Gunita Kakteniece DEA Baltika Chairperson of the Board tel. +371 67338137 gka@deabaltika.lv

1. Analysis and Elaboration of a Unified Methodology for Projects that within Five Years from the Completion of Operation have Undergone Substantial Modifications Gunita Kakteniece DEA Baltika Chairperson of the Board tel. +371 67338137 gka@deabaltika.lv www.deabaltika.lv deabaltika

2. Purpose • Ensure absorption of all the funding available for the programming period 2007-2013 • in conformity with the laws and regulations • to comply with the Council Regulation (EC) No.1083/2006 (Article 57) repealing Regulation (EC) No.1260/1999 (Article 30) • Analyse projects funded by the Structural Funds and Cohesion Fund during the programming period 2004-2006 that have undergone recorded modifications deabaltika

3. Methodology • Analysis and comparison of legal acts including Community law, legal acts of the Republic of Latvia as well as case laws of the Court of Justice of the European Communities and the Court of First Instance • Analysis of legal acts of the Republic of Estonia regulating EU Structural Funds and communication with the Ministry of Finance of the Republic of Estonia • Analysis of legal acts of the Republic of Ireland regulating EU Structural Funds and communication with the Department of Enterprise Trade and Employment of Ireland • Interviews with institutions involved in administration of the EU Structural Funds and the Cohesion Fund in Latvia • Analysis of project documentation including grant agreements of the projects that have experienced modifications deabaltika

4. Conclusions from legalanalysis • Community law and documents adopted in the legislative process do not provide a clear guidance on what is considered as substantial modifications • The contents of the concept of substantial modifications are elaborated in the case law of Court of Justice of the European Communities • Regulations issued by the Cabinet of Ministers No.440 and No.538 does not fully comply with the concept of “substantial modifications” defined by the Regulations No.1083/2006 and No.1260/1999: • Regulations of the Cabinet of Ministers define more strict requirements regarding expropriation • Definition of the 5-year period is different • Grant agreements issued by several institutions (IDAL, SRDA and RSS) anticipate more strict requirements than defined by the Regulations deabaltika

5. What are substantial modifications? To correspond simultaneously to any of the cases outlined below in 1+ 3 or 2+ 3: • Changes have occurred either with the property the purchase of which was supported by the means of Funds or with the property that has been benefiting from such support, and these changes are not in line with objectives of the respective support • beneficiary has ceased its respective productive activity • activities of Paragraphs 1 and 2 : • affect the nature of supported activity, i.e., impede achievement of the objectives of the activity • affect conditions of implementation of the supported activity, i.e., breach of the terms of the support agreement or legal acts or changes in the legal status of the beneficiary that would not allow the beneficiary to qualify for support • provide an undue advantage, i.e., cause a favourable situation that would not occur in normal market conditions and has originated from the breach of legal rules deabaltika

6. Conclusions from case study analysis • 4 out 10 institutions have commenced ex-post monitoring of projects • All institutions have recorded cases of modification • 7 types of project modification cases have emerged, of which the most common are: • Transfer of liabilities and equipment and/or infrastructure acquired in the project as a result of re-organisation (from one legal person to another newly established) • Transfer of ownership of equipment and/or infrastructure to another legal person • Strict contractual requirements result in a larger number of recorded modification cases (case of IDAL) deabaltika

7. Modification cases recorded in Latvia deabaltika

8. Recommendations • Modify grant agreements with the beneficiaries for the programming period 2007-2013 in accordance with Article 57 of the Regulation No.1083/2006, indicating: • beneficiary’s obligation not to sell, donate, rent, exchange, lend, pawn or to otherwise expropriate and encumber, as well as not to perform other activities with property purchased with EU funding • beneficiary’s rights to request a modification to the above provisions of the grant agreement in cases when the beneficiary’s actions do not affect the essence of the activity, implementation provisions or give the beneficiary undue advantages • obligation of the responsible authority to agree with the modifications of the grant agreement in cases when the beneficiary’s planned actions do not affect the essence of activity, implementation provisions or give the beneficiary undue advantages deabaltika

9. Recommendations • Amend Regulations issued by the Cabinet of Ministers No.440 and No.538 • indicating that the cooperation authority or responsible authority (Regulations No.440), a grant scheme administrator or second level intermediate body (Regulations No.538) must also verify whether substantial modifications have occurred in the understanding of the Regulations No.1083/2006 (Article 57) and 1260/1999 (Article 30) • Create a common system and procedures for ex-post monitoring of projects, establishing: • when ex-post monitoring of project needs to be undertaken • criteria for selecting projects for ex-post monitoring when the number of projects is very large or repeated monitoring is required deabaltika

10. Methodological Handbook • What are significant modifications? • change in the type of property rights of individual components of the infrastructure • ceasing of productive activity • impact on the essence of activity • impact on the activity implementation arrangements • undue advantages • What types of modifications exist and how to deal with them? • changes in the legal status (9 cases) • ceasing of productive activity (7 cases) deabaltika