Parliamentary question by Olivier Dupuis (NI) to the Commission and answer given by Mrs Schreyer on behalf of the Commission

Parliamentary questions
by Olivier Dupuis (NI) to the Commission
(01 October 2002)

Subject: Use of European public money in Kosovo

More than three years after the United Nations Interim Administration Mission in Kosovo began and despite the investment of EUR 400 million in the energy sector, electricity supply in Kosovo remains very irregular, with, for example, an average supply of only about ten hours a day.

Various sources report instances of misappropriation and fraud in the use of European Union funds for energy supply and production. These sources also state that there is a lack of transparency on the part of the European companies contracted to rebuild the energy production and supply system in Kosovo. Furthermore, Andy Bearpark, Head of Pillar IV of UNMIK, the administration of which falls within EU competence, has confirmed that one of his colleagues, apparently an EU citizen, is responsible for the misappropriation of EU funds for Kosovo. According to these same sources, considerable Union funds (EUR 4.5 million) intended for Kosovo have passed through accounts in Gibraltar. It would also seem that the "Kosova B Plan", destroyed during a storm, was not insured on the basis of the criteria normally applicable to this kind of power station. Finally, it would appear that OLAF has carried out an enquiry into these matters, including the case in which at least one EU citizen working for the EU Mission in Kosovo is implicated.

Does the Commission intend to provide Parliament with all the information it has on the business of EU funds being diverted via Gibraltar, including the final "fate" of these funds, on the inadequate insurance cover for the "Kosova B Plan" and on the lack of transparency the European companies have demonstrated, along with the information gathered by OLAF during its enquiry into all these matters?

What steps have been or will be taken to guarantee in future that all European public money reserved for Kosovo is used correctly and, in this specific case, to ensure a satisfactory electricity supply for Kosovo?

Finally, does the Commission not consider that the very status of Kosovo, most significantly its provisional nature, risks encouraging cases of mismanagement, indeed of misappropriation, as much within the International Administration as among private actors in Kosovo, and that the Union has a duty to adopt an initiative aimed at full international recognition of Kosovo?

Answer given by Mrs Schreyer
on behalf of the Commission
(4 December 2002)

With respect to the fate of the Community funds for energy supply and production, the Commission wishes to inform the Honourable Member that the European Anti-Fraud Office (OLAF) opened a case in May 2002 into suspected misappropriation of $US 4.2 million from the Kosovo budget, after having received a report from the United Nations Interim Administration Mission in Kosovo (UNMIK). The money was traced to Gibraltar, and with the excellent co-operation of the Gibraltar authorities, OLAF obtained an order in the High Court freezing the bank account where the funds were held. The amount that was then discovered to be still available as a cash deposit was approximately $US 3.2 million, which was returned to the Kosovo budget last October 2002. The balance of the fraudulently obtained funds had been invested in shares. The Commission has commenced action in the High Court of Gibraltar to have the shares sold and the proceeds remitted to the Kosovo budget. The Commission is seeking full restitution of the principal, costs, damages, interest, and an accounting for any profit made by the party responsible for the illegal transfer.

OLAF’s investigation did not concern European companies, nor the alleged inadequate insurance coverage for the “Kosova B plan”. OLAF’s investigations are always limited to inquiries into fraud or misappropriation of Community funds.

Regarding the steps that have been or will be taken to guarantee in the future that all European public money reserved for Kosovo is used correctly, the Commission would like to remind the Honourable Member that the bulk of the Community funds dedicated for Kosovo under the CARDS programme is successfully implemented by the European Agency for Reconstruction.

The Agency is subject to tight controls by its Governing Board, in which both the Commission and the Member States are represented, by the Court of Auditors and by a Financial Controller appointed by the Commission. In view of the report of the Court of Auditors on the financial accounts of the European Agency for Reconstruction (EAR) for the 2000 financial year and on its positive assessment of the Agency's work in Kosovo, the Parliament granted the discharge to the Director of the Agency on its plenary session on 9 April 2002

As far as the measures taken to improve the control of the operations undertaken by the United Nations Mission in Kosovo, it is important to note that the Regulation establishing the Office of the Auditor General was signed into law during October 2002. Tenders to provide technical support for three years, funded by the Commission through the European Agency for Reconstruction, are currently being sought from interested parties. Meanwhile, to enable the Auditor General to begin working swiftly, temporary funding for the post will be covered by the Kosovo Consolidated Budget, and a recruitment process for the position of Auditor General is already underway. It is envisaged that the office will begin to function at the beginning of 2003, when the new Auditor General will oversee the recruitment of other positions within the institution.

Moreover, a comprehensive strategy for preventing corruption is being put into place by the United Nations Mission in Kosovo, initiated by a conference on anti-corruption measures in Pristina, under the auspices of the Union-led Pillar of UNMIK - funded by the Commission - and the World Bank. This includes an extensive Community-funded training programme implemented by the European Agency for Reconstruction, for civil servants on appropriate practice and behaviour; the use of monitored computer systems to increase transparency; and the simplification of certain procedures to reduce the scope for fraud. An anti-corruption agency to compliment the work of the new Auditor General is also envisaged in the near future. As an interim measure, Italian financial police, the 'Guardia Finanzia', have been deployed in Kosovo, and will soon have very extensive powers to investigate certain institutions without notice. Also, at the request of the Commission, all publicly-owned enterprises, including KEK, are either in the process of being audited, or about to be, by professional auditor teams from outside Kosovo, in most cases from Member States.

With respect to the specific query on what is being done to ensure a satisfactory electricity supply for Kosovo, the Commission would like to remind the Honourable Member that unfortunately Kosovo's electricity supply was seriously damaged by a lightning strike and resultant fire in mid-July 2002, which knocked out more than half of the territory’s power generation capacity.

The current load management operates at five hours ‘Power On’ and one hour ‘Power Off’, that is all areas are supplied with power for more than 20 hours per day. However, as demand for electricity has almost tripled since the pre-war period in which the power infrastructure was designed, in such circumstances, power shortages are almost inevitable.

To tackle these problems, the United Nations Mission in Kosovo’s Special Representative, Michael Steiner, has brought in a top industry professional from a Member State, as new Chief Executive Officer. Furthermore, all senior management positions at the beneficiary public utility company, Korporata Energjietike E Kosovoes (KEK) have subsequently been re-advertised, and new appointments made. Extensive staff training programmes are underway. New legislation has enabled KEK to increase its bill collection rate, which has in turn improved its finance, and allowed domestic shortfalls in power to be made up, at least in part, by electricity imports. Kosovo's Government has also undertaken an energy conservation campaign, designed to reduce waste and curtail consumer demand.

The Commission through the European Agency for Reconstruction is playing a very important role in rehabilitating the power sector of Kosovo and overcoming the disastrous consequences of the fire of July 2002. The sustainability of the funds invested in the energy sector in Kosovo and implemented by the Agency is ensured by accompanying the overhaul efforts with investment in capacity building. For example, the repairs in the power stations have been accompanied by training of the management of KEK and in the modernisation of its management tools and by providing a management assistance team to support the public utility, which contract has, as one of the specific required outputs, to propose an insurance strategy for KEK. It should be noted that all Agency contractors are required to have in place ‘All Risks’ insurance.

As far as the provisional status of the Kosovo is concerned, the Commission wholly subscribes to the Special Representative of the Secretary General of the United Nations’s policy of “standards before status”, which have been endorsed by the United Nation Security Council at its meeting on 24 April 2002.