Once their safety can be guaranteed, in line with the Security Council's resolution of 10 June, over a million refugees will gradually return to Kosovo. The UNHCR reckons that over 300 000 refugees could return to their home areas by the autumn. They will be returning to scenes of devastation. Resettling these refugees and people displaced inside Kosovo will require a major reconstruction programme. This operation must be carried out to a very tight schedule. Reconstruction work could later be extended to other areas affected by the conflict, paving the way for the economic recovery of the region foreseen in the Stability Pact.

As regards the immediate priority, namely the reconstruction of Kosovo, the European Community's involvement will take a number of forms.

• Initially, it is providing humanitarian assistance to help refugees return home. These measures are carried out by ECHO in close coordination with the UNHCR.

• ECHO's humanitarian aid will increasingly give way to support for reconstruction in the region under the Obnova assistance programme for former Yugoslavia, which (as currently in Bosnia) covers such activities as clearing mines, repairing infrastructure, building homes, education (along the lines of the Tempus programme), protection of the cultural heritage and re-establishing and developing the institutional framework of public authority, including local authorities, etc. The European Community's support under this programme takes the form of grants.
• In due course this support will be accompanied by macroeconomic assistance, particularly in the form of loans, to create a viable economy in Kosovo with the prospect of wider regional integration as stability returns to the region. The macroeconomic conditions for the transition and revitalisation will require budget and balance of payments support.

As it did for the reconstruction of Bosnia-Herzegovina, the Commission will draw up master plans, initially for Kosovo and later for other areas affected by the conflict, with the EIB, the other donors and the international financial institutions (IFIs). These master plans will provide a framework for coordinating the instruments available to aid reconstruction and economic development. It is against this background that the Commission, with the World Bank, was given a mandate by the international community (as confirmed by the European Council) to organise donor conferences. The first, specifically concerning Kosovo, is intended to take stock of short- and long-term needs and conduct a survey of multilateral and bilateral operations. The aim is to integrate them into a master plan classifying operations by category, as was done for Bosnia-Herzegovina.

The Commission and the World Bank have already started assessing the overall needs to be covered by the various instruments and resources available for Kosovo (grants, loans, etc.).

In the short term and after current ECHO operations end, speedy and efficient use must be made of the Obnova programme, for which Kosovo is eligible, to help reconstruction. At the moment the budget allocation for Kosovo - EUR 30 million available for 1999 - clearly falls short of requirements, even though it is not yet possible to put an exact figure on these . Initial estimates suggest that this year's allocation should be increased to EUR 150 million. Assessments produced with the help of the IMG based on experience with reconstruction programmes in Bosnia-Herzegovina suggest annual appropriations of EUR 500 to 700 million are needed for the next three years, not counting humanitarian aid and future macroeconomic assistance. For the purposes of implementing the Obnova programme in Kosovo, it will also be necessary to adjust staffing and procedures.

Reconstruction activities will of course include infrastructure work but will essentially involve a large number of small projects (in particular rebuilding housing in rural areas) requiring on-the-spot planning and management. This calls for decentralised management, with procedures and deadlines geared to local needs.

It will be less a matter of issuing invitations to tender for infrastructure than of locating, preferably within the region, the labour and materials needed to cover the most pressing needs. Reconstruction will also call for a wide range of specialist skills (mine-clearance experts, architects, water and power engineers, agronomists, advisers specialising in small businesses and micro-enterprise, etc.). Welfare assistance will also be needed (health care, schemes for children, etc.).

As in Bosnia-Herzegovina, the reconstruction programme will also have to include support for the public authorities, including local government. The Commission clearly does not have dozens of specialists in these matters on its payroll. Nor can it recruit permanent staff for the purpose.

As experience in Bosnia makes clear, the procedures of traditional aid programmes, e.g. Phare, Tacis and Meda, do not lend themselves to urgent operations of the kind planned in Kosovo. A structure more appropriate to the needs of a large-scale reconstruction programme must be found.

Implementation of the reconstruction programme for Bosnia, put in hand under Phare and the first, Tacis-inspired programme for former Yugoslavia (Obnova), suffered from a shortage of experts and unwieldy, centralised management procedures, which delayed implementation considerably. These delays were criticised by the European Parliament and the Court of Auditors, which rightly pointed to the rigid rules, unwieldy tendering procedures, centralised management and understaffing. The Commission has since taken a series of measures to make such operations more efficient, in particular by adopting an amendment to the Obnova Regulation (Regulation (EC) No 851/98) to make procedures more flexible.

An Agency for Reconstruction in Kosovo will enhance the efficiency, speed and visibility of European assistance and make it possible to improve coordination with other donors, including international financial institutions. Responsible locally for executing decisions taken by Community institutions, operating under financial rules adjusted in accordance with appropriate procedures, and enjoying considerable operational independence, the Agency should help avoid duplication of efforts by different donors and ensure stringent and transparent financial management. Though its main task will be to execute the Obnova programme for the reconstruction of Kosovo, it could also handle the contributions of other donors, some of whom have already come forward.

At its meeting in Cologne on 3 and 4 June, the European Council expressed its decision to set up an Agency in the following terms: "Conscious of the exceptional effort that will have to be made to reconstruct the region following the end of the crisis and of the necessity to put in place rapidly the most appropriate measures, the European Council invites the Commission to elaborate proposals before the end of June aimed at creating an agency to be charged with the implementation of Community reconstruction programmes. The Council, the European Parliament and the Court of Auditors are called upon to do their utmost to allow the agency to become operational before the end of the summer."

To that end the Commission proposes that the current Obnova Regulation, which already applies to the countries of former Yugoslavia, be adapted to reconstruction needs in Kosovo. The main amendments concern setting up an agency to implement assistance for reconstruction, initially in Kosovo and later, when conditions allow, in other parts of the Federal Republic of Yugoslavia.

Council Regulation (EC) No 1628/98 on aid to the countries of former Yugoslavia (the Obnova Regulation) needs to be supplemented in two ways:

• adjustments to cope with the specific situation in Kosovo
• provisions governing the establishment and operation of the Agency for Reconstruction.

2.1. Adjustment to cope with the specific situation in Kosovo

The following additions to the Obnova Regulation are proposed:

• acknowledgement of Kosovo's special legal position as both an integral part of the Federal Republic of Yugoslavia and a region under international administration (Article 10(4));

• a new clause allowing enterprises, institutions, NGOs and Phare and Meda beneficiary countries (some of which are parties to the Stability Pact) to participate in reconstruction operations and contracts on an equal footing with Member States' public- or private-sector entities (Article 9);

• strengthening of the provisions to do with the resettlement of refugees (Article 4(3));

• changes to the rules governing consultation of committees regarding implementation of the Obnova programme (Article 10(1)).

In addition, the Obnova programme is due to expire at the end of this year and therefore needs to be extended for a further five years, though this would not preclude the Commission proposing adjustments next year in the light of political developments in the region. This would provide an opportunity for altering the length of the Agency's mandate, especially in the event that reconstruction operations were to be extended to Serbia, and at the same time proposals would be presented for unified regulatory and budget provisions as requested by Parliament when it voted the 1996 discharge.

2.2. The Agency for Reconstruction (EAfR)

The Commission will retain responsibility for reconstruction in Kosovo under the Obnova programme, approving annual guidelines, programmes and the overall breakdown of financing by category of operation each year after consulting the management committee. Once the decisions have been adopted it will delegate responsibility for their implementation to the Agency within the framework of a well-defined remit.

The Agency will also be able to implement the programmes of other donors should they wish it to do so.

The Agency will be organised and will operate as far as possible along the same lines as the other existing agencies, with representatives of the Member States involved in its decisions. Like any Community agency it will have its own financial regulation, suitably modified to cope with decentralised management for the first time.

In carrying out reconstruction programmes the Agency will operate within the framework of the coordination set up by Commission with the World Bank, with other IFIs and the EIB closely involved.

The Agency will be based in Pristina. For operational reasons it may prove necessary to establish a presence in Skopje or other places in the region.

The Commission will negotiate suitable headquarters agreements and protocols on privileges and immunities for the Agency, taking into account inter alia any arrangements made by Unmik in this context.

2.2.1. Mandate

The Agency's task will be carrying out the Obnova programme to help in the reconstruction of Kosovo and the return of refugees under Commission directives, in conjunction with ECHO's humanitarian aid operations.

Subsequently, it may be asked to carry out reconstruction programmes in other areas of the Federal Republic of Yugoslavia once conditions permit. When this purpose has been accomplished the Agency would be wound up.

Specifically, the Agency's duties will be:

• Identification and analysis of requirements, establishing priorities by category (supply of materials and equipment, housing, infrastructure, transport, telecommunications networks, education, culture and the media, health, re-establishment of local communities, retrieval of administrative records, re-establishment and development of institutional machinery, including local government, taxes, the environment, local economic regeneration etc.) and geographical area.

• Preparing the annual reconstruction programmes for Kosovo for adoption by the Commission.

• Project implementation: drafting terms of reference, preparing and assessing invitations to tender, supervising projects, checking that they have been properly executed, issuing payment orders under its financial regulation, and executing payments.

• Concluding financing agreements and signing contracts with the interim administration of Kosovo, local communities, public- and private-sector entities, NGOs etc.

• Working together with the EIB and IFIs within the coordination framework established by the Commission so that programme resources can be used for the joint financing of investment projects (particularly via interest-rate subsidies or other instruments as provided for by the Obnova Regulation).

2.2.2. Operation

(a) Management bodies

The Agency will have a governing board composed of a representative from each Member State and three representatives of the Commission, including a Member of the Commission and initially a representative of ECHO. As a rule it will be chaired by the Commission.

The role of the governing board will be preponderant, with responsibility for deciding on the programme of work and its implementation, the budget, staffing policy (including recruitment of experts), changes to the staffing plan, adoption and revision of the financial regulation (by agreement with the Commission) and the Agency's rules of procedure.

As the board has such a major role not only in the running of the Agency itself but in the implementation of programmes and projects, Member States will have to appoint representatives with considerable experience in this field of work. The board will meet at least once a month so Member States will also have to ensure that their representatives are genuinely available for that commitment.

The governing board will appoint the director of the Agency, acting on a proposal from the Commission. The director will be responsible for running the Agency, preparing and executing the Agency's budget and work programme, dealing with all staff-related issues and implementing the board's decisions. He will also constitute the Appointing Authority.

It will be the task of the director to draw up the Agency's work programme and submit it to the governing board.

The board, after securing the Commission's approval, will adopt the Agency's budget and work programme at the start of each budget year, tailoring it to the Agency's revenue from contributions and other sources of funds. The budget will include an indicative figure for the number of staff to be employed by the Agency during that year.

(b) Staff

In the light of experience in Bosnia the Agency could be expected to have 250 to 300 personnel, including a strictly limited number of officials seconded from the Commission or Member States in a managerial capacity. The plan is for around ten Commission or Member State officials to be seconded to the Agency under temporary contracts, with the remainder of its strength made up of personnel recruited by it for a period strictly limited to the requirements of the Agency.

In accordance with the regulation applying to other staff the Agency will recruit temporary or local staff in the light of operational requirements, following procedures laid down by the governing board.

With a view to carrying out operations involving an extremely wide range of skills, the Agency will recruit experts in a variety of specialist fields.

(c) Budget

The Agency's administrative budget will be wholly financed from the facility set up under the relevant budget remark - currently 8% for the Obnova programme. Estimates based on the IMG's experience and the cost of similar-sized management entities (200-300 strong) carrying out comparable tasks corroborate this figure. If the sum allowed for the Agency's operation turns out to be too small (USAID operates on the basis of costs between 8% and 15%), the Commission will inform the Budgetary Authority.

External contributions may be received to finance specific projects under agreements between the Agency and interested donors.

The budget draws a clear distinction between the administrative and operating budgets, the latter in turn clearly demarcating contributions from the Community Budget and funds from other sources.

The Community contribution to the administration and operations of the Agency comes from Part B of the Community Budget.

The budget also gives details of resources allocated by countries which themselves qualify for projects receiving financial assistance from the Agency.

(d) Financial rules

A preliminary draft of the financial regulation is attached, for information. It will be adopted by the Agency's governing board after the Commission has given its approval and the Court of Auditors has delivered its opinion, and it should enable programmes to be executed swiftly while ensuring the necessary transparency.

The financial regulation, in its preliminary draft version, basically contains the same standard clauses as those applying to the other agencies.

For the award of contracts, the Agency will be governed by the rules set out in the current Obnova Regulation.

The director of the Agency will be the authorising officer and will have sole competence to commit expenditure and issue payment orders.

Financial control at the Agency will be the responsibility of the Commission's Financial Controller, who will verify financial operations for legality, procedural regularity and sound management. The director will submit a financial report to the governing board each year on the execution of the previous year's budget; this will then be forwarded to Parliament, the Council, the Commission and the Court of Auditors. The Court of Auditors will examine the report on the basis of Article 248 of the Treaty.

(e) European Parliament

The director will present a quarterly report to Parliament.

The European Council set a very tight timeframe for the creation of the Agency, requiring it to be operational by 1 October.

It will be organised and will operate along the same lines as the other agencies. In this case the question of its location - an issue that has often delayed the start-up of agencies - should be easy to settle: The Agency will be based in Pristina and for operational reasons may establish a presence in Skopje or elsewhere in the region. Pending the creation of the Agency the Commission has decided to set up an internal task force to be responsible for the decentralised management of the reconstruction programme, with about 20 officials probably based in Pristina. The task force will also be on the spot to make the necessary legal and material arrangements that will speed up the establishment of the Agency. A small number of the task force staff will initially be assigned to the Agency to ensure programme continuity