted in 2000, 5% accounted for underground water and 95% for surface water. In 2000, 242 million m3 of water was consumed to meet the demand for energy, where 44.2% was used for household needs.

In 2000, 168 million m3 of untreated wastewater was collected in Lithuania, 24 million m3 (14 %) of which was treated in accordance with the European Union requirements, 141 million m3 (84 %) of which was insufficiently treated and 3 million m3 (2 %) of which was discharged untreated.

Even though Lithuania has sufficient resources of underground water, a large proportion of Lithuanian inhabitants still uses low-quality drinking water. The major problem of such type is an increased concentration of iron in drinking water. The concentration of iron recommended by the EU is below the norm in 64 cities of Lithuania. A bad state of pipelines strongly influences the quality of drinking water (the concentration of iron in it, its colour, and feculence). Around 60% of water supply system is outdated, as it was installed 20-70 years ago or it is of low quality. To solve this problem, approximately 955 km of pipelines or 21% of all networks must be renewed.

In the northwestern territory of Lithuania the concentration of fluorine has increased in underground water. The fluorine can directly undermine the health of people (especially that of children), and around 100 thousand people are drinking this water with an increased concentration of fluorine.

The polluted ground water, which settles on the surface in the territories of intensive agriculture, is another acute issue concerning drinking water, as around 1 million of rural inhabitants that use shaft wells are drinking it. Around 50-60% of the examined shaft wells do not meet the requirements set for drinking water according to the amount of nitrate, bacteriological pollution and other parameters. The situation is worsened even more so by the fact that the utilisation of centralized water supply systems in villages is suspended due to economic and political reasons, and their inhabitants are forced to look for other, less reliable resources of drinking water.

Pollution of surface water bodies is also a burning issue of water protection. Though required by the EU, Lithuania is still treating only 14% of urban wastewater, the state of wastewater treatment is still very poor in rural areas, and the pollution arising from

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agricultural resources and untreated surface wastewater from urban territories also makes a strong impact. A big amount of pollutants that find their way to water bodies inevitably leads to eutrophication. Then, the state of water ecosystems and the recreational qualities of water bodies become worse both in inland waters and the Baltic Sea.

Ambient Air Protection

The data that are prepared and provided for the United Nations and the European Union show a decrease in the amount of pollutants from the stationary sources of pollution in Lithuania. In 2000, the discharge was as follows: Amount of sulphur dioxide (SO2) is lower by around 75%, if compared to the amount discharged in 1980; Amount of nitrous oxides (NOx) is lower by around 70%, if compared to the amount in 1987; Amount of carbon dioxide (CO2) is lower by 62%, if compared to the amount in 1990; Amount of ammonia (NH3) is lower by around 32%, if compared to the amount in 1990.It was noticed that the amount of NOx discharged from the mobile sources of pollution, the amount of airborne organic compounds (AOC) and carbon monoxide (CO) decreased by around 34 from 1996 until 2000. Although the number of cars in usage in Lithuania has increased, this percentage also reflects a decreasing amount of petrol used in transportation, which dropped by 42 during the above-indicated years.

The decrease in the amount of major pollutants from stationary sources of pollution is to be associated with the decline in output, the smaller amount of fuel, oil products and black coal that are used as well as the installation of new technologies in energy sector and industry. Even though the figures of road vehicles is growing, the emission of pollutants into the atmosphere has also dropped due to a decrease in the total amount of fuel used. In the period of 1991-2001, the emission of pollutants from the stationary sources of pollutants fell from 470 thousand tons to 220 thousand tons, whereas the emission of pollutants from the mobile sources of pollutants in the same period dropped from 650 thousand tons to 150 thousand tons.

With the decline in the pollution of the atmosphere, the quality of the ambient air in urban and industrial centres has considerably improved. Due to centralized heating the ambient air of Lithuania’s cities is saturated with small concentrations of sulphur dioxide. When it was forbidden to use leaded petrol in Lithuania in 1998, the concentrations of lead in the air have substantially decreased.

In the last five years there has been a tendency in Kaunas, Klaipėda and Kėdainiai for the concentration of nitrous dioxide to grow gradually. In Naujoji Akmenė values for this pollutant tended to fluctuate within the same limits. The emission of gas to the atmosphere, which contributes to global warming, has greatly decreased. The discharge of carbon dioxide in this period dropped almost threefold.

However, there are other reasons why the negative impact of vehicles on the quality of ambient air is still present, especially in the biggest cities. These reasons are as follows: the “aging” park of cars and public transport vehicles for economic and social reasons, the absence of conditions for the usage of biofuel, especially in the public transport and the commercial transport for city service, and the inefficient organization of traffic in the biggest cities.

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Waste Management

The data of national waste accounting show that around 4 million tons of non-hazardous waste and around 111 thousand tons of hazardous waste were collected in Lithuania in 2001, the distribution of which is illustrated in the table below.Table 60. Types of Waste and Their Amounts (Data of 2001)

Types of Waste Amount, in thousand tons

Reprocessed

1. Municipal waste: 1046Secondary raw materials: - paper/carton 78 80 - glass 45 48 - plastics 15 175 -metals 830 132. Construction and demolition waste

146 113

3. Sweep of street cleaning 894. Sludge of wastewater treatment equipment

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5. Sludge with hydrocarbons (oil mud)

48 45

The majority of non-hazardous waste (around 2,5 million tons) is discharged at the dumpsites. Around 276 thousand tons of waste is recycled; around 116 thousand tons are burned by extracting energy, around 803 thousand tons are exported and around 43 thousand tons are imported.

The treatment of waste in Lithuania poses quite a few environmental problems the resolution of which requires big funds and a lot of effort. Most of the utilised dumpsites do not fulfil the basic environmental and sanitarian-hygienic requirements. A badly developed collection system of municipal waste determines a large number of dumpsites, especially in small settlements and villages. Also, there has not been so far developed an infrastructure for the sorting of waste and the separate collection and preparation for reprocessing of secondary raw materials.

There is a great shortage of recycling technologies of biodegradable waste; there has not been introduced any waste incineration whereby energy is extracted or any biogas production in special equipment. No appropriate infrastructure for the treatment of the biggest part of hazardous waste, including outdated pesticides, has been created, there are no decontamination capacities, and there is also no polluted territory that would be fully identified and cleaned of oil products and other hazardous materials that constitute a threat for the society and the environment.

Environmental Pollution by Radionuclides

Most of the environmental problems arise in relation to the treatment of radioactive waste and used nuclear fuel. The major potential source of the environmental pollution by radionuclides in Lithuania is the Ignalina Nuclear Power Plant. A part of its radioactive waste that is formed during its operation inevitably gets into the environment, air, water and soil; fortunately, this part is not very big. Yet, in the course of time the capacities of reprocessing and storing of radioactive waste at the Ignalina Nuclear Power Plant will not be sufficient.

Maišiagala Radioactive Waste Repository stores around 120 m3 of radioactive waste, the general radioactivity of which makes up around 51015 Bq (around 4,21015 Bq tritium and 21011 Bq of especially radiotoxic and long-lasting plutonium among them).

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The discharge of radionuclides is observed in Maišiagala Radioactive Waste Repository. From 1996 on, in the underground water of the repository’s territory there has been noticed an increase in the amount of tritium. An increased amount of tritium in the territory of the repository shows how leaky and insufficiently safe the repository is.

Protection of Biodiversity, Natural Resources and Landscape, and Protected Territories

The system of protected territories in the State of Lithuania comprises 755 thousand ha, which comprises 11,9 % of the total area of the country. The system consists of 4 national natural reserves and 2 cultural reserves, 5 national parks (with 1 historical national park among them), 30 regional parks (1 historical regional park among them), 254 national and 101 municipal reserves, and 10 state-protected objects of natural landscape, 159 of which are natural monuments. In Lithuania, there are 202 genetic forest reserves and a seed repository of genetic resources.

Complexity and integrity are the major properties of the system of Lithuania’s protected territories. The territories cover objects and complexes, ecosystems of all types as well as rare national and international species and habitats of plants, animals and mushrooms that are not only unique, but also endemic to Lithuania. The protection of natural and cultural heritage is integrated in them; the principles of sustainable developments are applied there.

Presently, private property in the protected territories of Lithuania makes up for 40 to 60 %. Most of private landowners do not have a sufficient knowledge of the environment to be able to ensure an appropriate level of protection of landscape and biodiversity.

Natural and semi-natural ecosystems in Lithuania comprise a third of Lithuania’s territory. The country protects the biggest swamps that are not used for commercial purposes, and in the last decade some new and biodiversity-friendly conditions have started to develop in the former areas of agricultural land. Natural afforestation in the former agricultural areas amounts to around 5 thousand ha every year.

Presently, national and regional parks are not suitable for visiting them actively: flows of visitors have not been regulated, and the measures of protection, maintenance and monitoring have not been fully implemented yet. In the protected territories there are no acceptable conditions for recreation, and the problems of environmental pollution with household and other types of waste are awaiting their solution. For these reasons, the natural and cultural landscape is degrading here, the species of plants and animals as well as the treasures of cultural heritage are disappearing, the habitats are becoming poorer.

Due to the unsustainable use of coastal landscape and its protection regime, the intensive disruption of the Baltic Sea coasts and the sand dune of protective beach will eventually create less favourable conditions for recreation, will disrupt the landscape and, if not maintained, may lose its function of protecting the coastal settlements from the Sea. In the last couple of years the problem of coastal erosion in Klaipėda Seaport was made more acute by infrastructural works, for instance, the deepening of the seabed.

Over the last decade, when the development of Lithuania’s Baltic seaside became more intensive (reconstruction of Klaipėda Seaport, construction of Būtingė Oil Terminal, development of recreational infrastructure, and building of residential houses), the country experienced strong recurrent hurricanes for several years. Due to the coexistence of these negative factors and absence of effective measures for seaside protection, the amount of sea outwash is decreasing, the erosion and abrasion of seaside is intensifying. These phenomena have been noticed in different parts of the Curonian Spit, which is protected as a territory put on the UNESCO Culture and Nature Heritage List and as a national park, as well as a part of the continental seaside. Therefore, we are loosing the territory of our country, which is valuable from the point of view of its recreational, landscape and biological variety as well as from the point of view of the

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preservation of its cultural heritage. Recreational conditions are also getting worse. Injuries in the protective sand dune pose a threat to seaside forests and residential areas.

In the post-war period, the transfer of 115 thousand homesteads together with their vegetation and the drainage of about 80% of the country’s territory, the drained plains extending to 20-50 sq. km with rare islands of forests and other vegetation became dominant. Almost 80% of small rivers have been straightened and turned into canals. The drainage of land and straightening of rivers have substantially changed the structure of landscape, weakened the ecological stability of the territories and destroyed a large part of the former natural habitat. This added to the disappearance of the cultural identity of the countryside.

Presently, recreational resources of river valleys and lakesides are not fully exploited, there is a lack of infrastructure. It is vital to restore the ecological value of degraded areas and encourage the re-naturalisation of riverbeds. The development of these ecologically sensitive and aesthetically valuable territories is not sustainable, and they are not properly maintained.

The usage of such natural resources as berries, herbs, reeds, etc. is also unbalanced. During the construction in towns vegetation suffers losses, and the protection of genetic resources of plants and animals is not ensured.

Table 2 shows the utilisation of land in Lithuania.Table 61. The structure of the Land Fund according to agricultural land

Lands Area

1000 hectares %

Agricultural land 3488.7 53.4

Forests 1998.4 30.6

Other land overgrown with woody vegetation (bushes) 82.8 1.3

Roads 131.0 2.0

Built-up area 187.3 2.9

Water 262.1 4.0

Marches 146.2 2.2

Other land 233.5 3.6

Total 6530.0 100

The total capacity of the wood accumulated in the country forests amounts to 371.7 million m3. Quite a large variety of species and promiscuity is characteristic of Lithuania’s forests.

About 10,000 tons of fish is caught in Lithuanian fishery water pools. Spawning grounds are lost because of the excessively intensive fishing and construction of dams. The resources of valuable commercial and passing fishes are decreasing due to the pollution and eutrophication of water pools.

One of the most promising natural resources is sapropel. The formation of sapropel is related to the eutrophication of water pools. Its extraction must go hand in hand with the treatment of lakes, thus combining extraction needs with environmental work. The re-cultivation of injured land during the extraction of natural resources and the introduction

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of preventive measures for the fire protection of peat bogs are insufficient in the lands of the State Fund.

2. GOALS OF THE EUROPEAN UNION ENVIRONMENTAL POLICY

The 6th Environment Action Programme of the European Union “Environment 2010: Our Future, Our Choice” (2001–2010) outlines the following overall environmental policy goals:

improvement of the implementation of legislative requirements. The goal is to achieve improvement of the implementation of legislative requirements in every country. integration of environmental concerns into policy making of other areas. The goal is to encourage integration of environmental concerns into policies of other areas. encouraging cohesion of the market and environment protection. The goal is to encourage market participants to take into consideration environmental issues in all areas – both production and consumption. encouraging awareness of citizens. The goal is to encourage citizens and consumers to change their behaviour in the manner beneficial to the environment and strengthen public participation in the decision-making process. integration of environmental concerns into physical planning, land use and land management. The goal is to develop physical planning as a tool intended for the improvement of environment protection, and to take into consideration environmental concerns in all three mentioned areas.

In the sixth programme the European Community identifies the following four priority areas:

climate change; protection of unique natural resources and biodiversity; environment and health; sustainable management of natural resources and waste.

In the course of EU accession negotiations Lithuania obligated itself to implement a major part of the EU requirements by 2004. Transitional periods have been granted for the implementation of the European Union requirements of the 3 following directives, with the largest implementation cost:

Directive on the Control of VOC Emissions Resulting from the Storage of Petrol and its Distribution from Terminals to Service Stations (94/63/EC) (by 2008); Directive on Urban Waste Water Treatment (91/271/EEC) (by 2010); Directive on Packaging and Packaging Waste (94/62/EC) (by 2007).

One should mention that the application of the Directive on the limits of certain types of pollutants from large fuel-burning equipment (2001/80/EB) in relation to the power plants of Vilnius, Kaunas and Mažeikiai has been postponed until the end of 2015.

It should be pointed out that measures of the Single Programming Document, upon their implementation, may ensure the implementation of the requirements of the above-mentioned directives until the required deadlines.

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3. METHODOLOGY OF ENVIRONMENTAL IMPACT ASSESSMENT OF THE SINGLE PROGRAMMING DOCUMENT

Currently the Lithuanian legal system has no requirement for carrying out environmental impact assessment of program or strategic documents, therefore procedures of such an assessment have not been laid down, and regulatory documents on assessment methodology or scope have not been prepared. Nevertheless, environmental impact assessment is mandatory, according to the requirements applied to the preparation of SPD.

The environmental impact assessment of Single Programming Document was carried out in several phases:

During Phase 1 the methodology for the assessment of potential environmental impact of the Single Programming Document was developed. The process of development of this methodology included application of the SWOT analysis principles and putting together a checklist of the aspects of assessment of the effects on the environment. Based on the checklist of the potential environmental aspects (effects), sectorial ministries and other public institutions assessed the relevance of each of each activity indicated under a certain measure in terms of environmental impact. Then, taking into consideration identified key environmental effects of activities, they assessed the environmental impact of the measures under their responsibility by listing those environmental protection aspects of the activities under the measures which can exert the biggest impact on the environment. On the basis of such date, the primary environmental impact assessment of the measures was carried out. An assessment of not only negative, but also positive impact that the environment may be subjected to both at the time of implementing the activity and after it has been carried out.

A working seminar has been arranged following Phase 1, in the course of which participants of this phase discussed results achieved over Phase 1.

During Phase 2 the primary environmental impact assessment, submitted by sectorial ministries and public institutions, were processed and summarise, taking into consideration the primary assessment. In the course of processing data of the primary environmental impact assessment, potential significant positive and negative, direct and indirect environmental impact of the measures of the Single Programming Document (both at the time of implementing the measures and having implemented them) was described. The assessment of the environmental impact of the measures of the Single Programming Document is presented in Section 3 of this Annex.

During Phase 3 the results of the environmental impact assessment were analysed in order to determine whether the Single Programming Document is aligned with the overall EU environmental policy goals.

Interim results of the assessment of the effects of the Single Programming Document on the environment were presented to the working group developing the Single Programming Document. The final report on the environmental impact assessment was submitted for comments to sectorial ministries, other public institutions and economic and social partners. The comments and proposals received were taken into account by introducing relevant amendments into the report on the environmental impact assessment.

4. ASSESSMENT OF THE ENVIRONMENTAL IMPACT

This section gives the description of the assessment of the potential environmental impact of the measures provided for in the Single Programming Document taking into account the current state of environment. At the Programme level, in the absence of detailed and specific information on projects or groups of these projects described in the

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measures, returning precise conclusions on how these projects, at the time of and after their implementation, may impact the environment. Nevertheless, at this stage it is only possible to identify and describe weaknesses and strengths of proposed projects (from the environmental point of view), which might be useful in improving the quality of planned projects and increasing their contribution to the attainment of the sustainable development goals. In addition, environmental impact assessment will be carried out before the implementation of projects subject to the requirements of the Law on the Environmental Impact Assessment of Planned Economic Activity, in the course of which potential effects on the environment will be analysed.

PRIORITY 1: “DEVELOPMENT OF SOCIAL AND ECONOMIC INFRASTRUCTURE”

Measure “Improvement of accessibility and quality of services of transport infrastructure“

The goal of the measure is to create an accessible and high-quality infrastructure.

If better transportation conditions are in place, pollutants emitted and noise caused by transportation means will be reduced. This will result in improved quality of the living environment and lesser impact on the health of the population, those people that reside close to the transportation infrastructure sites in particular. Paving of gravel roads will allow to reduce the pollution of environment with small particles (dust). The reduction of dust levels will lead to better living conditions in the settlements near the roads, the impact on living nature will be reduced. In addition, fuel consumption and the cost of repairs of transportation means will decrease, which will bring financial benefits to the companies of the transportation sector. With the decrease in fuel consumption, the demand for production of non-renewable fossil fuel and imports will go down.

Traffic safety may be improved if better-quality transportation infrastructure, regularly and properly maintained, is put in place. Fencing off roads in areas with animal migration routes will increase traffic safety and help avoid effects of the wildlife. Laying of bicycle and pedestrian routes will reduce motor transport flows and greatly increase traffic safety. Development of traffic management systems in the cities will reduce negative impact on the environment caused by the pollutants of the motor vehicles and high energy consumption and will also lead to increased traffic safety.

Development of public transport will lead to reduce traffic congestion which in turn will result in lesser air pollution. Furthermore, better system of public transport will provide equal possibilities to the disabled and those who do not possess their own vehicles. Lower transport congestion will also result in savings of travel time.

Investment into environment protection measures in this sector will result in lower soil, underground and surface water pollution and will ensure the decrease in effects on the nature or their elimination altogether.

Better transport system will create better conditions for the development of such sectors as agriculture and tourism hence reducing regional disparities. Well developed system of transport networks will help prevent accidents and improve safety conditions in rural and sparsely populated areas.

Well-developed transportation networks will encourage the growth of traffic flows. If this is not appropriately controlled, negative effects, as a result of increased traffic flows, may at times outweigh the expected positive effect such as the decrease in pollution emitted by transport, traffic safety, etc. Moreover, new infrastructure and heavier traffic flows will encourage increased consumption of energy and natural resources.

Development of the new infrastructure requires more space than the existing one. This space, naturally, will be claimed from the natural environment, which means development of transportation infrastructure in areas earlier not designated for it.

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Potential negative effects in the course of construction, e.g. caused noise, pollution of the ambient air with hard particles, effects on the wildlife and biodiversity and leakages into surface water reservoirs, may be alleviated or avoided by appropriate planning and supervision of works carried out.

Research works of transport system might provide new and useful information on the possible impact of the relevant activities on the environment. This will provide better possibilities for new projects: they can be implemented in the way most suitable to the environment.

A very important factor ensuring the control of negative impact and potential risk and in encouraging positive impact is the co-ordination of various activities and co-operation between separate institutions.

The measure will be instrumental in implementing the following overall policy goals of the 6th EU Environment Action Programme: improvement of the implementation of legislative requirements, integration of environmental concerns into the policy making of other areas and integration of environmental concerns into physical planning, land use and land management.

Measure “Ensuring of Energy Supply Stability, Accessibility and Increased Efficiency”

The fuel conversion to use the local fuel or renewables and modernisation of the energy generation / transmission / distribution infrastructure will result in lower fuel input with the same quantities of energy supplied and less pollutants emitted into the ambient air. The modernisation of the energy system will diminish the negative impact on human health, as it will reduce air pollution and noise. The installation of modern heat generation equipment will contribute to saving of natural resources and reduce the formation of pollutants.

The expansion of the existing power and gas networks may have a negative impact on the wildlife and landscape because of building new lines. However, this negative effect may be reduced or avoided by applying effective measures for the reduction and alleviation of negative effects, for example, by the effective selection of the placement, timely planning of activities and foreseeing technical means (as situating, high and colour of pylons) with a view to integration into the local landscape.

Thermal insulation will change the thermal resistance of buildings, which will allow using smaller volumes of thermal energy for heating buildings. In addition, modernisation of heat metering and distribution systems in buildings will allow using less heat. With the decreased thermal energy consumption by customers, i.e. when energy is used more efficiently, the producer can use less natural resources (e.g., natural gas ) for thermal energy generation. Thus the modernisation of a building envelope, energy sections of a buildings and the related heat supply infrastructure can reduce the generation of pollutants resulting from burning the primary fuel in the power and thermal energy generation processes.

The use of geothermal, hydro, wind, solar and biomass energy will allow for a significant reduction in emissions caused by the combustion process and will decrease the rate of consumption of non-renewable natural resources.

The use of waste for energy generation is an effective solution to the issue of waste disposal, as smaller waste quantities are dumped in landfills and the environment.

The more effective use of energy resources and energy as well as introduction of environmental measures will reduce the air pollution, resulting in the decreased negative impact on human health.

The use of waste and biomass as fuel will result in higher emissions of such pollutants as carbon monoxide and hard particles. In addition, the use of biomass in energy generation

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may encourage the consumption of local natural resources. Upon introduction of pollutant treatment plants, their operation may result in the formation of waste, further use or disposal of which will require putting in place appropriate infrastructures.

The construction of wind power stations and their operation may cause landscape degrading and may have a negative impact on biodiversity (e.g. an adverse impact on bird migration). However, the appropriate situating of such wind power stations may help avoid or alleviate this effect.

The development of hydro energy may pose a danger to the landscape and migrating fish species, while the upgrading or construction processes may harm water fauna and flora. However, the restoration of the existing power stations or construction of the new ones (including siting) should appropriately take into consideration the potential effects and provide measures for their mitigation (e.g. building fish passage ways for migrating fish (salmon, trout, etc.) and improving conditions for fish migration).

The measure will be instrumental in implementing the following overall policy goals of the 6th EU Environment Action Programme: improvement of the implementation of legislative requirements, integration of environmental concerns into the policy making of other areas and encouraging cohesion of the market and environment protection.

Measure “Improvement of the Quality of Environment and Prevention of Environmental Damage”

The goal of the measure is to reduce water, air and soil pollution as well as its potential harm in Lithuanian regions. To ensure the rights of the society to a safe and clean environment, aim to avoid or reduce negative impact of economic and other activity on environmental components. To keep the balance of usage of natural resources and promote the sparing view of the society to the environment.

Water improvement plants will allow to improve the quality of drinking water supplied in a centralised manner, while the expansion, upgrading or construction of water supply systems will result in the growth of the number of people supplied with drinking water of appropriate quality, reduction of potential underground water pollution sources and reduction of water losses. With availability of drinking water of appropriate quality, the rate of human illnesses will decrease.

Implementation of activities provided for in this measure will satisfy the national and the EU quality requirements applicable to water, wastewater and waste management .

With wastewater collection systems and treatment plants available in settlements (villages), underground and surface water pollution will decrease, because wastewater collection will improve and releasing of wastewater into the environment will be reduced. Further, hygienic safety of serviced residents will increase, while recreational qualities of water reservoirs will improve (more tourism opportunities), in addition to the improved state of water ecosystems (fishery, habitats, protected species, etc.).

After the identification of polluted areas, it will be possible to solve the problems of cleaning these areas and to develop further possibilities of their usage. After cleaning the polluted areas it will be able to relocate the fauna and flora that lived there until the pollution. Organising the hazardous waste disposal, the present and future effect on water, air and soil will be reduced.

Expansion, upgrading or construction of water improvement and supply systems, wastewater collection systems and wastewater treatment plants may result in a temporary negative effect during the construction (destroying soil, cut trees, etc.). Further, there will be smells emitted from wastewater management plants and similarly affected, or under the effect, areas where activity and land use will be restricted.

Creation of all systems will be accompanied by a potential effect on ambient air and waters, formation of respective waste and increased physical and biological pollution,

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however, these effects will be short-term and possible to avoid by appropriate control and supervision of works.

The expansion of the NATURA 2000 network of protected areas will create conditions for the preservation of protected birds and habitat; positive impact will also show itself on the wild fauna and flora, and the general condition of landscape and biological variety; recreation opportunities will increase; the pollution of man-caused origin will be reduced.

The expansion of the network of protected territories of national importance, the drafting of plans of protected areas, the implementation of measures for seaside zone maintenance, and the implementation of measures for protection and maintenance of protected areas will have a positive impact on landscape, biological variety and environmental quality. The implementation of these activities will decrease the pollution of underground and surface waters, erosion of soil, and exploitation of natural resources.

Education of the society, information and promotion of various information technologies, which will allow to get in touch with individual members of the society, their groups, non-governmental organisations, business enterprises and economic entities, will have a general positive impact on landscape and biological variety as the society will be better informed about the state of environment, environmental requirements, and restrictions. Intelligent and educated society will itself protect and manage the environment taking due account of all environmental requirements.

The systems of environmental quality assessment and information as well as the improvement of monitoring will have a positive impact on environment and its quality because the society and central and local authorities will be better informed about the state of the environment and will be able to make appropriate and prompt decisions, which will improve the state of environment in their turn. Active work of the society will contribute to the improvement of the environmental quality.

The measure will be instrumental in implementing the following overall policy goals of the 6th EU Environment Action Programme: improvement of the implementation of legislative requirements, integration of environmental concerns into policy making of other areas, promotion of citizen consciousness, integration of environment protection to territory planning, land use and land management

Measure “Restructuring and Upgrading of Health Care Institutions”

The goal of the measure is to improve the national health care infrastructure, rationalising the structure of health care services, improve tehir quality and ensure regionally balanced accessibility that meets patients’ (consumers’) needs.

Activity developed by health care institutions will improve energy and economic efficiency of buildings, will improve medical waste management, will reduce potential radiation hazard to people. Further, implementation of activity of this sector will improve life quality, servicing and well-being.

If new buildings are constructed, this will increase the use of natural resources and may result in short-term effect caused by the construction process (noise, dust, increased traffic flows). However, this effect will be insignificant.

The measure will be instrumental in implementing the following overall policy goals of the 6th EU Environment Action Programme: improvement of the implementation of legislative requirements and integration of environmental concerns into policy making of other areas.

Measure “Development of Infrastructure of the Labour Market, Education, Vocational Training, Research and Study Institutions and Social Services”

The goal of the measure is to reduce the territorial differences in labour market, occupational guidance and counselling and vocational training services, to improve their

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quality and to narrow the gap between the level of these services and respective services in the leading countries of the European Union. Renovation of buildings may result in more effective use of energy and improved waste and wastewater management in these institutions.

Setting up of new educational institutions in areas that previously had no educational institutions will lower the need of young people to travel to densely populated locations (cities) that already have such institutions, thus improving living conditions and social situation in those areas. In addition, with the reduced need for travel, ambient air pollution and the use of natural resources will decrease.

Creating new knowledge required by business and industry will improve production, transportation and other technologies, which will result in the reduction of the rate of consumption of natural resources, waste formation and pollution.

The use of materials (raw materials) may increase during renovation or construction works, in addition to the possibility of short-term negative effect (noise, dust).

The measure will be instrumental in implementing the following overall policy goals of the 6th EU Environment Action Programme: improvement of the implementation of legislative requirements, integration of environmental concerns into the policy making of other areas and encouraging awareness of citizens.

2 PRIORITY. HUMAN RESOURCES DEVELOPMENT.

Measure “Development of Employability”

The goal of the measure is to build up employment abilities of the unemployed and increase their integration into the labour market and to ensure unemployment prevention.

Encouraging education, training and other activity allowing to strengthen human abilities will increase employment of people and develop better-qualified labour force. Implementation of activity of this measure will result in a positive impact on the environment because people with a higher level of education understand environmental and health issues. After Implementation of ecolabeling by this measure, advanced users will be able to choose the products of those producers that are environment friendly.

Moreover, increasing employment and social integration will improve the living conditions of people and will encourage people to take active participation in public activity and the decision-making process in the area of environment protection (e.g., assessment of the effects on the environment, physical planning) and to get involved into other activities encouraging environment protection.

Skill improvement will have a positive effect on the development of information society, which will result in people being able to get in-depth knowledge and access information on the environment with the help of information technologies.

Higher employment rate of people will result in the growth of consumption, and this may increase the use of natural resources. However, various training and education activity may provide an opportunity to monitor these changes in consumption, channelling them in the direction more favourable to the environment and encouraging the use of renewable natural resources.


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Measure “Development Labour Force Competence and Ability to adapt to Changes”

The goal of the measure is to increase competitiveness of economic entities through the development of human resources.

Encouraging education, training and other activity allowing to strengthen human abilities will increase employment of people and develop qualified labour force. Implementation of activity of this measure will result in a positive impact on the environment because people with a higher level of education understand environmental and health issues.

Moreover, increasing employment and social integration will increase the well-being of people and will encourage people to take active participation in public activity and the decision-making process in the area of environment protection (e.g., assessment of the effects on the environment, physical planning) and other activity encouraging environment protection.




Measure “Prevention of Social Exclusion and Social Integration”

The goal of the measure is to reduce social exclusion and carry out its prevention and to ensure equal opportunities in the labour market.

Encouraging education, training and other activity allowing to strengthen human abilities will increase employment of people and develop qualified labour force. Implementation of activity of this measure will result in a positive impact on the environment because people with a higher level of education understand environmental and health issues.

Moreover, increasing employment and social integration will increase the well-being of people and will encourage people to take active participation in public activity and the decision-making process in the area of environment protection (e.g., assessment of the effects on the environment, physical planning) and other activity encouraging environment protection.



The measure will be instrumental in implementing the following overall policy goals of the 6th EU Environment Action Programme: improvement of the implementation of legislative

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requirements, integration of environmental concerns into the policy making of other areas and encouraging awareness of citizens.

Measure “Development of Conditions for Lifelong Learning”

The goal of the measure is to develop educational, professional training, science and study system by providing quality conditions for life-long learning.

Encouraging education, training and other activity allowing to strengthen human abilities will increase employment of people and develop qualified labour force. Implementation of activities of this measure will result in a positive impact on the environment because people with a higher level of education understand environmental and health issues.

Skill improvement will have a positive effect on the development of information society, and this will result in people being able to get in-depth knowledge and access information on the environment with the help of information technologies.

Support to educational institutions will grow the potential of highly qualified specialists, which may give an impulse for research in the area of environment protection that may be instrumental in attaining the goals of sustainable development.



Measure “Improvement of Human Resources Quality in Scientific Research and Innovations”

The measure aims at promoting the capacity of the most highly qualified scientists to create the knowledge of international level required by business and industry. It also aims to prepare the specialists of appropriate level (who are able to apply innovations) to satisfy the economic needs.

The promotion of educational, training and other activities allowing to develop human capacities will increase the employment of people and prepare qualified workforce. The implementation of the activities foreseen by this measure will precondition a positive impact on environment and human welfare, as better-educated people have a better understanding of the problems of environmental protection and health.The improvement of skills will positively influence the development of the information society; therefore, people will be able to enhance their knowledge and get information about the environment with the help of information technologies.

The creation of new knowledge required by business and industry and the application of innovations will improve industrial, transport and other technologies, and this will lead to a decrease in the utilization of resources, accumulation of waste and pollution.

The support for educational institutions will increase the potential of highly qualified specialists, and this may give an incentive for research in the field of environment protection, which may assist in aiming at the sustainable development.

The measure will assist in implementing the following aims of the general policy of the EU Sixth Environmental Action Programme: the improvement of implementation of the requirements of legal acts, the integration of environmental issues into the policy-making in other spheres, and the encouragement of citizen’s consciousness.

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3 PRIORITY. DEVELOPMENT OF PRODUCTIVE SECTOR

Measure “Direct Support to Business”

The goal of the measure is to encourage entrepreneurship, to strengthen viability of companies in operation and their competitiveness in internal and foreign markets, to develop the level of industrial productivity and to encourage changes in the production and export structure of products and services, seeking to come closer to the EU structure.

Development of modern technologies will allow to reduce the formation of emissions, waste, wastewater, in addition to physical pollution. Implementation of modern technologies will lowerconsumption of natural resources and materials. A more optimal use of natural resources and materials will encourage producers to extract and manufacture less of them, thus reducing effects on the environment. In addition, introduction of modern and clean technologies may encourage development and use of products producing lesser effects on the environment.

Development of the electronic business will lower the need to travel, thus reducing pollution caused by traffic, in addition to lowering the use of natural resources.

Introduction of the environment protection management systems in companies will encourage companies to pay more attention to the environmental concerns, that is management of effects and compliance with the legislative requirements, applicable to the company activity, products or services. Therefore, such companies will be reliable, needing less external control, while public institutions will be able to focus their capacity on other problem environmental areas.

Ecolabeling will encourage the public to make its choice in the abundance of products and services. The aware society will have an opportunity to choose the produce of those producers whose production or the product itself has a lesser effect on the environment. Such a choice of the public will encourage producers to manage and reduce effects on the environment, seeking to attain satisfaction of the public.

Introduction of quality systems will encourage companies to identify processes taking place in them and their adequate management, to analyse these processes and to continuously improve quality, seeking to attain increasing satisfaction of the public. Such a process will inevitably be related to environment protection.

Relocation of industrial companies will undoubtedly improve the environmental state of those locations from which companies are relocated. Relocation of companies will offer an opportunity to select locations fitting their activity and effects best.

Industrial modernisation will improve conditions for risk management and accident prevention.

Small companies may not have funds sufficient for introducing the latest production technologies and environment protection measures, and this may cause the increased water, soil and ambient air pollution.

Uneven distribution of investment among regions may cause concentration of population in major cities.

The introduction of modern technologies, development of electronic technologies will encourage replacement of existing technologies that will inevitably become waste. Appropriate management of such waste will require respective structures. If no advance preparation is done prior to such a process, a rather serious problem may arise in resolving issues of the management of such waste.

Tourism infrastructure under development will allow for a more rational use of natural and cultural resources and will encourage sustainable regional development.

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Cultural heritage values, upon their maintenance and adaptation for tourist needs and maintenance of other natural sites, will improve the landscape.

Control of tourist and visitor flows will reduce the number of non-organised visitors and tourists in protected areas, thus avoiding the potential negative effect.

A developed tourism infrastructure will allow, in an organised manner, to collect waste and wastewater, to treat wastewater and only following that release it to the natural environment, thus reducing pollution of surface waters.


Measure “Improvement of Business Environment”

The goal of the measure is to improve business environment through the development of the structure of corporate services and their quality, provision of subsidised corporate services and strengthening of associated business structures.

Establishment of industrial areas with a developed infrastructure (wastewater collection systems and treatment plants, waste management systems) will have a positive effect on the environment: release of untreated wastewater into the environment will decrease, and this will result in the reduction of surface and underground water and soil pollution. Creation of Regional Waste Management Systems will ensure proper waste management, avoiding their dispersion in the environment.

Adequate production waste management will lower the risk of pollution, and this may result in a potential positive effect on human health, because of the decreased hazard of illnesses, in addition to less waste released into the environment.

The use of recyclable materials will grow, because their recycling will be encouraged. Recycling of recyclable materials will allow to use local resources and waste as an input material more effectively, thus avoiding depositing of waste suitable for recycling in dumps. In addition, the use of recyclable materials will lower the use of primary materials, i.e. the lifespan of products will be extended.

Introduction of the environment protection management systems in companies will encourage companies to pay more attention to the environmental concerns, that is management of effects and compliance with the legislative requirements, applicable to the company activity, products or services. Therefore, such companies will be reliable, needing much less external control, while public institutions will be able to focus their capacity on other problem environmental areas.

Modernisation of industry will improve conditions for risk management and accident prevention.

Along with the industrial development, the use of natural resources will grow, accompanied by increasing environment pollution. Increase in the ambient air pollution will result in increasing soil and surface water pollution. However, introduction of modern technologies using less energy and raw materials to produce one unit of produce and introduction of measures for the reduction of environment pollution will allow to avoid the above mentioned negative effect.


Measure “Development of Information Technologies Services”

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With respect to the guidelines set forth by the European Union, the measure aims at establishing the conditions for creating an open, educated, constantly learning society, which founds its activities on knowledge, and the members of which have an opportunity and are capable to use effectively the modern IT in all spheres of activities.

In all regions of the country, both businesspeople and the general public may use the developing information technologies as a means of access to the information on environment and health. The access to the information will create favourable conditions for the development of environmental education.

The electronic public services introduced on the basis of information technologies will allow consumers to get a service without going to a particular institution, and this will lead to a decrease in the need for travel; thus, the pollution caused by transport as well as the exploitation of resources will decrease. The opportunity to use the IT for information storage and transmission instead of paper will also reduce the exploitation of natural resources, especially wood.

Unfortunately, the promotion and development of information technologies will encourage a replacement of existing technologies, which will inevitably turn into waste.

The measure will assist in implementing the following aims of the general policy of the EU Sixth Environmental Action Programme: improvement of implementation of the requirements of legal acts, integration of environmental issues into the policy-making in other spheres, and encouragement of citizen’s consciousness.

Measure “Public Tourism Infrastructure and Services”

The goal of the measure is to encourage local and incoming tourism, providing more favourable conditions to active leisure and development of service business.

Tourism infrastructure under development will allow for a more rational use of natural and cultural resources and will encourage sustainable regional development.

Cultural heritage values, upon their maintenance and adaptation for tourist needs and maintenance of other natural sites, will improve the landscape.

Control of tourist and visitor flows will reduce the number of non-organised visitors and tourists in protected areas, thus avoiding the potential negative effect.

A developed tourism infrastructure will allow, in an organised manner, to collect waste and wastewater, to treat wastewater and only following that release it to the natural environment, thus reducing pollution of surface waters.

Development of tourism infrastructure will provide conditions favourable to accident prevention.

Increased tourist and visitor flows in protected areas may have a negative effect on the concentration, feeding, breeding and resting locations of protected animal species and habitats of protected plants. This effect may be alleviated or avoided through the control of tourist flows.

Increased tourist flows may cause the rise in chemical pollution caused by traffic and physical pollution (noise), and this may have a negative effect on biodiversity.

Adaptation of areas for tourist needs may destroy the natural landscape, however, this hazard may be avoided through physical planning and control of construction processes.


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PRIORITY 4: “RURAL AND FISHERIES DEVELOPMENT”

Measure “Investment in Agricultural Holdings”

The goal of the measure is to accelerate restructuring and modernisation of agricultural holdings, to increase income of individuals engaging in farming from agriculture and related activity, to improve living, work and production conditions.

Modernisation of agriculture farm holdings will improve environment quality, hygiene and work conditions, resulting in the decrease of surface and underground water pollution, because wastewater collection will increase, while the release of untreated wastewater into the environment will decrease.

With the improvement in living conditions, the consumption rate of water in the country will grow, consequently bringing about increased formation of wastewater, in addition to increasing consumption of energy resources, and this may have an impact on the increased use of renewable natural resources (lumber).

Enlargement of agricultural holdings, encouraging diversification of agricultural activity in a more sustainable manner, will allow for more effective use of agricultural lands. Naturally, at the same time there may be entailed soil erosion and minimal negative effect on the wild vegetation. This insignificant effect may be successfully avoided through application of certain measures reducing the effect such as creation of buffer zones between natural ecosystem and farming lands, planning of agriculture intensity considering to site sensibility from an environmental viewpoint, giving environmental aspects prominence assigning special destination land use to the lots, promotion of ecological farming and etc.

The measure will be instrumental in the implementation of the following overall policy goals of the 6th EU Environment Action Programme: improvement of the implementation of legislative requirements and integration of environmental concerns into policy making or other areas.

Measure “Setting-up of Young Farmers”

The goal of the measure is to promote more favourable age structure of the farmers’, seeking to modernise agricultural tenures and stabilise the demographic situation in the country.

Encouraging young farmers and modernisation of farms can be expected to improve environment quality, hygiene and work conditions.

Organised wastewater collection will increase, while the release of untreated wastewater into the environment will decrease, resulting in the decrease of surface and underground water pollution.

With the improvement in living conditions, the consumption rate of water in the country will grow, consequently bringing about increased formation of wastewater, in addition to increasing consumption of energy resources, and this will have an impact on the increased use of renewable natural resources.

Modernisation of agricultural holdings, encouraging diversification of agricultural activity in a more sustainable manner, will allow for more effective use of agricultural lands. Naturally, at the same time there may be entailed soil erosion and minimal negative effect on the wild fauna and flora. This insignificant effect may be successfully avoided through application of certain measures reducing the effect such as creation of buffer zones between natural ecosystem and farming lands, planning of agriculture intensity considering to site sensibility from an environmental viewpoint, giving environmental aspects prominence assigning special destination land use to the lots, promotion of ecological farming and etc.

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The measure will be instrumental in the implementation of the following overall policy goals of the 6th EU Environment Action Programme: improvement of the implementation of legislative requirements and integration of environmental concerns into policy making or other areas.

Measure “Improving Processing and Marketing of Agricultural Products”

The goal of the measure is to modernise and rationalise processing and marketing of agricultural products, to improve their competitiveness and to increase added value.

Modernisation and rationalisation of companies, processing agricultural products, reducing production costs and introducing of quality and environmental management systems the waste formation will be reduced, better use of by-products will be encouraged, and control and monitoring will be improved as well as environment quality.

Modernisation of companies processing agricultural produce will decrease the release of untreated wastewater into the environment; will decrease surface water pollution and the formation of gas causing the greenhouse effect.

Modernisation of companies processing agricultural produce will decrease the formation of wastewater, will increase wastewater collection, and decrease the formation of hazardous and non-hazardous waste, providing more opportunities for the use of renewable natural resources

Modernisation of companies will increase accident prevention and will improve conditions for risk management, while an assertion can be made that various risks to environment quality will be controlled which will result in improved quality of the environment.

The measure will be instrumental in the implementation of the following overall policy goals of the 6th EU Environment Action Programme: improvement of the implementation of legislative requirements and integration of environmental concerns into policy making of other areas.

Measure “Promoting the Adaptation and Development of Rural Areas”

The goal of the measure is to provide adequate conditions for living and working in the countryside.

Implementation of renovation projects of agricultural drainage systems and their hydraulic equipment, renovation projects of artificial water bodies’ hydraulic structures (for agricultural purposes), construction projects of flood control works, renovation projects of polders will improve living conditions (well-being), conditions for risk management and will increase the effect on the surface water hydrological conditions, in addition to possible insignificant effect on the wild flora and fauna.

Amelioration of lands through installation and renovation of drainage will improve the well-being of the agricultural sector, however, the negative effect on the hydrological conditions of surface water, wild flora and wild fauna and variety of species will increase. This effect may be avoided through application of effective measures for avoiding or minimising the effect, e.g. proper scheduling selection and timing of work.

Restructuring of land plots through their consolidation will, on the one hand, improve the well-being of the agricultural sector, while, on the other hand, favourable conditions may be provided for intensive agriculture which, with its intensive fertilising, may have a negative effect on the natural environment of rural areas, and on the biodiversity as well as the quality of environment.

Strengthening of services to farms and marketing of quality agricultural products will improve environment friendly living conditions and safety of products and will raise servicing quality.

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The measure will be instrumental in the implementation of the following overall policy goals of the 6th EU Environment Action Programme: improvement of the implementation of legislative requirements, integration of environmental concerns into the policy making or other areas and integration of environmental concerns into physical planning, land use and land management.

Measure “Forestry”

The goal of the measure is to preserve and to develop economic, ecologic and social forest functions in rural areas. It is also aimed to improve infrastructure of private holdings, to increase forest productivity, improve environment quality and landscape variety.

Forest planting in lands of non-agricultural designation will have an overall positive effect on forests, wild flora and fauna, mushrooms, ecosystems and hydrologic conditions of surface and underground water, will decrease possibilities for manifestations of erosion and will partly increase opportunities for recreation. Increased opportunities for recreation may have a negative effect on natural-recreational areas as a result of landscape simplification and loss of open spaces, which may be avoided through adequate planning of activities and selection of measures. The maintenance and re-cultivation of injured areas will improve the landscape and create favourable conditions for wild fauna and flora to thrive and forests to replanted, the opportunities for soil erosion will diminish, positive impact will be made on the bowels of the earth, and the opportunities for recreation will increase.Investment intended for increasing economic, ecological and social value of forest will have an overall positive effect on forests, wild flora and fauna, mushrooms, ecosystems and hydrologic conditions of surface and underground water, will decrease possibilities for manifestations of erosion, will increase well-being and opportunities for recreation. However, at times the negative effect may be produced on wild flora and fauna due to increased volumes of timber processing.Investment intended for timber cutting and logging might have an overall positive effect on the state of forests and well-being of forestry.

Recreation of forests affected by natural disasters and fires and application of preventive measures will have a positive effect on forests, wild flora and fauna, mushrooms and ecosystems, will decrease possibilities for manifestations of erosion, will increase the well-being of forestry and opportunities for recreation, will decrease probability of accidents and will improve conditions for risk management.

The measure will be instrumental in the implementation of the following overall policy goals of the 6th EU Environment Action Programme: improvement of the implementation of legislative requirements, integration of environmental concerns into the policy making or other areas, encouraging awareness of rural population and integration of environmental concerns into physical planning, land use and land management.

Measure “Leader+ type measure”

The goal of the measure is to introduce LEADER+ methodology in the implementation of the strategy for integrated development of rural areas, based on the principle of territorial uniformity. Providing support to local communities, encouraging partnership relationships, training of specialists and dissemination of methodological material and support to small businesses will improve living conditions and increase well-being of rural population . Further on, there is a possibility of small increase in the use of renewable natural resources and the positive effect on natural-recreational areas.

The measure will be instrumental in the implementation of the following overall policy goals of the 6th EU Environment Action Programme: improvement of the implementation of legislative requirements, integration of environmental concerns into the policy making or other areas and encouraging environmental awareness of rural population.

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Measure “Training”

The goal of the measure is to increase professional qualification of the persons, working in agriculture sector and related with the other activities of the agriculture development measures, also create an opportunity to adapt to the new changes in the market and high EU standarts in the environment, people, fauna and flora well-being and nutrition areas.

In the attainment of goals set by this measure, an overall positive effect on rural areas and the state of forests will be produced. More information will reach rural areas, specialists will be trained, the latest and most advanced management methods for rural areas and forests will be introduced, while farmers will have an opportunity to familiarise themselves with the standards of environment protection, landscape conservation and hygiene and animal upkeep standards. Further, this will improve living conditions and servicing.

The measure will be instrumental in the implementation of the following overall policy goals of the 6th EU Environment Action Programme: improvement of the implementation of legislative requirements, integration of environmental concerns into the policy making or other areas and encouraging awareness of rural population.

Measure “Fleet related actions”

Coordinating capacities of the fishing fleet with fish resources will result in the positive effect on fish, their resources, fish feeding and spawning grounds, in addition to an indirect positive effect on birds, their concentration, feeding and resting locations and water vegetation.

Modernisation and renewal of the fleet will decrease consumption of energy resources, will decrease the release of untreated wastewater into the environment, will decrease the probability of accidents, will increase safety of fish and fish products with respect to the consumer, will reduce the probability of poisoning and contagious diseases, however, it may bring about a slight negative effect on fish, their resources, fish feeding and spawning grounds, even though attempts will be made to minimise this effect during the implementation of projects.The measure will be instrumental in implementing the following overall policy goals of the 6th EU Environment Action Programme: improvement of the implementation of legislative requirements, integration of environmental concerns into the policy making of other areas and encouraging awareness of citizens and encouraging cohesion of the market and environment protection.

Measure “Protection and Development of Aquatic Resources, Aquaculture, Fishing Port Facilities, Processing and Marketing and Inland Fishing”

The goal of the measure is to create favourable conditions necessary for the development of fishing activities, to ensure the development of valuable fish resources, to develop aquaculture by enhancing its competitivness and to modernise and rationalise processing and marketing of fishery products, to improve their competitivness.

Modernisation of the port, its infrastructure and improvement of ship service conditions will bring about a positive environmental impact, because it will increase the use of recyclable raw materials, will increase wastewater collection, thus reducing the release of untreated wastewater into the environment and surface and underground water pollution. Formation of hazardous waste and consumption of energy resources will decrease. The probability of accidents, possibly will also decrease, however, bringing about an increase in the formation of non-hazardous waste.

Promotion of see shore fishing business may have a negative impact on fish resources if not properly regulated.

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Modernisation of fish processing and aquacultural companies as well as implementing new technologies will bring about a positive environmental impact, because it will increase the use of recyclable raw materials, will increase wastewater collection, thus reducing the release of untreated wastewater into the environment and surface and underground water pollution. Formation of hazardous waste and consumption of energy resources will decrease. The probability of accidents, possibly will also decrease, however, bringing about an increase in the formation of non-hazardous waste.

The measure will be instrumental in implementing the following overall policy goals of the 6th EU Environment Action Programme: improvement of the implementation of legislative requirements, integration of environmental concerns into the policy making of other areas and encouraging awareness of citizens and encouraging cohesion of the market and environment protection.

Measure “Other (fisheries related) Actions”

The goal of the measure is to create conditions for the common market organisation, to improve conditions for coastal fishing and lighten social consequences of cessation of fishing activities.

Compensations for termination of fishing activity may have a positive effect on the overall state of the sea ecosystem, because it will decrease fishing intensity.

Compensations for stopping of fishing activities may also have a positive effect on ecosystem status, because of the reduced fishing intensity.


The conclusions of the Environmental impact assessment of the measures of the Single Programming Document are presented using the matrix, where all key environmental parameters as well as all measures listed in the priorities of Single Programming Document, showing the possible measure impact on key environmental parameters.

5. CONCLUSIONS OF THE ENVIRONMENTAL IMPACT ASSESSMENT

Most of the measures of the Single Programming Document, upon their implementation, may improve the state of the environment, however, on the other hand, investment, encouraging growth of the gross domestic product (GDP), may potentially cause a growth in the use of certain natural resources and environment pollution. However, these, at first sight unfavourable, tendencies should not be automatically and one-sidedly evaluated as negative consequences for the environment. If separation of economic growth from the growth in the use of resources and environment pollution is achieved, i.e. if the use of natural resources grow much slower than the economy, while the environment pollution - slower than the use of resources, such investment, from the point of view of sustainable development, should be given a positive evaluation.

Taking into consideration the goals and objectives of the Single Programming Document and based on the analysis of effects on the environment of this document, an assertion can be made that the implementation of the Single Programming Document will contribute to the attainment of the EU overall policy goals:Improvement of the implementation of legislative requirements. All measures, provided to be financed by the SPD, will, upon their implementation, ensure implementation of the requirements of legal acts effective in Lithuania. This is best reflected in the activities of the measures of the environment protection sector: setting up of the waste collection and waste recycling systems, improvement of water supply and wastewater systems, reduction of emissions and development of the Natura 2000 network.

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Integration of environmental concerns into the policies of other areas. Support to businesses in the area of transportation, energy, agriculture, forestry and fishery and other SPD measures will contribute to the improvement of environment protection, even though implementation of these SPD measures will have no direct impact on the policy of individual sectors, however, because of the decision-making process operational in structural funds, environmental issues will be reviewed by individual sector.Encouraging market and environment protection cohesion. In support of the measures of industrial and business development sector, introduction of cleaner production technologies and introduction of production of more environment-friendly products and environment protection management systems will be encouraged, which will ensure market orientation towards environment-friendly production and consumption. Encouraging citizen awareness. In support of the measures of priority direction Development of Human Resources, favourable conditions will be provided to training, educational and scientific activity, which will result in the growth of citizens’ knowledge in the area of environment protection. Better-educated citizens will be more aware and will contribute to action planning, discussions and implementation of activities and better environment treatment. In addition, creation of such systems as waste sorting will create economic levers that will provide an excellent motivation for encouraging citizen awareness.Integration of environmental concerns into physical planning, land use and land management. Implementation of such measures of the Single Programming Document as environmental damage prevention and planning may contribute directly to retaining of the existing quality of the environment and its improvement through the strengthening of physical planning and ensuring that environmental concerns are taken into consideration in the course of physical planning. It must be noted that the implementation of the Single Programming Document will largely depend on which activities will, in fact, be financed. In addition, on the programme level, determining potential effects of activities very precisely is rather difficult, because this also depends on how activities provided for under the measures will be implemented. However, it must be ensured that environmental concerns are taken into consideration as key concerns in the course of the development of individual projects and making decisions regarding these projects. This may be done through:

The application of standard and specific environmental selection criteria for each activity and project. Ensuring that the selected project is subjected to the assessment of effects of that project from the environment point of view. Requesting that project proposals provide for the means of avoidance and reduction of negative effects. Requesting and recommending to opt for environment-friendly production technologies and consumption. The development of the environment criteria system that would allow to monitor project implementation.

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ANNEX III:

STRATEGY OF THE COHESION FUND IN LITHUANIA(TRANSPORT SECTOR)

The EU policy of economic and social cohesion aims at reducing disparities between poor and rich regions. Then Cohesion Fund, as a component of this policy, sets out a strategy ensuring that the Community moves towards improving the cohesiveness of the Union.

In Lithuanian transport sector, the Cohesion Fund strategy is the sequel of ISPA strategy (ISPA projects will be continued) and should focuses on the most important environmental and sustainable development themes: the development of environmental awareness, the protection of the environment, the improvement of living conditions, and the improvement of the infrastructure in transport sector. The Fund shall contribute to the strengthening of the economic and social cohesion of the Community.

In the field of transport, the priorities focus mainly on:

Transport infrastructure measures that promote sustainable mobility, and constitute projects of common interest based on the criteria of Decision No.1692/96/EC and comply with the Community policies concerning transport and Trans-European networks; Measures that enable the beneficiary countries to comply with the objectives of the accession partnership, including inters connection and interoperability of national networks as well as with the Trans-European networks, together with access to such networks.

The Fund may contribute to the financing of: (i) projects, (ii) stages of the projects which are technically and financially independent, (iii) groups of projects linked to a visible strategy which forms a coherent whole. The projects must be of a sufficient scale to have a significant impact in the improvement of transport infrastructure network. The total cost of each measure will in principle not be less than 10 million Euros. The measures must be situated on the main routes of international importance, which after the accession to the EU will become the part of TENs. These routes are identified as the “TINA network”, have been agreed by all the countries involved and approved by the European Commission. The basic components of this network are the connections within the frame of the Pan-European Transport Corridors system established on the Crete Conference (1994) and Helsinki Conference (1997). Two Transport Corridors crossing Lithuania and the measures located in these Corridors will be the investment priorities in years up to 2006 and in the later period.

In the road sector, these Corridors are the following:

Corridor I: Kalvarija (Polish-Lithuanian border) – Marijampolė – Kaunas – Kėdainiai – Panevėžys - Salociai (Lithuanian-Latvian border) with the branch line: Panemunė (border with Kaliningrad region) – Tauragė – Kryžkalnis – Šiauliai - Kalviai (Lithuanian/Latvian border). Corridor IX: Medininkai (Lithuanian-Belarus border) – Vilnius – Kaunas - Klaipėda with the branch line: Kybartai (border with Kaliningrad region) –Marijampolė - Kaunas.In the railway sector:

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Corridor I: Mockava (Polish/Lithuanian border) – Kazlų Rūda – Kaunas – Radviliškis – Šiauliai - Šarkiai (Lithuanian/Latvian border) with the branch line: Pagėgiai (Border with Kaliningrad region) – Radviliškis. Corridor IX: Kena (Lithuanian/Belarus border) – Vilnius – Kaišiadorys – Radviliškis – Šiauliai - Kretinga-Klaipėda with the branch line: Kybartai (Border with Kaliningrad region) - Kazlų Rūda - Kaunas - Kaišiadorys.In the course of implementing investment projects, Corridors are being developed by applying the principles of multi-modality, traffic safety, improvement in the quality of service, increasing speed and interoperability.

In selection of projects, the Commission will base its decision on common transport strategy of EU and Lithuania were the Commission’s priority will be given to the measures facilitating:

Development of connections with EU states; Long term development: in particular railways and combined transport; Projects included in the TINA network; Connections along the Pan-European Transport Corridors; Remove bottlenecks and missing links along the networkThe basic criteria of selecting specific projects within frame of the presented broad assumptions of the transport policy are the aims and assumptions of the Cohesion fund and its formal requirements. These criteria are included in the Regulation concerning Cohesion Fund. The following criteria to be applied to ensure the high quality of projects in order to obtain financial assistance from this Fund:

Their medium-term economic and social benefits, which shall be commensurate with the resources deployed. The priorities established by the beneficiary state. The contribution which projects can make to the implementation of EU policies on the trans-European networks. The compatibility of projects with EU policies and their consistency with other structural measures.In Lithuania in the railway sector, priority is given to the following measures:

Modernisation of the central railway network (North-South direction) by increasing its capacity. Reconstruction of the main connection of the network with Klaipėda and modernisation of the connection with the capital Vilnius, towards the border with Belarus. These links are included in Corridor IXB. Establishment of a combined transport centre and construction of the missing link in the North - South direction between Kaunas and Poland (in accordance with the AGC and AGTC standards). The following activities are anticipated in the road sector:

Increasing capacity of the highway in the North-South direction (Via Baltica) by upgrading to 3-4 lanes and two level crossings. Reconstruction of main routes included in the lists of AGR agreement which correspond to the missing links between North-South and East-West directions. Strengthening the pavement of the existing motorway Klaipėda-Vilnius to a 11.5 tonne axle load and reconstructing the drainage system.

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Improving traffic conditions on bypasses around Klaipėda, Kaunas and Vilnius cities. Development of infrastructure of the Klaipėda Port will be directed towards:

Deepening of the existing water basin of the Port. Reconstruction of the existing berths to serve vessels of larger volume. Construction of new berths.Vilnius airport will be developed on the basis of the existing and anticipated numbers of flights and routes. It is foreseen to implement measures to increase the category of “meteorological minimum” and to ensure flight safety.

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ANNEX IV:

STRATEGY OF THE COHESION FUND IN LITHUANIA(ENVIROMENT SECTOR)

In 1995, Lithuania signed an Association Agreement with the European Union (EU) and formally applied for EU membership. The Association agreement obliges Lithuania to approximate its legislation, including the environment sector, with the EU’s legal requirements. In order to achieve the EU approximation requirements by the year 2015, it is estimated that over 1 billion euro shall be allocated for different environmental investment projects. The greatest proportion of these funds will need to be invested in wastewater treatment, sewage networks and waste management. In 1997 and 1998, about 215 million litas (54 million euro48) from public sources was invested in environmental protection. A considerable proportion of the financial resources came from international support funds including PHARE and bilateral support. During the period 2000-2006 Lithuania received assistance from ISPA (Instrument for structural policies for pre accession). The set objective was before 2015, to implement the main environmental infrastructure investment projects.

After the EU accession Lithuania will have the access to the new financial support instrument - Cohesion fund (European Council regulation No. 1164/94 amended by Council regulation No. 1264/1999 on 21 June 1999). ISPA rules and assistance policy resembles Cohesion fund rules and served the pre-accession countries as exercise instrument for Cohesion fund. Bearing this in mind Lithuania looks forward to continue investments into the priority water supply and wastewater treatment projects and solid waste management sectors, as previously indicated in National environmental policy documents and ISPA strategy. In addition to the investment projects in water and waste sectors, from year 2005 priority will be given also to the air sector investment projects. Investment projects to be implemented will be closely connected with the anticipated closure of the first nuclear unit in Ignalina Nuclear Power Plant and related needs for replacement of energy sources.

The Ministry of Environment set the indicative priority list of projects to be financed by Cohesion fund in 2004-2006 period.

In general the establishment of 3-5 remaining regional waste management systems and for implementation of first, second and third priority packages at each of 5 river basins. Also air protection measures addressing the environmental consequences of the closure of the Ignalina NPP shall be considered as possible at the Cohesion fund pipeline, respecting State Aid rules.

In addition to the named measures Lithuanian Ministry of Environment considers the possibility to solve Waste water treatment plant sludge problem using similar regional approach as with domestic waste.

The rate of Community assistance granted under ISPA in most cases was between 50-60% of the total cost of expenditure by public bodies. As in general Cohesion fund assistance could be up to 85% of total project value, and also bearing in mind that assistance is coming to the poorer areas with low income and affordability rate, the financing proportions will change to 75-85% of EU grant and 25-15% of the National sources.

Interaction with EU Structural funds 2004-2006

Differently from ISPA and Cohesion Fund where the priority was given to large scale investments into water supply, wastewater treatment, air protection and solid waste management projects, the assistance from Structural funds will be focused more on light

48 Exchange rate used for calculations is 4 litas = 1 euro.

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environmental directives, horizontal preventive measures and other measures related to the sustainable development of economic activity and improvement of environmental quality at the regions and also prevention of environmental damage. Projects, with cross interaction from the Cohesion Fund and Structural Funds, which will serve villages and settlements below 500 inhabitants with central water supply and waste water collection and treatment systems, will be financed from Structural Funds. Lithuanian Ministry of environment proposed two measures (Improvement of environmental quality and prevention of environmental damage) to be eligible for Structural fund investments. In addition several environmental measures are introduced at Energy, Transport, Tourism and Private business measures.

Implementation institutional set-up

After the Accession institutional mechanism will remain the same, where the Ministry of Environment will be responsible for environmental policy, assistance planning, project implementation monitoring and control. The responsibility for project implementation will stay within ISPA Implementing Agency which will change its name since 2004. Despite Cohesion fund management, ISPA Implementing agency will act as Implementing body for Environmental measures under the Regional Development fund.

In additional new regional waste water and water management system will be established for implementation of Cohesion fund regional projects. The mechanism is still not decided since it will come along with water sector reform starting in 2004.

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ANNEX V:

CO-OPERATION OF THE MINISTRY OF FINANCE WITH PARTNERS IN THE COURSE OF PREPARATION OF THE LITHUANIAN SINGLE PROGRAMMING DOCUMENT FOR 2004-2006.

Event Date Partners

1. Seminar “Spanish experience in the management of EU Structural Funds”

2002-03-19 Members of the SPD Working Group, Association of Lithuanian Municipalities, Association of Lithuanian Trade Unions, Lithuanian Union of Labour, Confederation of Lithuanian Industrialists, Confederation of Lithuanian Business Employers

2. Importance of the SPD to the development of business and industry

2002-04-08 Confederation of Lithuanian Industrialists

3. EU Structural Funds and regional policy 2002-04-09 Association of Lithuanian Chambers of Industry and Trade

4. Reinforcement of partnership capacities 2002-04-11 Representatives of municipalities

5. Reinforcement of partnership capacities 2004-04-11 Lithuanian Union of Labour, Association of Lithuanian Chambers of Industry and Trade, Association of Lithuanian Trade Unions, Association of Lithuanian Municipalities, Lithuanian Chamber of Agriculture, Confederation of Lithuanian Business Employers

6. Regional policy of European Union and of Lithuania 2004-04-23 Representatives of Marijampolė County Administration and municipalities of the region

7. Preparation for the management of EU Structural Funds 2002-04-26 Association of Lithuanian Clothing and Textile Industry

8. Principles of state aid in the context of EU Structural Funds

2002-04-29 “INFOBALT” (association of IT business companies), Competition Council

9. National conference “Partnership principle in the planning of EU financial assistance”

2002-05-09 150 representatives of local, social-economic, non-governmental and state partners

10. Investment projects financing procedures from various international funds

2002-05-16 Association of Lithuanian Heat Suppliers

11. Ex ante evaluation in the preparation of the SPD 2002-05-17 Members of the SPD Working Group, representatives of various

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Lithuanian scientific institutions and consulting firms

12. EU Structural Funds and their use to even out disparities between urban and rural areas

2002-04-18 Ukmergė District,

2002-04-25

Svėdasai, Anykščiai District.

Seminars organised by the Lithuanian Mission of the European Movement: discussions involving 30-40 representatives from various groups of the society, state institutions, non-governmental organisations and private enterprises

13. Support by the European Union to the regions of Lithuania

2002-05-21 Representatives of Tauragė County Governor’s Administration, regional municipalities, businessmen

14. Lithuania in the process of accession to the EU regional policy

2002-05-28 Representatives of the municipalities of Utena, Kaunas, Panevėžys, Telšiai, Tauragė, Šiauliai, Marijampolė, Alytus, Klaipėda, Neringa, Kretinga, Palanga, Skuodas, Šilutė

15. Feasibility study of business environment and infrastructure development in Kaunas City and Kaunas County

2002-06-05 Association of Industrialists and Employers of Kaunas Region, Closed Joint-Stock-Company “Festo”, National Regional Development Agency, Closed Joint-Stock-Company “Kausta”

16. Financial assistance of the EU to Lithuania 2002-06-05 Seminar-presentation, organised by LAVI-ISM

17. Effective usage of EU SF financial assistance 2002-06-13 County Governors’ Administrations, Association of Lithuanian Municipalities

18. Lithuania’s preparation to the EU membership: news from the negotiations

2002 -06-14,15

Representatives of Dzūkija Region (South-Eastern Lithuania)

19. Presentation of the SPD (lecture) 2002 07 09 Lecture to businessmen in the Baltic Management Institute

20. Inclusion of social-economic development needs of Utena Region into the SPD

2002-08-30 Meeting with the representatives of Utena County and Visaginas City

Seminars in 10 regions of Lithuania Representatives of municipalities, businessmen of the regions, other partners

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21. Vilnius 2002 09-10

22. Panevėžys 2002-09-13

23. Telšiai 2002-09-16

24. Šiauliai 2002-09-17

25. Kaunas 2002-09-23

26. Alytus 2002-09-24

27. Marijampolė 2002-09-27

28. Klaipėda 2002-09-30

29. Tauragė 2002-10-01

30. Utena 2002-10-10

31. EU structural assistance to Lithuania 2002-09-12 National Development Institute, Vilnius Non-Party Club

32. EU agricultural policy and Lithuanian prospects 2002-09-12 Representatives of the Lithuanian Agricultural Chambers (Lietuvos žemės ūkio rūmai - LŽŪR), farmers

33. Development of culture in the Lithuanian SPD 2002-09-18 LIVADIS (Lithuanian Institute of Public Administration), seminar of a PHARE project

34. Management of EU Structural Funds 2002-09-27 Members of the SPD Working Group, representatives of the Ministries, Confederation of Lithuanian Industrialists, Association of Lithuanian Clothing and Textile Industry, LSVVPA, MPIA, Confederation of Lithuanian Business Employers

35. Lithuanian SPD – for the development of IT 2002-10-08 Discussion with the representatives of the Alliance “Window into the Future” (“Langas į ateitį”) and the Forum of Knowledge Economy

36. Business and EU Structural Funds 2002-10-08 Confederation of Lithuanian Business Employers, businessmen of the Kaunas Region

37. Preparation of the SPD 2002-10-17 Association of Lithuanian Rectors

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38. Process and status of SPD preparation 2002-11-05 Confederation of Lithuanian Industrialists

39. Opportunities and prospects of SME development 2002-11-05 Confederation of Lithuanian Business Employers, Association of Lithuanian Banks

40. Presentation of the SPD 2002-11-06 Discussion with the leaders of branches of the Confederation of Lithuanian Business Employers

41. Prospects of knowledge economy and knowledge society in the Lithuanian SPD

2002-11-08 Presentation in the Seimas (Parliament of the Republic of Lithuania)

42. Structural Funds for the development of Lithuanian economy – including health care

2002-11-18 Participants of the Vilnius University competence building programme for the specialists – “Health in the 21st Century”

43. Financial support to social activities 2002-11-25 UBC Women’s Network and Association of the Women of Šiauliai

44. Conference “Culture and the Structural Funds” 2002-11-27-28

Representatives of the sectors of culture, sport and tourism

45. Co-Operation of the public sector with the EU Structural Funds

2002-11-26 Seminar by the National Development Institute

46. Lithuanian SPD and preparation for the structural assistance

2002-11-26 Leadership meeting of the Confederation of Lithuanian Industrialists

47. Participation of Lithuanian municipalities in the preparation and implementation of the SPD

2002-11-29 Seminar-discussion of the Association of Lithuanian Municipalities

48. Support of EU SF to Lithuania 2002-11-29 Assembly of Lithuanian Youth Organisations Council

49. “Role of municipalities and their abilities to absorb EU structural assistance”

2002-11-29 Association of Lithuanian Municipalities

50. Lithuanian SPD and preparation for the support of Structural Funds

2002-12-04 Training Centre of the Confederation of Lithuanian Industrialists and the Club of Kaunas Business Leaders (leaders of the biggest companies of the Kaunas Region)

51. Lithuania’s preparation for the EU Structural Funds 2002-12-09 Presentation to the Economic Committee of the Parliament of the Republic of Lithuania and to representatives of the Confederation of Lithuanian Business Employers

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52. Preparation for the support of EU Structural Funds 2002-12-10 NMC of the Vilnius Gediminas Technical University and Association of Lithuanian Constructors

53. Lithuanian SPD and preparation for the assistance of the Structural Funds

2002-12-11 Training Centre of the Lithuanian Industrialists’ Confederation, Club of Vilnius Business Leaders (leaders of the biggest enterprises of Vilnius Region)

54. Meeting-conference of a joint Lithuanian-EU Consulting Committee

2002-12-16 Joint Consulting Committee, Confederation of Lithuanian Industrialists

55. Lithuanian SPD and preparation for the structural assistance

2003-01-09 Conference of the Forum of Non-Governmental Organisations

56. Seminar on Lithuania’s co-operation with international funds

2003-01-13 Centre of Health Economy

57. Presentation of the SPD in Šalčininkai Municipality 2003-01-14 Businessmen of Šalčininkai Municipality, representative of municipal administration

58. Discussion of SPD measures and financing opportunities 2003-01-14 Lithuanian Industrialists’ Confederation

59. EU Structural Funds’ assistance to Lithuania 2003-01-17 Lecture for the representatives of local press and TV

60. Presentation of the SPD 2003-01-21 Department of Sport and Physical Culture

61 Lithuanian self-government today and in future 2003-02-21 Klaipėda municipality

62 SPD presentation for Vilniaus Bank 2003-02-24 Vilniaus Bank

63 Possibilities given by the EU structural funds assistance 2003-02-25 Women information centre

64 Presentation at Vilnius Chamber of Commerce 2003-02-25 Association of the Chambers of commerce, industry and trade

65 Lithuania in the EU integration context 2003-03-04 Klaipėda and Tauragė counties administrations

66 European future in Visaginas 2003-02-05 Visaginas municipality

67 Preparation to the referendum on the membership in the EU 2003-03-14 Seimas of Lithuania

68 Meeting of the managers of European Information Centres 2003-03-14 European Infocenter

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69 EU SF presentation to Lithuanian glassworkers association 2003-03-19 Lithuanian glassworkers association

70 How the EU SF support business development 2003-03-20 “Business news” newspaper conference

71 EU structural funds assistance 2003-03-21 Business information centres, business incubators

Interviews and articles in mass media:

Television:

61. “Eurogrąža” (TV broadcast) on topic: “EU financial assistance”

2001-11-12 TV audience, large part of the society

62. “Žinių radijas” (“News Radio”): Lithuanian regional policy

2002-04-26 Radio audience

63. Lithuania’s preparation for the support of EU Structural Funds and the SPD

2002-09-20 Interview to the broadcast of Vilnius TV – “Nedelya”

64. Support of the EU Structural Funds to the culture 2002-01-13 Reportage to the broadcast of the Lithuanian Radio and Television (LRT) – “Panorama”

65. Activities of the upcoming year in the preparation for EU Structural Funds’ assistance

2003-01-03 Interview to the broadcast of Vilnius TV – “Nedelya”

Newspapers:

“Interverslas”, “Integracijos žinios”, “Respublika”, “Verslo žinios”.

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ANNEX VI – DETAILED SWOT TABLES

Strengths

Key strengths are summarised and elaborated on below:

STRENGTHS Evidence

Macroeconomic stability Low inflation (1.3% in 2000-01, down from 45% in 1994.)

Reduced fiscal deficit (1.6% of GDP)

Current account deficit of 4.8% (2001)

5.9% increase in real GDP (2001), building on average growth of 5.1% from 1995-98.

Stable exchange rate (pegged to Euro since February 2002)

Current self-sufficiency in energy supply, healthcare provision and food supply

Growing economic competitiveness Privatisation programme has resulted in higher share of GDP produced by private sector (now 72%).

Worker productivity grew by 7.8% in 200 and 10.3% in 2001.

Increasing levels of FDI, principally through merger, acquisition, or privatisation

Fast growing service sector (accounted for 58.6% of GDP in 2001, up from 34% in 1991).

Geographical location favourable for east-west transit

A member of the WTO since 2001.

Adopted a liberal regime for trade and capital movement.

Territory forms part of International Multi-Modal Transport Network Corridor, for cargo transport

Freight volumes carried by rail have increased

Klapeida is a key junction in the IXB transport corridor, linking roads and sea routes in east-west direction

Sufficiently well-developed transport and communications infrastructure

Road density /capita and road density with improved surfaces equal to EU averages

Ice-free seaport (Klapeida)

Network of import-export terminals

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Relatively large export share to western markets

Exports to EU countries increased from 32.9% in 1996 to 47.8% in 2001.

Exports increasing in several manufacturing sectors including textiles, tanneries, transport equipment production, communications equipment, and electrical machinery.

Well educated workforce Over 80% of workforce have full secondary or higher education

Very low unemployment rate (4.6%) of those with higher education

Pockets of well-developed scientific institutions and high potential for applied research in selected areas

35 Higher Education establishments, 17 state scientific institutes, 9 university science institutes.

Employs close to the EU average

Strength in lasers, optical and medical equipment, biotechnology

Framework for vocational training established [separated from the point above]

Tripartite councils operating at regional and national levels

Experts helping to develop vocational training

Employers involved in syllabus development

College sector created in 2000

Extramural / adult education is expanding

Network of labour exchanges

14 special training centres to assist unemployed (training 20,000/year)

Attractive natural environment and landscape with rich heritage

Rich biodiversity

Unique World Heritage Sites

Existence of protected areas, covering 11.9% of total land area

Healthcare Health care indicators are getting better

Weaknesses

WEAKNESSES Evidence

Low industrial and agricultural productivity

Use of low technologies in extraction and processing industries

88% of total volume of industrial produce comes from labour intensive extractive and processing

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industries

High tech industrial production (at 13% of whole industrial production) is about two-thirds that of western European countries.

High tech industries account for only 4% of labour force.

Over 50% of workforce is employed in low skilled industries

Lack of entrepreneurial culture, SME access to finance and business support facilities

Lack of finance for business start ups

Lack of support / professional business advisory services

Lack of funds for SMEs to create science intensive products and modern technologies.

Unfavourable tax and legal environment hampers job creation

High structural and youth unemployment

National unemployment up from 13.3% in 1998 to 17% in 2001, falling to 11.3% in 2002.

Male and female unemployment levels exceed EU averages

Youth unemployment (under 25 years old) far exceeds EU average (29% in 2000 as opposed to 16.1% in EU)

Low levels of self employment compared to EU averages, across all sectors

Skills shortages and gaps, especially amongst young [added]

68% of unemployed categorised as ‘unskilled’

High drop out rate (over 20% of pupils) in basic education

Lower than EU average % of young people who choose vocational education and training after school

Low % of under 19 year olds with secondary education compared to EU averages

Lack of funds limits school leavers accessibility for vocation training

Physical infrastructure in need of modernisation and investment

Much of road and bridge network is poor quality and requires investment

Road deaths twice EU average

Very low proportion of electrified railway lines – well below EU averages

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Inland waterways unsuited for commercial expansion due to numerous problems (eg. outdated infrastructure, shallow waterways etc.) – unless significant investment made

Airport equipment and safety standards are poor

Physical infrastructure of educational establishments and hospitals needs investment

Fossil fuel power plants require investment

Water network and gas pipelines in need of modernisation

Insufficient access to and quality of social services and vocational rehabilitation infrastructure

Absence of occupational rehabilitation facility for disabled;

Training and working environment is not adjusted to the needs of disabled.

Not adequate distribution of social services facility among regions and local areas;

Non-institutional social services are underdeveloped

High level of poverty and social exclusion, particularly among vulnerable groups

At risk-poverty rate – 16.9 % (2002);

High unemployment level among ethnic minorities: while total unemployment is 13.6 % (I quarter, 2003), unemployment level among Lithuanians is 12.7%; among Russians – 20.6%, among Poles – 15.4%; others – 19.0%;

68% of unemployed categorised as ‘unskilled’;

Insufficient promotion of employers to hire disabled people and other vulnerable groups;

Absence of occupational rehabilitation system for disabled;

No rehabilitation system for persons dependant on drugs, alcohol and other substance exists

Energy dependency All sources of primary energy currently imported from CIS

Electricity, gas and oil networks connected only to Russian system and not to west

Insignificant domestic oil reserves

Limited potential for domestic renewables

Vulnerable to changes in oil price

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Low level of scientific research, technology development and innovation

Aggregate spend on R&D (at 0.6%) is much lower than EU average

Private spending on R&D is 0,07% of GDP. (EU average 1.28 %)

Lack of interest amongst large businesses in R&D, leading to little applied research

Less than 1% of research scientists work in the private sector

Lack of IT awareness and low levels of IT application

Low household internet access compared to EU averages (about one-tenth of EU level)

Low levels of Internet transactions compared to EU (3% compared to 44%)

Low levels of school computerisation compared to EU (about three times lower) despite recent improvements

Insufficient computer literacy skills

Pollution, especially of water sources and potential land contamination from chemicals / nuclear sources

Continuing need for investment in wastewater treatment plants and waste water networks

Poor quality drinking water (excesses of iron and fluoride)

Polluted groundwater in rural areas

Pollution of surface waters – only 14% of city effluent treated to EU standards

60% of drinking water supply system is outdated

21% of total drinking water pipe network requires modernisation

Use of heavy fuel oil (high sulphur content) in energy generation

VOC emissions exceed national and EU requirements, requiring investment

Unknown extent of pollution caused by oil and chemical use

Radionuclide leakage from radioactive waste repository

Damage to biodiversity and cultural heritage in existing national parks and reserves

Inadequate waste management infrastructure

Landscape marred by large number of small landfill sites

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Lack of biodegradable waste processing technologies

No waste-to-energy facilities

Inadequate recycling infrastructure

Lack of capacity to handle toxic waste

Healthcare system comparatively inefficient and not structured to meet social needs

Hospital infrastructure does not meet EU quality requirements

Underdeveloped primary health care and family health care services

Uneven distribution of health care institutions and human resources in the healthcare system

Hospital efficiency (patient throughput) is well below EU standards, despite improvements over last decade

Limited IT infrastructure within health care services

Extremely high rate of death caused by cardio-vascular diseases, traumas, and poisoning (2-3 times EU averages).

Opportunities

There are a number of opportunities, which derive from the analysis of the area’s strengths and weaknesses:

OPPORTUNITIES Evidence:

EU accession and the opportunities of the EU common market

Net positive balance between budget flows caused by EU accession estimated at 1.6% of GDP in 2004, 2.5% in 2005, and 2.4% in 2006 (excluding Ignalina decommissioning costs covered by EU budget).

Continuation of pre-accession programmes (PHARE, ISPA and SAPARD).

Growing cooperation of the Baltic Sea states

Plans to create joint electric power market with other Baltic states (and Poland) to facilitate integration into western electricity market

Use existing gas pipeline connections to Latvia – not currently used.

Goods and services exports opportunities to CIS markets

Exports to CIS have begun to recover in following a fall from 1996-2001. Accounted for 19.7% of total export in 2001, and grew further in 2002. Will be helped by more rapid development of CIS countries (especially Russia) and reduced real exchange rate

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in relation to CIS currencies.

Use existing gas pipeline connections to Byelorussia – not currently used.

Growing business internationalisation including FDI and cooperation

Policies planned to improve investment and business climate, including measures to promote green field investment and increase FDI.

Privatisation programme will continue until 2003, of SMEs and large infrastructure enterprises (eg. power and transport), bringing better management systems and advanced technologies.

Projected privatisation proceeds in 2003 are 898m litas (3.7% of GDP).

SME development, cluster formation, and technology and innovation development

Good network of science based research, with capacity to expand private sector involvement significantly

Sectoral technology strengths (lasers, optical medical equipment, biotechnology, environmental protection) could be used changing structure of industry increasing the share of products with high value added

Strategy exists for the Promotion of Small and Medium Sized Businesses

Network of Business Information Centres set up but awareness of them is low

6 Business incubators established; more possible in areas of high unemployment

Functioning loan system for small companies since May 2002.

Increasing goods transit flows Capacity for significant expansion of passenger and cargo traffic at airports

Exploit spare capacity at Klapeida seaport (in 2001 operated to about 73% capacity)

Klapeida port reconstruction to be completed in 2002 will enable handling of larger vessels

Rapid expansion of IT-based capacity and economic contribution

Independent forecasters predict rapid growth in mobile communication services by 2002 (from 15% to 44% of population)

Popular interest in e-Government (56% of Internet users had used e-Gov services)

Enrolment in informatics and related courses is

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increasing rapidly

Overall public awareness and business use of IT is low, with capacity for significant growth

Continuing expansion of services sector

Value added of the service sector grew from 34% of the total value added in 1991 to 59% in 2001.

Particularly rapid development of financial intermediation, wholesale and retail trade and transport.

more rapid growth predicted in branches of the economy which provide services for non-residents or manufacture exported goods, i.e. transportation, communications, warehousing activity, manufacturing industry, extractive industry and financial mediation

New opportunities also arising in business advice healthcare, training and skills development.

Growth of national and regional tourism (urban, rural, marine)

Potential for a new region of international tourism.

International transport flows bring tourist potential.

Large neighbouring tourist markets – Lithuania is currently the least developed Baltic tourist destination

Diverse ethnic-cultural contacts (eg. with USA and Argentina as well as European).

Capacity to increase volume of tourists arriving by air and sea.

Existence of attractive natural environment, and existing World Heritage Sites and facilities.

National and Regional Parks network capable of tourism expansion.

Capacity for tourism to promote diversification away from agriculture, through expansion of fast-growing rural tourism ventures.

Domestic and commercial energy efficiency

Scope for energy efficiency savings of 20-50% in some economic entities, and additional savings from domestic and transport sources

Threats

A number of threats face the country and affect prospects for sustained economic growth over the next 5 years. These are set out below:

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THREATS Evidence

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CIS market instability and cyclic fluctuations of western market on small domestic economy

Small economy, with open and liberal regime is affected by external factors, such as oil prices, international currency rates, export markets and international interest rates.

Unreliability of gas supply from the single source (Russia)

Increasing regional differences and between rural and urban areas

Regional differences in unemployment (eg. 15.6% in Vilnius counties and 21.9% in Alytus)

Regional differences in availability of vocational training courses and institutions

50.3% of all SMEs are located in just 2 counties (Vilnius and Kaunas)

Growing competitive pressure from foreign industry and services in domestic and foreign markets, creating economic and social challenges

EU accession opens domestic market to competition.

Growing competition with neighbouring countries including between the Baltic States

Lithuanian industry currently not competitive or as productive

Recent Russian redirection of cargo flows to Russian ports

Costs and challenges of meeting quality EU standards

Quality standards not being reached in agricultural and veterinary hygiene, food and fish processing, airport and road quality, teacher qualifications, air quality, fuel quality, water and wastewater quality, and hospitals.

Significant disparities with EU standards in many of these areas.

Closure of Ignalina NPP and consequent social, environmental and economic impacts

Ignalina currently produces 75-85% of total national electric power

Electricity costs will increase post decommissioning of unit II

Investment required to upgrade existing fossil fuel plants

Insufficient long term capacity to process and store radioactive waste

CO2 and other air emissions will increase post-closure

Ageing population and growing need for social assistance and health care services

Existing weaknesses (see above) in structure and delivery of healthcare provision

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Decreasing birth rate, and ageing population

Growing number of patients lacking social protection

Smoking, alcohol abuse and drug use are increasing

Poor knowledge of health / diet issues amongst population

Rural depopulation and agricultural diversification

Agriculture’s share of GDP has decreased from 16.4% to 7% in 2001, but (with forestry and hunting) still represents 17.7% of the workforce.

Outdated equipment, high production costs and lack of investment had led to major fall in agricultural partnerships.

Poor competitiveness of personal farms (leading to 10% annual decrease in their number).

Farms (for cereal crops and animal husbandry) are smaller and less competitive than EU averages.

Inadequate infrastructure in rural areas (eg. no water supply or sewerage networks in rural settlements).

Rural population is less well educated than in towns.

Outdated fishing fleet but high levels of employment in unproductive vessels.

Small local fisheries market.

Environmental impacts of growing economy (CO2 emissions, air quality)

Potential for increasing energy consumption, waste generation, pressures on land use etc.)

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ANNEX VII. STATE AID SCHEMES IN THE LITHUANIAN OBJECTIVE 1 PROGRAMME

Measure Number:Priority.Measure

Title of State Aid Scheme or ad hoc State Aid State AidNumber

Approval Letter Ref.

Duration of the Scheme

1.1. No State aid falling under Article 87 (1) of the EC Treaty shall be granted under this measure

1.2. Regional aid scheme incorporated into Procedure for granting state aid “Fostering of Entrepreneurship, Business Development and Investment” based on Guidelines on national regional aid

In addition this measure can also contain aid granted in conformity with the de minimis regulation and one block exemption regulation

To be authorised by application of interim procedureDe minimis (EC 69/2001), SME (EC 70/2001)

2004-2006




2.1. Any aid granted under this measure will be implemented in compliance with the de minimis and one of the block exemption regulations

De minimis (EC 69/2001), training aid (EC 68/2001), aid to employment (EC 2204/2002)

2004-2006

2.2. Any aid granted under this measure will be implemented in compliance with one of the block exemption regulations

Training aid (EC 68/2001), aid to employment (EC 2204/2002)

2004-2006

2.3. Any aid granted under this measure will be implemented in compliance with the de minimis and one of the block exemption regulations

De minimis (EC 69/2001), training aid (EC 68/2001),

2004-2006

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aid to employment (EC 2204/2002)


2.5. Any aid granted under this measure will be implemented in compliance with the de minimis and one block exemption regulation

De minimis (EC 69/2001), training aid (EC 68/2001)

2004-2006

3.1. Regional aid scheme incorporated into Procedure for granting state aid “Fostering of Entrepreneurship, Business Development and Investment” based on Guidelines on national regional aid

State aid scheme “Promotion of Research and Development” based on Community framework for State aid for research and development.

In addition this measure can also contain aid granted in conformity with the de minimis regulation and one block exemption regulation

To be authorised by application of interim procedureTo be authorised by application of interim procedureDe minimis (EC 69/2001), SME (EC 70/2001)

2004-2006




4.1. This measure will be implemented in compliance with Council regulation (CE) No. 1257/1999 of 17.5.1999.



4.4. This measure will be implemented in compliance with Council regulation (CE) No. 1257/1999 of 17.5.1999.Any aid granted under this measure will be implemented in compliance with the de minimis rules and one block exemption regulation

De minimis (EC 69/2001), SME (EC 70/2001)

2004-2006

4.5. This measure will be implemented in compliance with Council regulation (CE) No.

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1257/1999 of 17.5.1999.Any aid granted under this measure will be in compliance with the de minimis rules and one block exemption regulation


2004-2006

4.6. This measure will be implemented in compliance with Council regulation (CE) No. 1257/1999 of 17.5.1999.Any aid granted under this measure will be in compliance with the de minimis rules and one block exemption regulation


2004-2006

4.7. Any aid granted under this measure will be implemented in compliance with the de minimis rules

De minimis (EC 69/2001)

2004-2006

4.8. State aids under this measure are covered by the provisions of Article 19 of the Regulation No 2369/2002

4. 9. State aids under this measure are covered by the provisions of Article 19 of the Regulation No 2369/2002

4.10. State aids under this measure are covered by the provisions of Article 19 of the Regulation No 2369/2002



Note:In conformity with its duties under Article 34(1)(g) of Council Regulation No 1260/1999, the Management Authority, will keep the above State aid table up to date and will inform the Commission of any modification of the table.A sound mechanism to control the cumulation of aid under the different schemes and from different sources (including the cumulation of "de minimis" aid) will be established. Where schemes falling under the SME, training and employment block exemption regulations are used prior to accession, such schemes will be notified to the Commission under the interim procedure.

The introduction of a new aid scheme or ad hoc aid requires a modification of the assistance by a formal decision.Article 4 of the Commission Decision approving the present programme (suspensive clause concerning State aid) applies to measures which contain State aid that is subject to appropriate measures or have not yet been authorised by the Commission. At the present stage this Article applies to measures 1.2 (Ensuring of Energy Supply Stability, Accessibility and Increased Efficiency) and 3.1 (Direct Support to Business).

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