estif_2015_04_Savina Mihaylova-Goleminova.pdf

EStIF 4|2015 239
Challenges and Opportunities - Management of ESI Funds in Bulgaria
Challenges and Opportunities Facing the Legal
and Institutional Framework for the
Management of ESI Funds in Bulgaria
Savina Mihaylova-Goleminova∗
The report aims to review several current issues related to problematic areas in the system
of management of European Structural and Investment Funds (ESI Funds) in the Republic
of Bulgaria, currently being addressed by representatives of the Government, the Bulgarian
National Assembly, the Supreme Administrative Court (SAC), practitioners and academic
circles. The main concepts serve as basis for the recently adopted Management of ESI Funds
Act, effective as of December 2015. The information, concepts and implications outlined in
the article could contribute to the general understanding of cohesion policy management
and current achievements in Bulgaria.
I. Challenges of the Cohesion Policy
2014-2020
Europeanfundsarecurrentlyoneofthemainsources
of funds for structural reforms aimed at improving
the competitiveness of Bulgarian economy, regional
development and acceleration of convergence
processes. The ‘money for reforms’ principle forces
Bulgarian politicians, economists, members of acad-
emic circles, practicing legal experts, and business
representatives to face the serious challenge of apply-
ing this requirement by carrying out actual econom-
ic and social reforms in order to ensure absorption of
funds allocated to the Republic of Bulgaria under the
European Multiannual Financial Framework (MFF)
for the programming period 2014-2020. The princi-
ple also requires transparent public finances and a
clear vision for the overall development of the country
in all areas. The Cohesion Policy rules for 2014-2020
require unconditional adherence to strict budget dis-
cipline by all constitutional players participating in
the financial system of the Republic of Bulgaria. How
does Bulgaria address the challenges of the current
cohesion policy? Mainly by using legislation as a so-
cial regulator. According to the Regulations, the legal
and institutional framework for management and
control of ESI Funds must be set up in accordance
with the constitutional structure and traditions of
each Member State. The answer to this challenge and
the opportunities for Bulgaria will be reviewed below.
II. Challenges and Opportunities of the
Institutional and Legal Framework
for Management and Control of ESI
Funds in Bulgaria
1. Challenges and Lessons Learnt from
the Programming Period 2007-2013
The idea of a designated Management of ESI Funds
Act is not novel; it was discussed in the course of the
preparations for the 2014-2020 programming period,
with a view of the experience of several other EU
Member States, such as Denmark, Estonia, Greece,
Latvia, Slovakia, Finland, and Sweden. All of these
countries have adopted specific legislation regulat-
ing EU funds. The arguments in support of a specif-
ic Act are that the system of by-laws regulating im-
plementation of programmes for the programming
period 2014-20201
in Bulgaria have so far been char-
acterised by:
∗ Savina Mihaylova-Goleminova holds a Ph.D. in Financial Law.
She has worked as a Counsellor in the Office of the caretaker
Deputy Prime Minister for EU Funds Management (August-
November, 2014). Lecturer in Financial and Tax Law at the Facul-
ty of Law, Department of Administrative Law Studies and the
Faculty of Economics and Business at the St. Kliment Ohridksi
University of Sofia, Bulgaria. She is a member of the Sofia Bar and
the International Fiscal Association.
1 Council of Ministers of the Republic of Bulgaria. EU Structural
Funds. Single Information Portal. See <http://www.eufunds.bg/
programen-period-2014-2020/natcionalna-zakonodatelna-baza>,
accessed 11th November 2015.

EStIF 4|2015
240 Challenges and Opportunities - Management of ESI Funds in Bulgaria
– Lack of a unified, flexible, comprehensible, and
easily-applied approach to the management of ESI
Funds’ programmes, the managing authorities of
which tend to use different procedures for project
and programme implementation;
– Multiple exceptions or the inclusion of specific
provisions even where general rules apply, which
results in fragmentation of programme-specific
rules and unnecessary complexity;
– Severe fluctuations and lack of predictability of
the environment.2
A step towards resolution of the above problems was
achieved by the interim government of Bulgaria be-
tween August and November 2014. A special work-
group was brought together to address these issues,
comprising representatives of all stakeholders in the
system of omit management and control of EU funds.
The Deputy Prime Minister responsible for the man-
agement of EU funds delegated four main tasks to
the workgroup: (i) analysis of valid European and na-
tionallegislationwithregardstothemanagementand
control of ESI Funds; (ii) analysis of existing legal
practice and the existing practice of all bodies with-
in the system of EU public funds; (iii) identification
of good practices adopted by other Member States ap-
plying similar acts or laws; (iv) drafting of the Man-
agement of ESI Funds Act regulating the relations be-
tween the different institutions within the EU funds
management system and the provision of adminis-
trative appeal options at national level. The efforts of
the workgroup resulted in outlining of the main as-
pects to be covered by the future legislative act.
Of course, the current government faced the chal-
lenge of bringing to fruition the efforts of the inter-
im government. The draft law was submitted by the
Government to the Parliament in June 2015 and was
adopted by the Parliament on 10th December 2015.3
2. Challenges of the New Practice of
SAC and the Legal Doctrine
In its more recent practice, the SAC has abandoned
its notion of the civil-law nature of relations between
the managing authority / payment agency and ben-
eficiaries. At the same time, representatives of Bulgar-
ian administrative and financial legal doctrine4
share
thethesis thatthestate,representedby its bodies with-
in the system of ESIF public funds (managing author-
ities, certifying authorities, audit authorities)5
, is not
an equal party within public relations in the system
and is not devoid of its imperium.6
(emphasis added)
This vision is in line with Article 4 and Article 317
TFEU as well as Article 59 of Regulation (EU, Eu-
ratom) No 966/2012 of the European Parliament and
of the Council of 25 October 2012 on the financial
rules applicable to the general budget of the Union
and repealing Council Regulation (EC, Euratom) No
1605/2002.
Theabovethesisisalsoupheldinthemotivesquot-
ed by the court in its Decision No 2126/30.03.2015 un-
der administrative case No 8513/2013, reviewed by
the Administrative Court of Sofia, which notes as fol-
lows:
“Regarding admissibility of the appeal:
1. Provision of financial assistance for projects un-
der Operational Programmes (OPs) takes place
in two phases – approval, resp. rejection of the
application, and grant provision. In the first
phase the relations between the parties are en-
tirely administrative in nature and there is no
contradiction in law enforcement in this case.
Ambiguity arises in the classification of the sec-
ond element – contract conclusion and imple-
mentation. This ambiguity should not be re-
solved on the basis of formal assignment of the
arising rights and obligations to contractual law,
but rather on the actual legal situation of the
parties and the specifics of the relations between
them. The managing and contracting authority
under the respective OP are delegated certain
2 Audit Report No 0300001013 of the Audit Agency on “Prepara-
tion for management of funds under the General Strategic Frame-
work of the European Union during the new programming period
2014 – 2020“. Issued on the basis of Order No 060/09.04.2014
of the Chairman of the Audit Agency.
3 Management of ESIF Act, Prom. State Gazette 101, 22 December
2015.
4 Academic circles play an increasingly active role in cohesion
policy management and implementation. An example in this
direction is the Conference on Challenges for the New Cohesion
Policy in 2014 – 2020: An Academic and Policy Debate, Univer-
sity of Latvia, Riga, Latvia, 2015. See <http://ec.europa.eu/
regional_policy/en/conferences/challenges-cp-2014>.
5 See Decision of the Council of Ministers No 792/17.12.2013 on
the determination of management, control, coordination and
audit authorities for European Structural and Investment Funds
and other EU instruments and initiatives during the 2014-2020
period.
6 M. Kostov Financial Legal Relations (Sofia, Bulgarian Academy of
Sciences, 1979); S. Goleminova ‘On suspended operational
programmes for the 2007-2013 programming period and chal-
lenges facing the new 2014-2020 programming period’ (2014)
Obshestvo i Pravo Vol. 10, pp. 3–17.

EStIF 4|2015 241
statutory functions, namely for project approval
and public spending (funds of mixed origin —
in the case of co-funding between state budget,
and Funds from the European Regional Develop-
ment Fund [ERDF]). This combination between
the functions of a state body and budget spend-
ing authority (for both state and European
Funds)definessuchauthorityasasubjectofpub-
lic law — bearer of rights of an administrative
and legal nature regardless of the fact that it has
taken on the ancillary status of a contract par-
ty. … This function of the contract does not af-
fect the nature of the legal relations (analogous
to the theoretical concept for the ‘administrative
contract’, the characteristics of which have, as
yet, not found a legal expression).
2. The fact that the managing authority is an ad-
ministrative authority within the meaning of § 1,
item 1 of the Supplementary Provisions of the Ad-
ministrative Procedure Code (APC) combined
with the nature of the rights exercised thereby,
imparts on the challenged decision the charac-
teristics of an individual administrative act (de-
cision) as per Article 21, para 1 APC. The decision
reflects negatively on the property of the munic-
ipality because the deduction reduces the
amount of the advance payment under the con-
tract of 2012, i.e. the legal consequence of the de-
cision is a direct effect on the rights of the ad-
dressee as an objective element of the adminis-
trative act concept. The proposition for admis-
sibility of legal appeal against decisions im-
posing deduction of amounts under grant
agreements is adopted in more recent SAC
practice7,8
. 9
(emphasis added)
Decision No 10878/19.10.2015 under administrative
case No 1039/2015 SAC, panel 8, notes that: Issues
similar to the reviewed disputable legal issue have al-
readybeendiscussedaspartoftheinterpretativepor-
tion of Interpretative case No 1/2015 of SAC’s Gener-
al Meeting of Civil Divisions under item 1, namely:
"What is the legal nature of decisions made by the
bodies of Agriculture State Fund Paying Agency un-
der Article 26, para 1, item 3 and Article 33 of Ordi-
nance No 9/2008 issued by the Minister of Agriculture
and Forestry and are they appealable under APC?”.10
Although as yet unpublished, a judgement has been
reached under this issue with the majority of judges
in the Supreme Administrative Court being of the
opinion that in this case, which is analogous to the
disputed issue, such acts are subject to appeal under
APC as individual administrative acts.
Interpretive Decision No 8/2015 under Interpre-
tive Case No 1/201511
was issued and published on
the website of the Supreme Administrative Court on
11.12.2015.
3. Opportunities Provided by the New
Legislative Act
The motives underpinning the adoption of the Act
specify that the scope of the Management of ESI
Funds Act includes the ERDF, the European Social
Fund (ESF), the Cohesion Fund (CF), the European
Agricultural Fund for Rural Development (EAFRD)
and the European Maritime and Fisheries Fund
(EMFF), regulating common procedures for absorp-
tion of the funds provided thereunder during pro-
gramming period 2014 – 2020. The main challenge
faced during drafting of the Act was related to the
creation of a predictable and omit effective legal
framework regulating the management of European
funds which could be applied for future program-
ming periods as well. The positive outcomes expect-
ed through adoption of the Act are:
- Creation of a predictable environment for imple-
mentation of programmes funded through ESI
Funds, with clearly defined rights and obligations
for all process participants;
- Elimination of the existing fragmentation in leg-
islation by eliminating the defects of existing by-
laws;
- Codification and unification of implementation
procedures;
7 See, for example, Decision No 10168/18.07.2014 under adminis-
trative case No 8672/2014, ruled under similar proceedings.
8 The same argument is supported in: Decision No 15062/12.12.2014
under administrative case No 14629/2014, 5th panel of the Supreme
Administrative court; Decision No 930/27.01.2015 of the SAC
under administrative case No 13877/2014, panel 3; Decision No
10168/18.07.2014 under administrative case No 8672/2014; Deci-
sion No 5615/18.05.2015 under administrative case No 1150/2015,
panel 3, Division I of SAC; Decision No 13764/16.12.2015 under
administrative case No 7197/2015, panel 7 of SAC.
9 Decision No 2126/30.03.2015, the Supreme Administrative Court
of Bulgaria.
10 Decision No 10878/19.10.2015 under administrative case No
1039/2015 SAC, panel 8, the Supreme Administrative Court of
Bulgaria.
11 SAC, see , <http://www.sac.government.bg/TD_VAS.nsf/
d6397429a99ee2afc225661e00383a86/
ecf531bf0811ca38c2257dd20026f2d6?OpenDocument>.

EStIF 4|2015
242 Challenges and Opportunities - Management of ESI Funds in Bulgaria
- Endorsement of the public law regime in the rela-
tions between managing authorities and benefi-
ciaries of financial aid, which corresponds to their
subject – ESI Funds and public funds;
- Introduction of accelerated appeal procedures
which will not impede the process of absorption
of ESI Funds.
In this respect, the New Act will ensure:
– Retaining of the existing institutional framework;
– Strengthening of coordination at all management
and control levels;
– Predictability;
– Transparency and a more comprehensible and ef-
ficient system of EU funds as part of the financial
system of the Republic of Bulgaria;
– Unification and simplification of procedures;
– Grant provision under an administrative contract
or individual administrative act;
– Placing of state receivables from financial correc-
tions due to irregularities on the same footing as
public state receivables for the programming pe-
riods 2007-2013 and 2014-2020;
– Efficient protection of the rights of beneficiaries
before administrative courts and the SAC.
This Act will be special with regards to the APC.
The Act regulates that financial aid will be provided
by managing authorities / payment agency to bene-
ficiaries on the basis of an administrative contract,
which is a relatively new concept, or an individual
administrative act. “Public contract”, “public body”,
“administrative legal relations”, “public interest” —
these are just some of the terms which underlie de-
coding of the legal nature of the “administrative con-
tract”.12
“The grant agreement providing assistance
from EU funds is an administrative contract and must
receive legal protection pursuant to the APC,”13
notes
Sonia Yankulova, a SAC Judge, in her article. “Grant
Agreements for financial assistance from EU Structur-
al and Cohesion Fund are administrative contracts
with which the state implements a large portion of
its objectives related mainly to the provision and op-
eration of public goods via private entities.”14
(em-
phasis added)
In this light, the Council of Ministers, when sub-
mitting the draft, motivates its decision as follows:
„Legal regulation focuses on the establishment of
clearly defined administrative relations between
managing authorities and beneficiaries. These re-
lations arise from two different institutes of ad-
ministrative law: The Administrative contract is
the main form for grant provision; financial cor-
rections, on the other hand, are determined, in
terms of grounds and amounts, by means of an in-
dividual administrative act. As opposed to the in-
dividual administrative act, the administrative
contract is not defined as a legal concept within
the codification of the administrative process, ex-
cept as a variant to the agreement under Article
20 of APC. At the same time the opportunities pro-
vided by this institute have been investigated in
depth by Bulgarian administrative doctrine; it has
been adopted in the positive law of several Euro-
pean countries, where it has found its place as the
regulator of relations arising in the course of pro-
vision of financial support through European
funds. The same legal logic which supports estab-
lishmentanddevelopmentoftherelationsbetween
managing authority and beneficiary along the
plane of administrative relations, is also the cor-
nerstone for clear regulation of the financial cor-
rections procedure. This procedure culminates in
an act which expresses the prerogatives of power
of the administrative authority. With a view of the
requirement of Article 74 Regulation (EC) No
1303/2013, namely that Member States shall en-
sure that effective arrangements for the examina-
tion of complaints concerning the ESI Funds are in
place, the draft introduces clear regulation regard-
ing the right of beneficiaries to protection against
decisions of the administrative bodies, based on
the general provisions of Article 120 of the Consti-
tution of the Republic of Bulgaria. Given the neces-
sity to guarantee efficiency in the absorption of
ESI Funds and to minimise the risk of loss, the draft
envisages several specific rules with regards to
court control over administrative decisions which
12 P. Buchkova ‘On the Administrative Contract in the Republic of
Bulgaria. Theoretic and practical aspects’ (2010) Administrative
Justice Vol. 3. Summing up the arguments put forth in support of
this opinion, Assoc. Prof. D. Zinovieva notes that “the agreement
may be incorporated, as a legal figure, into the category of public
contracts”.
13 S. Yankulova ‘The Grant Agreement regulating financial assistance
from EU Structural and Cohesion funds – a form of exercising
state authority and the right for protection’ (2015) Advokatski
pregled Vol. 1, pp. 8-33.
14 Ibid.

EStIF 4|2015 243
derogate from the general appeal process under
APC.“15
The Act also provides the basis for the establishment
of the Fund of Funds which will function based on
agreements with the managing authorities of the re-
spective OP; sets out special provisions for public pro-
curement and contract award which will be applica-
bletobeneficiariesoutsidethescopeofthePublicPro-
curement Act; and elaborates the rules forapplication
of the Act with regard to grant award, procurement,
irregularities and sanctions, which will be adopted
withinasix-monthperiodoftheAct’sentryintoforce.
Given the above, the Republic of Bulgaria will be
able to respond, by means of the adopted legal and
organisational changes, to all management and con-
trol challenges related to the programmes and the co-
hesion policy rules for 2014-2020.
III. Conclusions
In conclusion, bearing in mind that the budget (Eu-
ropean and national) is at the centre of the system
of public funds from ESI Funds, then simplifica-
tion of processes within the system at national lev-
el has clearly been achieved through adoption of
the new Act. The philosophy of the Act stems from
the idea that simplification at national level re-
quires coordination of public relations for manage-
ment and control of ESI Funds and corresponding
national co-funding by means of legislation as a so-
cial regulator, in compliance with the constitution-
al system, legal traditions and practices of the Mem-
ber State.
15 See more on Motives of the Draft Law on Single Information
Portal of EU Structural Funds of the Council of Ministers of the
Republic of Bulgaria <http://www.strategy.bg/
PublicConsultations/View.aspx?lang=bg-BG&Id=1713>.

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