MEETING VILNIUS 11-12 SEPTEMBER 2003 MINISTRY OF FINANCE, LITHUANIA

1. LITHUANIA’S OBJECTIVE 1 SINGLE PROGRAMMING DOCUMENT FOR 2004-20061ST exchange European Comission - Lithuania MEETING VILNIUS 11-12 SEPTEMBER 2003 MINISTRY OF FINANCE, LITHUANIA

2. CONTENT • GENERAL STATEMENTS FOR NEGOTIATION • SPD OBSERVATION • ADMINISTRATIVE SYSTEM AND PROJECTS MANAGEMENT • MONITORING SYSTEM • ADMINISTRATIVE CAPASITY

3. GENERAL STATEMENTS FOR NEGOTIATION

4. LITHUANIAN RESPONSE ON COMMISSION POSITION AND NEGOTIATION MANDATE • Lithuania accepts major part of Commission comments and will make all necessaries correction of SPD • Some points have to be clarified or discussed more deeply (coherence with Cohesion fund strategy, introduction of sub-measures, changing of measure content, etc.) • Financial allocation among sectors and SPD investment priorities represent a political issue

5. SPD OBSERVATION

6. OVERALL EU SUPPORT PACKAGE 2004-2006: 2677 MEUR 301,1 “Shengen”, institution building, other EU BUDGET INTERNAL POLICIES (incl. funding of Ignalina NPP closure), etc. 285 • ENERGY • TRANSPORT • ENVIRONMENT • HEALTH AND SOCIAL INFRASTRUCTURE • INDUSTRY, BUSINESS • TOURISM • INFORMATION SERVICES • EDUCATION • EMPLOYMENT MEASURES • FISHERIES • RURAL DEVELOPMENT • AGRICULTURE NATIONAL BUDGET 543,5 COHESION FUND OTHER NATIONAL FUNDS SPD ERDF 792,1 ESF PRIVATE FUNDING FIFG EAGGF DIRECT PAYMENTS TO AGRICULTURE MARKET REGULATION, RURAL DEVELOPMENT 30,4 INTERREG 19,9 EQUAL 10,5 724,8

7. SPD PRIEPARATION PROCESS

8. THE GLOBAL OBJECTIVE OF THE DEVELOPMENT PLAN 2004-2006 Strengthen the preconditions for growth in long-term national economic competitiveness and rapid development of knowledge-based economy in terms of GDP and employment growth, leading to increasing well-being and higher living standards in the entire country for its all inhabitants.

9. THE SPECIFIC OBJECTIVES OF THE DEVELOPMENT PLAN • to develop physical infrastructure that would allow to encourage new, and use the existing, movement of goods, services and people through and in Lithuania to its full extent, and would also allow environmentally sustainable economic development; • to develop adaptable labour force, eliminating deficiency of its qualifications (first of all, among the unemployed and youth) and providing it with the required abilities; • to strengthen potential of economic competitiveness through providing preconditions and promoting a more viable setting up and development of businesses and more active economic restructuring

11. SPD PRIORITIES: EXAMPLES OF INVESTMENT • Repairing and construction of motor roads, development of municipal traffic infrastructure . • Modernisation of energy efficiency of buildings. • Reconstruction of waste water treatment facilities of cities and villages. • Creation of facilities for burning communal waste. • Strengthening seashore dunes and seacoast (against erosion), development of beaches. • Reconstruction of hospitals, renovation of medical facilities and technologies. • Renovation of buildings of institutions of education, vocational training, science and studies. ERDF DEVELOPMENT OF SOCIAL & ECONOMIC INFRASTRUCTURE DEVELOPMENT OF PRODUCTIVE SECTOR • Development of electronic business and cleaner production technologies. • Introduction of cost-saving measures in enterprises. • Measures to increase export-generating foreign investment. • Development of innovation and business support centres, business incubators. • Development of science and technology parks and clusters. • Creation and modernisation of sport and leisure infrastructure. • Tourism marketing measures. • Creation of public Internet access points. ESF DEVELOPMEN T OF HUMAN RESOURCES • Vocational training of the unemployed. • Improving competence of specialists (incl. public institutions). • Social and professional integration of refugees, former convicts, ethnic minorities. • Preparation and competence-raising of teachers / lecturers. • Development of distance and electronic learning. EAGGF RURAL DEVELOPMENT AND FISHERIES • Investment into agricultural holdings. • Establishment of young farmers. • Development of marketing and processing of agricultural and fish products. • Development of rural areas. • Development of fisheries. FIFG

12. THE CONTEXT OF SPD CO-FINANCING • The priorities of structural and fiscal policy, defined in the Lithuanian mid-term economic program, have to secure that under the SPD will be implemented the economic policy coordinated with European Commission (eg. the requirement to respect strict margins of fiscal deficit). • The structural funds are allocated as additional resources to the available national financing of the projects. It means that projects are not completely financed from the EU budget - always there is a part of national (public) financing. • The conditions of the EU membership determine that in 2004 other expenditure of Lithuanian budget, not related to implementation of the SPD, will amount to about 570 million Litas. Therefore, having in regard the budgetary tensions, there are very limited possibilitiesfor allocating additional finances for investment areas defined in the SPD.

13. MAIN ASSUMPTION OF SPD FINANCIAL TABLE SET UP • The experience of the EU member states (especially those, which benefit from the Cohesion fund (Ireland, Spain, Portugal, Greece)) about utilizing the structural funds was evaluated. • The analysis of the factual expenditure from different national sources in 1999-2000, corresponding to the SPD priorities and measures, was made. (Having in regard that the expenditure, which will be financed on the basis of the SPD, not fully corresponds to the Lithuanian classification of expenditure, the special study was produced for such a purpose). • The additional financing, which certain sectors of economy will receive from other EU sources, was taken into account: • transport and environment sectors will receive Cohesion fund support(543,5 MEUR in 2004-2006); • to the energy sector will be allocated finances for decommissioning of Ignalina Nuclear Plant (285 MEUR in 2004-2006); • agriculture and rural development will be supported from the CAP budget through direct payments, market intervention and rural development measures(724,8 MEUR in2004-2006). • The experience of certain sectors to manage and absorb the EU financial assistance (ISPA, PHARE, SAPARD), as well as preparation of projects to be financed from structural funds, was evaluated. • Theimportance of certain sectors to the development of country’seconomy, defined in the Lithuanian strategic planning documents (Long-term State strategy (till 2015), Long-term strategy of the development of the Lithuanian economy (till 2015), National agreement for economic and social progress), were taken into account.

14. FINANCING OF THE MAIN INVESTMENT PRIORITIES IN LITHUANIAN SPD (2004-2006) SPD PRIORITIES : STRUCTURAL FUNDS’ SUPPORT 792.1MEUR(100%): 317.7 MEUR 40.1% DEVELOPMENT OF SOCIAL &ECONOMIC INFRASTRUCTURE 521.5MEUR 65.8 % ERDF DEVELOPMENT OF PRODUCTIVE SECTOR 203.8 MEUR 25.7% 147MEUR 18.6 % ESF DEVELOPMEN T OF HUMAN RESOURCES EAGGF 123.6 MEUR 15.6% RURAL DEVELOPMENT AND FISHERIES FIFG

15. FINANCIAL WEIGHT OF ALL SPD PRIORITIES MEUR % • Transport • Energy • Environment • Healthcare infrastructure • Education, science and studies and social infrastructure. DEVELOPMENT OF SOCIAL &ECONOMIC INFRASTRUCTURE 312.250 39.4 DEVELOPMEN T OF HUMAN RESOURCES • Employment, active labour market measures, social integration • Education and vocational training 144.834 18.3 DEVELOPMENT OF PRODUCTIVE SECTOR • Support to industry and business • Tourism • Development of information serrvices arama 200.120 25.3 RURAL DEVELOPMENT AND FISHERIES • Rural development • Development of fisheries 121.474 15.3 • Planning, management and implementation of SPD • Publicity of the EU Structural Funds support TECHNICAL ASSISTANCE 13.421 1.7

16. PRIORITY I : DEVELOPMENT OF SOCIAL & ECONOMIC INFRASTRUCTURE % MEUR Improvement of Accessibility of Transport Infrastructure and Its Service Quality 41,0 128,078 Ensuring of Energy Supply Stability and Accessibility 10,4 32,405 Development of Energy Use Efficiency 6,9 21,604 Improvement of Environmental Quality and Prevention of Environmental Damage 7,1 22,146 Development and Upgrading of Health Care Institutions 9,9 30,862 Development of Infrastructure of Labour Market, Education, Vocational Training, Research and Study Institutions and Social Services 24,7 77,156 TOTAL 100,0 312,250 FINANCIAL WEIGHTS OF SPD MEASURES (I)

17. PRIORITY II : DEVELOPMEN T OF HUMAN RESOURCES % MEUR Development of Employability 28,0 40,554 Development of Labour Force Competence and Ability to Adapt to Changes 18,0 26,070 Prevention of Social Exclusion and Social Integration 10,0 14,483 Development of Conditions for Lifelong Learning 28,0 40,554 Improvement of Human Resources Quality in Scientific Research and Innovations 16,0 23,173 TOTAL 100,0 144.834 FINANCIAL WEIGHTS OF SPD MEASURES (II)

18. PRIORITY III : DEVELOPMENT OF PRODUCTIVE SECTOR % MEUR Promotion of Industrial and Business Development 34,5 69,572 Improvement of Industrial and Business Environment 14,9 29,816 Development of Information Services 20,7 41,412 Development of Tourism Infrastructure 29,6 59,321 TOTAL 100,0 200,120 FINANCIAL WEIGHTS OF SPD MEASURES (III)

19. PRIORITY IV : RURAL DEVELOPMENT AND FISHERIES % MEUR Investment in agricultural holdings 25,45 36,989 Setting-up of young farmers 10,77 7,009 Improvement of processing and marketing of agricultural products 16,92 20,553 Adaptation and development of rural areas 30,98 37,633 Forestry 3,92 4,762 Leader plus activities 1,51 1,834 Training 1,48 1,798 Adjustment of fishing effort 4,37 5,308 Modernisation of fishing vessels 1,24 1,506 Improvement of conditions for fishing activities and development of aquatic resources 2,47 3,000 Aquaculture 0,89 1,081 TOTAL 100,0 121,474 FINANCIAL WEIGHTS OF SPD MEASURES (IV)

20. FINANCIAL WEIGHTS OF SPD MEASURES (V)

21. BPD PRIORITIES EU SF 2004 2005 2006 2004-2006 I: DEVELOPMENT OF SOCIAL & ECONOMIC INFRASTRUCTURE ERDF 27,8% 36,1% 36,0% 100% II: DEVELOPMENT OF HUMAN RESOURCES ESF 20,0% 30,0% 50,0% 100% III: DEVELOPMENT OF PRODUCTIVE SECTOR ERDF 21,0% 34,0% 45,0% 100% IV: RURAL DEVELOPMENT AND FISHERIES EAGGF, FIFG 26,0% 34,0% 40,0% 100% V: TECHNICAL ASSISTANCE ERDF, ESF, EAGGF, FIFG 27,5% 33,3% 39,2% 100% SPD, TOTAL 24,4% 34,1% 41,5% 100% SPD FINANSING, MEUR 193,089 270,133 328,878 792,1 ANNUAL FINANCIAL ALLOCATION FOR SPD PRIORITIES (percent of total amount)

22. EX-ANTE EVALUATION OF THE MACROECONOMIC IMPACT OF THE PROGRAMME • 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 mln Litas in 2004 to 1139 mln Litas in 2006 • The number of employed workers would increase by 28 200 These calculations support the assumption that the multiplier effect is close to 1.02.

23. ESTIMATED OUTPUTS OF LITHUANIAN SPD • Between 31,000-35,000 business start-ups and existing SMEs are likely to be assisted. This includes training support under Priority 2, support for SMEs under Priority 4 as well as direct and indirect support for businesses under Priority 3 • Approximately 19,000-20,000 individuals are likely to benefit from training assistance under mainstream ESF. Of this total, around 8,700 will be existing employees receiving retraining to upgrade skills. A further 5,500 unemployed trainees will receive support to acquire basic qualifications. Additionally, some 1,900 individuals will receive training support under the social exclusion priority; • An additional 1,600 individuals should benefit from other training support under the agricultural and rural development priority. Taking Priorities 2 and 4 together, some 20,600-21,600 individuals might be trained. • Overall, some 49,000 – 57,000 jobs might be created by the programme after taking job losses into account. Once temporary construction jobs and ‘jobs redistributed’ are excluded, the programme might be expected to create between 27,000 – 31,000 permanent, full-time new jobs. This correlates closely with the ‘top-down’ estimate based on macroeconomic modelling of 28,000 new jobs

24. EMPLOYMENT EFFECTS OF SPD PRIORITIES’ INVESTMENTS • Priority 1 – investment in physical infrastructure will create construction jobs in the short term and improve the environment for job and wealth creation generally in the longer term; • Priority 2 – EU-funded training support will contribute to increasing the competitiveness of businesses leading to additional job creation – directly in assisted businesses themselves and indirectly through supplier and consumption effects. There may also be ‘jobs redistributed’ as previously unemployed people gain jobs as a result of training support; • Priority 3 – support for new start-ups and interventions to assist existing firms will lead to job and wealth creation with direct and indirect effects. Against this, the restructuring of larger undertakings is likely to lead to job losses although Priority 3 retraining interventions should help to minimise unemployment; • Priority 4 – likewise, rural development interventions aimed at diversifying local economies should lead to new employment opportunities being created although again there will be job losses in the agricultural sector.

25. ESTIMATSD EMPLOYMENT IMPACT (Objective 1 Expenditure) *Note: these will be temporary construction industry jobs linked to construction projects

26. ADMINISTRATIVE SYSTEM AND PROJECTS MANAGEMENT

27. SCHEME OF EU SF SUPPORT ADMINISTRATION IN LITHUANIA MANAGING AND PAYING AUTHORI- TIES MINISTRY OF FINANCE MIN. OF FINANCE MONITORING COMMITTEE Paying Authority for ERDF, ESF, EAGGF and FIFG MANAGING AUTHORITY MINISTRY OF EDUCATION & SCIENCE MINISTRY OF HEALTH- CARE INTER- MEDIARY INSTITU- TIONS MINISTRY OF SOCIAL SECURITY & LABOUR MINISTRY OF ENVIRON- MENT MINISTRY OF AGRICULTURE MINISTRY OF ECONOMY MINISTRY OF TRANSPORT ISDC . HUMAN RESOURSES DEVELOPMENT PROGRAMMES FOUNDATION LITHUANIAN BUSINESS SUPPORT AGENCY OF THE MIN. OF ECONOMY IMPLEMEN- TING AGENCIES CENTRAL PROJECT MANAGEMENT AGENCY TRANSPORT INVESTMENT DIRECTORATE ISPA IMPLEMENTING AGENCY NATIONAL PAYING AUTHORITY

32. MANAGEMENT OF THE COHESION FUND MONITORING COMMITTEE Ministry of Finance Central co-ordinating institution • monitoring of projects’simplementation MA for the Cohesion Fund PA for the Cohesion Fund Intermediary co-ordination and supervision • Co-ordination and supervision of project implemenation in the sector Ministry of Environment Ministry of Transport & Communications - Preparation of project applications - Participation in the meetings of MC, preparation of reports ISPA Implementing Agency (transport sector) ISPA Implementing Agencies Implementing Agency Project implementation (environment sector)

33. PROJECT APLICATION, EVALUATION AND SELECTION MANAGING AUTHORITY Participates in the selection committees IMPLEMENTING BODY Call for proposals. Project evaluation. Recommendations and remarks to Selection committee. Signing support contracts with successful applicants. Selection committee Assessment of projects. Recommendations to the intermediate body on projects to be financed. INTERMIDIATE BODY Preparation of application forms and tender procedures. Establishment of Selection committee. Decision on financing (according to the recommendations of Selection committee). Project applicants: municipalities, SME’s, public enterprises, NGO’s.

34. FINANCIAL FLOWS EU COMMISSION MANAGING AUTHORITY Ensures that all the payments are made according to regulation No 1260/1999. PAYING AUTHORITY Checks and certifies the declarations of expenditure submitted by intermediate bodies and submits them to the EU Commission. Opens four separate Treasury accounts for each structural fund. TREASURY Pays to the projects from PA accounts IB accounts INTERMIDIATE BODY Checks and confirms the payment requests for Treasury received from the implementing body and sends them to the Treasury for reimbursement. Prepares declarations of expenditure and sends them to the Paying Authority IMPLEMENTING BODY Checks payment claims, prepares payment requests for Treasury and sends them to the intermediate body. PROJECT Submits payment claims and necessary documentation

35. Managing Authority (PA) Controls on the basis of descriptions of management and control systems visits the institutions and projects to verify the functioning of the systems according to the principles of sound financial management Payaging Authority (MA) Certification of the declaration of expenditure comparison of payment information from different sources (e.g. accounting systems, monitoring system) On the spot verifications in intermediate and implementing bodies MANAGEMENT AND ADMINISTRATIVE CONTROL • Intermediate Body (IB) • - Control of management and control systems of the IA • Verification of the payment information from IA to be collected • and send to the Treasury to pay for projects and PA for the declaration of expenditure • - Control of irregularities and corrections Implementing Agency (IA) - Control of application process, - Control of payment claims (eligibility checks), - On the spot checks, - membership in the steering groups of the projects Projects - Control of invoices and bookkeeping

36. Commission Managing Authority AUDITING State Control Winding-up Body Paying Authority Implementing Body Intenal audit unit Executing 5% checks Systems audit Implementing Agency Final Recipient Auditing before submission of payment claims

37. ADMINISTRATIVE CAPASITY STRENGTHENING PLAN (4) Institutions, responsible for EAGGF & FIFG administration

38. MONITORING COMMITTEE Functions: - Periodically evaluates the implementation of the SPD goals on the basis of monitoring indicators defined in the SPD and Program Complement; - Considers the adjustments of the SPD prepared by other institutions and proposes them to the Managing Authority; - Confirms the Program Complement and its adjustments (including monitoring indicators and project selection criteria); - Discusses and approves the proposals of the Republic of Lithuania to change the EU Commission decision by which the SPD was approved; - Considers and approves annual and winding-up reports of the SPD implementation before sending them to the EU Commission. Interim Monitoring Committee will be established by Government Resolution not later that December 1, 2003. It will perform above mentioned functions until Monitoring Committee will be established.

39. MONITORING SYSTEM

40. SYSTEM OF INDICATORS, APPLIED FOR MONITORING OF SPD IMPLEMENTATION (1) Types of indicators: • Output indicators relate to a particular activity. They are measured in physical or monetary units (e.g. length of road constructed, etc.). • Result indicators relate to the direct and immediate effect brought about by a programme. They could be quantitative as well as qualitative. • Impact indicators refer to the consequences of the programme beyond the immediate effects on its beneficiaries. Levels of indicators: • Core indicators are programme level indicators. They are to be monitored across several measuers (e.g. number of jobs created, number of jobs safeguarded, number of firms financially supported). Data is to be generated by single project and entered into the electronic data system. • Measure level indicators concern only one or two measures. The target levels are not appointed for them in the SPD.

41. SYSTEM OF INDICATORS, APPLIED FOR MONITORING OF SPD IMPLEMENTATION (2) Nature of indicators: • Physical indicators describe expected impacts of project implementation realised by the applicant for granting the support in technological or qualitative level of products or services or of production process, in the parameters of trade economy, in the area of social conditions (employment, qualifications and quality of human resources, etc.). • Financial indicators describe the intensity of support from public resources. Financial indicators quantitatively describe the amount of co-financing of total projects costs from public funds and the economic efficiency of provided public support. • Specific indicators serve for consideration of auxiliary conditions, which are important in the process of evaluation of the application for granting the support. Specific indicators usually describe a specific nature of support programme, broader economic and social context or regional aspects of implementation of support programme.

42. Indicators are to be collected from particular project and fed into the integrated, computerised monitoring system by the responsible body. This body is also responsible for the correctness of collected data. SYSTEM OF INDICATORS, APPLIED FOR MONITORING OF SPD IMPLEMENTATION (3)

43. MONITORING SYSTEM SingleNational Structural Funds Management (SFM) and Monitoring Information system (SFMIS):- will ensure the transparency and the accessibility of financial and operational data - will facilitate data transfer between involved bodies and the Commission- will allow to follow all administrative decisions relevant to EU support and audit trails- will allow to follow the operational and financial sides of - the single project, financed by any SF and Cohesion Fund, implementation- the SPD measure progress and the whole SPD progress- the INTERREG III and EQUAL initiatives programmes progress

44. Time table for SFMIS development • Start of the project - 2003 July • Approval of technical concept of the SFMIS – November 2003 • Launching and testing of EAGGF and FIFG modules – January 2004 • Launching and testing of the whole system – May 2004

45. ADMINISTRATIVE CAPASITY

46. ADMINISTRATIVE CAPASITY STRENGTHENING PLAN (1) Managing Authority and Paying Authorityfor all Structural Funds

47. ADMINISTRATIVE CAPASITY STRENGTHENING PLAN (2) Institutions, responsible for ERDF administration

48. ADMINISTRATIVE CAPASITY STRENGTHENING PLAN (3) Institutions, responsible for ESF administration

49. ADMINISTRATIVE CAPASITY STRENGTHENING PLAN (4) Institutions, responsible for EAGGF & FIFG administration