EU Assistance to Myanmar/Burma

Replies of the Commission and the EEAS

Executive summary

IV

In the view of the Commission and the EEAS, the choice of development priorities and sectors was focused and the inclusion of a fourth focal sector agreed with the Commissioner for Development and the government of Myanmar/Burma.

In response to the increased workload on development cooperation in Myanmar/Burma, the EU opened an office in Yangon, which was upgraded to an EU Delegation in September 2013.

The decision on geographical priorities is taken on an annual basis, during the identification and formulation of Annual Action Programmes (AAP), in order to accompany the dynamics of the peace process, which is highly unpredictable and volatile.

Domestic revenue mobilisation was addressed in coordination with other donors through the World Bank administered multi-donor Public Financial Management Trust Fund, policy dialogue, support to Myanmar/Burma's participation in the Extractive Industries Transparency Initiative (EITI), and steps in the area of Forest Law Enforcement, Governance and Trade (FLEGT).

V

After a thorough programming consultation process 2012-2014, including with the government, and taking into consideration particularly the needs and the absorption capacity of the respective focal sectors, the Commission decided to indicatively allocate up to 35% each to the first two focal sectors (rural development and education) and up to 15% each to the remaining two focal sectors (governance and peacebuilding) in its Multiannual Indicative Programme (MIP) for Myanmar/Burma.

The determination of the fund allocation for each action under the AAPs is part of the identification and formulation of new actions.

VI

In some instances, delays under UN-managed Trust Funds were due to the complexity of the working environment and resurgence of conflict, like in certain ethnic areas.

The contribution template agreed with International Organisations foresees that interest earned on pre-financing payments is not due except if the rules of the Organisation foresee the reimbursement of interest. This is in line with the Financial Regulation and basic acts. However to avoid accumulation of pre-financing, the contribution agreement in article 15 of the General Conditions foresees that a next instalment can only be released upon commitment of 70% of the immediately preceding instalment (and 100% of the previous ones).

VII

The Commission applies its standard rules and procedures as well as the internal rules that allow derogating from these standard rules under certain conditions e.g. in crisis situations. Flexibility provisions in line with the Financial Regulation and basic acts have allowed saving time compared to standard approaches, while maintaining a balance between speed and transparency.

The Commission resorted to the use of the crisis declaration provisions on a limited number of occasions. When it did, there were valid reasons.

Given the circumstances in Myanmar/Burma, the Commission is of the opinion that grants awarded through calls for proposals are not necessarily more cost-effective than grants awarded under flexible procedures.

VIII

While half of the projects audited have fully delivered the planned outputs, another 40% have partially achieved them, being still under implementation at the time of the audit. In the meantime several have recorded improvements on the achievement of results.

The Commission is carrying out a strategic country evaluation on EU development cooperation in Myanmar/Burma in 2018 that will look into outcomes and sustainability.

The EU Delegation has over the years made substantial improvements in project monitoring.

IX

• The Commission and the EEAS are of the opinion that the areas of support are sufficiently focused.
• The Commission's DG DEVCO and DG ECHO have already strengthened their coordination and will enhance it further in the context of the operationalisation of the humanitarian-development nexus, for which Myanmar/Burma has been selected by the Council as a pilot country.
• The Commission will document the allocation of funding to each focal sector during the programming phase of the next MIP. As the justification of the allocation of funding to each new action is already discussed during their identification and formulation, the Commission will ensure that the allocation is documented for actions under the AAP of 2018 and subsequent years.
• The Commission will continue ensuring the cost-effectiveness of multi-donor actions in close coordination with the other contributing donors, and as a member of the Steering Committee/Fund Board. However the Commission is also bound by the provisions of the Financial Regulation.
• The Commission will remain very active in improving project management and will regularly assess the status of implementation.

Steps have already been taken to significantly increase the communication about, and visibility of, EU actions.

Introduction

07

Four Commissioners attended the Task Force and Commissioner for Development Piebalgs chaired the Development Forum together with German Development Minister Niebel and Myanmar/Burma Minister of Planning Kan Zaw. All EU Member States present in the country also attended and agreed the initial Joint Programming document and the priority areas for support of the EU and Member States.

08

A Democratic Civil Society Forum, with HR/VP Ashton and Aung San Suu Kyi, the Development Forum and Business Forum took place in Yangon the day before the Task Force in Nay Pyi Taw.

11

The additional funds in the EUR150 million package were not only important to support the transition, but also allowed for deeper engagement and dialogue with the new civilian government with which donors were engaging for the first time.

Observations

20

In the absence of a finalised 20-year National Comprehensive Development Plan, the Commission used the 2012-2015 Framework for Economic and Social Reforms (FESR) of the government of Myanmar/Burma as the main reference document. The 2014-2020 MIP support to the focal sectors of education and agriculture was building on on-going EU co-financed programmes (like QBEP and LIFT) and based on their analyses and reports. For the education focal sector, the EU-supported Comprehensive Education Sector Reform provided sectoral analysis.

21

The consultation process on the development priorities and funding allocations with the government of Myanmar/Burma included meetings at ministerial level in Brussels, Yangon and Nay Pyi Taw.

22

The Commission and the EEAS are of the opinion that the choice of development priorities was focused. The process of selection of the four focal sectors was thorough, participatory and agreed with government.

The joint Commission-EEAS programming instructions for the DCI for the period 2014-2020 allow for an additional focal sector in specific circumstances, such as transition from humanitarian to development assistance, or emerging security threats/conflict risks, to support essential priorities linked to peace- and state building activities.

Due to the significant increase in funding to Myanmar/Burma from 2012 onwards, taking into consideration the overall funding to and absorption capacity of the respective sectors, and with an aim to ensure continuity of EU support under the 2011-2013 MIP focal sectors (with the notable exception of health), the Commission decided to finance four focal sectors under the 2014-2020 MIP. This was taken forward in the context of Joint Programming and was agreed by the Commissioner for Development and the government, given the political importance of the ethnic peace process for stability and development.

When the Commission took the decision on the EUR 150 million special package for 2012-2013, it was accompanied by the setting up of an EU office in Yangon, which was upgraded to an EU Delegation in September 2013.

23

In line with the above-mentioned programming instructions, the 2014-2020 MIP allows for flexibility to address unforeseen needs of the most vulnerable communities in a context of a fragile state and situations of conflict and crisis, as in Myanmar/Burma. A peace process cannot be predicted and therefore, the Commission was not in a position to establish a geographical prioritisation in 2013-2014 for the entire programming period 2014-2020. This decision is taken on an annual basis, during the identification and formulation of AAPs, in order to accompany the dynamics of the peace process. To ensure cost effectiveness, the Commission makes use of relevant studies. There were earlier studies on the needs in Rakhine State, commissioned by either the EU or other donors which have been taken into account during the programming exercise. The government also shared with donors a draft Rakhine State Action Plan in 2014 that was however never finalised. Overall, 10% of funding during the reporting period was allocated to Rakhine State, a reflexion of the clear and recognized geographical priority. Moreover, the choice of the peace process as one focal sector already implied a geographical prioritisation on conflict areas.

24

The EU has been highlighting the importance of natural resource management, as a large share of potential domestic revenue is linked to the exploitation of the vast natural resources.

The EU has supported the government in moving towards a more sustainable management of its natural resources, through e.g. EITI and FLEGT. The EU participated actively in the donor's coordination process on Public Finance Management reforms.

A large part of the natural resources in Myanmar/Burma are concentrated in contested areas or areas under the control of Ethnic Armed Groups and not the government. Any discussion on increasing tax revenues from natural resource management is dependent on progress in the peace process.

27

The Commission would like to stress that there was effective coordination between DG ECHO and DG DEVCO both at headquarters and EU Delegation level, particularly during the identification and formulation of relevant actions in areas where DG ECHO provided humanitarian assistance.

The Commission has been putting linking relief, rehabilitation and development (LRRD) into practice. DG DEVCO also launched two studies aimed at identifying conflict sensitive interventions for increased resilience in areas of protracted crisis.

Myanmar/Burma has been included in a list of pilot countries, endorsed by the Council in September 2017, to operationalise the humanitarian-development nexus.

Project 20 is the continuation and expansion of a DG ECHO funded project (EU Children of Peace Initiative), thereby implementing the LRRD approach. The continuation of project 13 includes a strengthened component on nutrition aimed at complementing DG ECHO's nutrition support in northern Rakhine State.

28

The March 2017 final report of the evaluation of the EU joint programming process of development cooperation (2011-2015) recommends as well that 'EU and MS headquarters should define more precisely the overall scope or perimeter of joint programming and how this translates into its guidance, e.g. how to include humanitarian aid, which is not programmable by definition.'

Since the opening of the EU Delegation, EEAS, DG DEVCO and DG ECHO colleagues regularly exchanged views and undertook joint field missions.

While DG DEVCO – DG ECHO meetings were not formalised before September 2016, regular exchanges were taking place since DG ECHO moved into the same premises as the EU Delegation in mid-2014.

All actions under the peacebuilding focal sector adopted since 2012 reflected the required linkages, consultations and coordination with humanitarian actors, including DG ECHO. The Aid to Uprooted People (AUP) programme has also been implemented in close cooperation with DG ECHO and builds on some of its achievements in the ethnic States.

30

After a thorough consultation process, including with the government and taking into consideration particularly the needs and the absorption capacity of the respective focal sectors, the Commission decided to indicatively allocate up to 35% each to the first two focal sectors (rural development and education) and up to 15% each to the remaining two focal sectors (governance and peacebuilding).

The determination of the fund allocation for each action under the AAPs is part of their identification and formulation and takes into consideration the needs and absorption capacity, the implementation modality and partner, government and other donor funding, the timeframe of implementation etc.

31

The Commission would like to highlight that some Member States were not in a position to agree with a proposed budget support programme, amongst others due to concerns regarding the political context, including a serious escalation of the situation in Rakhine State.

This has resulted in a delay in financing of only one, a major one, of the foreseen actions in Myanmar/Burma. While no AAP was adopted for 2016, the Commission has adopted the 2017 AAP (EUR 39 million) providing further EU support in the areas of peacebuilding and governance.

32

The Commission would like to stress that the operational criteria of future workload and mix of aid modalities are not the only operational criteria considered when the aid modalities are being selected. The Commission considers that budget support is the preferred modality corresponding to the best principles of aid effectiveness, and allowing deeper engagement and reinforced policy dialogue with partner countries. Nevertheless, the Commission always explores options to work more with Member State agencies, and tries to identify further opportunities for blending and a more strategic cooperation with international organisations. The cost-effectiveness criterion is specifically considered during the identification and formulation phases of new actions, and assessed very thoroughly during the contracting phase.

33

Indirect management alleviated the management burden of Commission staff and freed up time to focus inter alia on policy dialogue, strategic discussions, coordination and monitoring.

34

Early underspending of the UN-managed Trust Fund programmes was mainly due to delays in start-up activities. Later underspending has sometimes been due to delays in key activities in areas where a resurgence in conflict was occurring.

The rate of expenditure is only one of the indicators measuring project performance. In addition, the rate is not linear and depends on the type of activities financed.

36

In line with the Financial Regulation and basic acts, the contribution template agreed with International Organisations foresees that interest earned on pre-financing payments is not due except if the rules of the Organisation foresee the reimbursement of interest.

UNOPS, in line with its own rules, is allocating such interest to programme activities if the corresponding contribution agreement stipulates it.

37

The Commission does not only ensure cost-effectiveness through verification missions. The pertinence of the costs is first assessed before contract signature, through a thorough review of the budget presented by the Organisation. Then, the Commission participates in Fund Boards that decide on the orientation of the programme. Finally, the Commission receives at least annually narrative and financial reports from the Organisation on the actual programme implementation and expenditure. The analysis of these reports will then determine the actual release – and amount – of the next pre-financing.

Those mechanisms give the Commission the opportunity to discuss the orientation of the programme and appropriateness of the use of the funds. The Commission works in indirect management with pillar assessed Organisations whose internal control, audit and accounting procedures have already been audited, and considered equivalent to the ones put in place by the Commission.

38

Article 42 of the Rules of Application stipulates that where budget implementation tasks are entrusted to an entity implementing a multi-donor action, verification shall be done in so far that an amount corresponding to that paid by the Commission for the action has been used by the entity for the action in accordance with the obligations laid down in the agreement signed with the entity.

The Commission is allowed to apply the notional approach, according to which the relevant authorising officer may decide to consider that these EU requirements are met as long as the amount contributed by the other donors to the co-financed action is sufficient to pay for the activities which are ineligible under EU rules. Thus any reduction of ineligible expenditure by the use of the notional approach is fully in line with implementation rules in force.

This mechanism allows the Commission to participate to multi-donor trust funds i.e. to take part in important projects in coordination with other donors. This is often the most efficient way to ensure the efficiency and effectiveness of the actions financed by the EU and would not be possible if earmarking of the funds was imposed. In order to make it workable, the notional approach sets the rule according to which our contribution will only cover costs that are eligible to the Commission and thus not imposing the Commission eligibility rules to contributions received from other donors, which have different rules.

Box 1 - Examples of the application of the notional approach

LIFT

The Commission applied the notional approach as sufficient funds were available from other donors to cover part of the LIFT expenditure which was ineligible under EU rules. Off-setting is one form of recovery of funds from implementing partners.

3MDG / 3DF

The Commission applied the notional approach as sufficient funds were available from other donors to cover part of the 3DF expenditure which was ineligible under EU rules.

39

At the time of contracting, the budget of the action is presented by the Organisation and discussed with the Commission. As per our contractual requirements, the indirect costs are capped at 7% of the eligible direct costs. It is argued that this percentage might be insufficient to cover the actual indirect costs borne by the Organisation to implement projects; however, the Commission is not in a position to agree on a different rate with other donors. For multi-donor and comparable actions, the Commission cannot negotiate the rules on indirect costs of the other donors but the Commission ensures that the remuneration/indirect costs are not higher than those charged by the Organisation to comparable contributions (article 4.2 of the FAFA).

40

The Commission will only apply the notional approach for expenditure considered ineligible for the EU but eligible for other contributing donors, including when the implementing partner is also a contributing donor, as long as the amount contributed by the other donors to the co-financed action is sufficient to pay for the activities which are ineligible under EU rules.

Box 2 - Example of high indirect costs

The Commission confirms that the agreement signed between the Commission and UNICEF sets a maximum of 7% of direct costs of the action to be claimed as indirect costs. Moreover the agreement stipulates that any indirect costs for actions that are implemented by other entities shall be covered by this 7%. The EU Delegation has communicated to UNICEF that funds will be recovered if they cannot be covered by using the notional approach.

41

The Commission considered as well cost-efficiency when deciding on the size of projects.

42

The Commission has applied the flexible procedures under the crisis declaration in line with the Financial Regulation.

The Commission and the EEAS are of the opinion that flexible procedures, when used strategically in crisis declaration countries, can provide significant benefits. The Commission resorted to the use of flexible procedures on a limited number of occasions under successive crisis declarations because Myanmar/Burma's fragile transition did not always allow for regular development assistance. It requires the use of effective and flexible mechanisms that keep pace with realities on the ground and allow the EU to respond quickly to new developments.

The crisis declaration is decided at the level of the Director General of DG DEVCO, in due consultation with the Commissioner for Development. Such declaration was in force during the period of reference. Until July 2014, it covered only the ethnic states of Myanmar/Burma. Following a 2014 request by the EU Delegation to extend the crisis declaration to all territories of Myanmar/Burma, the Commission decided to extend the crisis, but only for contracts supporting peace and state building goals in Myanmar/Burma. As an additional condition for the application of this extension, the prior approval of DG DEVCO's geographical director is needed on a case-by-case basis. The Commission would like to stress that this option has not been utilised during the period of reference. The current crisis declaration is in force until 30 June 2018 and any further extension will undergo a thorough review process.

Direct award means nevertheless a negotiated procedure, with a report explaining the rationale of the choice and discussions relating to the negotiation of the actions and of the budget being duly recorded. Consequently, the procedures remain always transparent and fully in line with the procedures of the Financial Regulation.

While it is undeniable that immediate danger for the civilian population takes place in ethnic areas, almost one third of the country's states are affected by conflict and opportunities for mediation and conflict resolution measures can (and need to) be addressed in all areas, including Nay Pyi Taw, Yangon (or even foreign countries like Thailand, China or India), where critical representatives of the government or any other relevant actors are located. This explains why the crisis declaration can also be applied to state and peacebuilding goals.

44

The Commission has ensured that the risk of double funding was addressed during the design and implementation of contracts at risk.

Box 3 - Examples of risks of double funding

First indent: In order to lower the risk of double funding for activities related to tuberculosis, malaria and HIV/AIDS, the Commission and other donors reviewed a gap analysis and any overlaps between the two funds before the funding decision by the Fund Board.

Both programmes were reviewed under the Technical Strategic Groups for tuberculosis, malaria and HIV/AIDS in order to ensure no double-funding.

Second indent: The Commission has permanently monitored this local NGO's projects and activities. At the time of the Court's visit, the NGO was playing (and continues to play) a crucial and critical role for supporting the peace negotiations between the government and the Ethnic Armed Organisations (EAOs). In order to keep the negotiations alive at various levels, the EU provided responsive support through various grants in which the NGO was participating as co-beneficiary. Additional technical assistance has been provided in order to ensure proper implementation of such a big influx of cooperation from the EU and other donors in a particularly challenging environment. This technical assistance contributed among others to avoid the risk of double funding. Since all EU-funded interventions with the NGO had very different and concrete objectives, the Commission found that there was no overlap in funding.

45

The Commission tries to ensure effective coordination with other donors at the implementation level, but there is always room for improvement.

Box 4 - Examples of missed opportunities in terms of coordination

Coordination between the World Bank, the EU Delegation and various implementing partners on CDD took place regularly. The EU Delegation and its various funded programmes have been looking at synergies with the World Bank on multiple occasions. While the World Bank programme is mainly focused on 'hard components' (basic infrastructure in villages), the EU approach combines soft (trainings, workshops, community consultations) and hard (small infrastructure, rehabilitation) components in one particular area.

46

The Commission is of the opinion that the monitoring of EU-funded actions and EU visibility improved over the years.

The Commission is giving high importance to further improving its monitoring of actions, including in hard-to-access areas.

47

With respect to outputs and outcomes at the level of AAPs, significant steps taken are the inclusion of an indicative logical framework matrix for each action at the level of the AAP and a dedicated team in DG DEVCO to ensure the quality of logframes. Moreover, the EU International Cooperation and Development Results Framework reflects DG DEVCO's commitment to monitor and report results, enhance accountability, transparency and visibility of EU aid.

Data availability is an important constraint in Myanmar/Burma, with important consequences for measuring outputs, outcomes and impact.

48

A performance monitoring system is in place for projects 11 and 12.

49

The Commission did not react slowly to the verification mission reports, but the adversarial procedures regarding their findings took a long time.

Box 5 - Verification missions

LIFT

Processing the findings of this LIFT verification mission was extremely complex and led to extensive discussions with HQs in order to address it properly. The EU Delegation has improved its response in processing verification mission findings, as illustrated by the final report of the second verification mission for LIFT, which was issued on 23/09/2016, while the corresponding pre-information letter (no recovery proposed) was sent on 28/10/2016.

3MDG/3DF

Upon receipt of the pre-final report of the verification mission, the EU Delegation reacted in due time and completed the final payment and clearing for the 3DF contract.

50

The Commission is reminding implementing partners on a regular basis about the need to prepare and implement detailed Communication and Visibility plans to ensure a good level of communication on, and high visibility of, EU support. While the EU Delegation has noted improvements in this area, it has also decided to manage EU visibility more directly through a dedicated component under an on-going large service contract to ensure higher EU visibility and coordinated messaging across projects and programmes.

In certain areas, implementing partners had to remain discrete on certain communication and visibility issues due to the existing sensitivities at the time and reinforced the visibility of the programmes through other tools such as social media, audio-visual materials, studies and publications, key events, etc.

51

During the inception phase, the Commission tried to promote the EU Trust Fund as part of the implementing methods to be considered for the implementation of the Joint Peace Fund (JPF). Despite Commission's efforts, other potential JPF donors were not in favour of this modality and expressed a preference for UN-managed trust funds. The Commission also held a consultation with Member States in Brussels in order to promote an EU Trust Fund for peace.

54

While half of the projects audited have fully delivered the planned outputs, another 40% have partially achieved them, being still under implementation at the time of the audit. In the meantime several have recorded improvements on the achievement of results.

The Commission considers that there are multiple reasons that could explain why projects audited suffered from delays in implementation. Programmes are dealing with a very challenging context in which a complex transition is happening: political and economic transition in the middle of a complex peace process with multiple parties and armed groups. All these factors have a direct impact. Setbacks and unexpected low absorption capacity is sometimes a feature of the reality of development in Myanmar/Burma. This is particularly relevant for projects under the audited peacebuilding and AUP programmes.

Box 7 - Example of a project only partially relevant to the objectives defined

The "Erasmus" programme deals with education, one of the focal sectors of the 2014-2020 MIP, while "environment" is a critical cross-cutting theme for all focal sectors. The Commission also stresses that this project works on a demand-driven basis, with requests for capacity building submitted to the EU Delegation by the government. Therefore, a slightly flexible interpretation of the scope and deliverables is needed particularly in the early period of the transition when development partners were reengaging with the government for the first time in many years.

56

Data availability is an important constraint, with important consequences for measuring outputs, outcomes and impact of EU actions. It is often challenging to identify realistic targets for certain indicators, therefore most projects carry out an annual review of the logframe.

Through a programme funded under the 2014-2020 Regional Indicative Programme, the Commission is supporting improvements in the statistical system in ASEAN Member States.

57

The Commission would like to highlight that the sample of projects audited was at different stages of implementation, which could partially explain why some of the planned outcomes and sustainability could not yet be assessed. The Commission is of the opinion that more than one-third of the projects audited will achieve the expected outcomes. In 2018, the Commission will carry out a strategic country evaluation of EU cooperation, in accordance with the Work Programme for strategic evaluations approved by Commissioner for Development Mimica. It is expected to provide the Commission, the EEAS and other stakeholders with findings, conclusions and recommendations in relation to our past, present and future cooperation with the country.

59

Achieving the original results targeted in projects implemented in Rakhine State is extremely challenging. The situation can be considered a protracted crisis characterised by long-term and deep-rooted discrimination, internal displacement, segregation, statelessness, poverty and vulnerability. The Commission is well aware of the sensitivity of working in a highly politicised and complex context such as Rakhine State and remains committed to continue its engagement in this region.

Box 8 - Food Security project in Rakhine State

LIFT did consider the option of an open Call for Proposals for the continuation of the food security project in Rakhine State. Based on the access gained by the selected implementing partners to the targeted villages, the working relationships established with the local government and the extraordinarily complex situation of crisis in this region, LIFT concluded it was not feasible neither realistic to deliver the expected outcomes through new and unexperienced partners in the targeted areas.

Regarding the weak performance, the Commission would like to highlight the outbreak of violence in 2014 and a tropical cyclone the project had to deal with, all of which delayed field implementation as field staff could not access the villages. Additionally, the consortium had to invest much time and effort to build trust to be accepted by the communities and authorities at a time of high anti-UN/INGO hostilities. Only a few NGOs have been able to establish themselves as trusted partners of both the government and the local population.

60

The Commission included a specific objective 'improved socio-economic recovery in conflict-affected areas and areas affected by intercommunal violence' under the different AAPs financing the EU contributions to peacebuilding. While the Commission had initially advocated for the inclusion of Rakhine State under the Joint Peace Fund, it was agreed during the design process that the JPF would address the peace process and not the intercommunal violence. Other development partners did not want the JPF to cover Rakhine State.

The design and architecture of the JPF is very much based on the Nationwide Ceasefire Agreement. This text does not cover intercommunal violence. Nevertheless, projects involving Rakhine State can be funded if they demonstrate a direct link to the implementation of the NCA and other formal elements of the peace process, subject to rigorous risk management and conflict sensitivity analysis, and 'do-no-harm' principles.

As elaborated above, the EU has developed other projects and mechanisms for addressing the situation in Rakhine State.

Conclusions and recommendations

63

In the view of the Commission and the EEAS, the choice of development priorities and sectors was focused and the inclusion of a fourth focal sector fully justified and agreed with government.

The EU opened an office in Yangon, which was upgraded into an EU Delegation in September 2013.

By definition a peace process cannot be predicted and therefore, the Commission was not in a position to establish a detailed geographical prioritisation for all financial resources in 2014. This decision is taken on an annual basis, during the identification and formulation of AAPs, in order to accompany the dynamics of the peace process, which is highly unpredictable and volatile. Flexibility is absolutely required (including in geographical prioritisation) in order to respond to the needs of the most vulnerable communities.

Domestic revenue mobilisation was addressed indirectly, amongst others through EU support for Public Finance Management reforms, participation in the EITI and steps in the area of FLEGT.

Recommendation 1 – The need to focus support to increase impact

The Commission and the EEAS accept the recommendation and will address it during the programming phase of the next MIP.

First bullet: The Commission and the EEAS have justified the four focal sectors that remain fully relevant, as confirmed during the on-going Mid-Term Review of the MIP 2014-2020.

Second bullet: The Commission intends to step up its support to domestic revenue mobilisation under the next MIP. In the meantime, the Commission will support DRM directly through planned support for Public Finance Management reforms and indirectly through continued support for processes like EITI and FLEGT.

The Commission and the EEAS will consider geographical prioritisation during the programming of the next MIP. However, the Commission and the EEAS are of the opinion that such prioritisation and complementarity with other donors are best assessed during the identification and formulation of new actions.

64

DG DEVCO and DG ECHO have already strengthened their coordination and will enhance it further in the context of the operationalisation of the humanitarian-development nexus, for which Myanmar/Burma has been selected by the Council as a pilot country.

Recommendation 2 – Coordination of the interventions

The Commission accepts the recommendation and will implement it as follows:

• The on-going process of operationalisation of the humanitarian-development nexus, for which Myanmar/Burma has been selected by the Council as one of six pilot countries, will result in an action plan towards mid-2018. In addition, DG DEVCO and DG ECHO are developing a joint analysis on resilience and a comprehensive strategy for addressing LRRD issues for the protracted crises in Myanmar/Burma.
• As also recommended by the evaluation of the joint programming process, the Commission will involve DG ECHO more closely, and seek to include Member States' humanitarian interventions, in the drafting of the new joint programming document, particularly in areas of protracted crisis.

65

After a thorough consultation process, including with the government, and taking into consideration particularly the needs and the absorption capacity of the respective focal sectors, the Commission decided to allocate up to 35% each to the first two focal sectors (rural development and education) and up to 15% each to the remaining two focal sectors (governance and peacebuilding).

The determination of the fund allocation for each action under the AAPs is part of the identification and formulation of new actions.

Recommendation 3 – Implementation of the actions

The Commission accepts the recommendation and will implement it as follows:

The Commission will document the allocation of funding to each focal sector during the programming phase of the next MIP.

As the justification of the allocation of funding to each new action is discussed during their identification and formulation, the Commission will continue ensuring that the allocation is documented for actions under the AAP of 2018 and subsequent years.

66

In some instances, delays were due to the complexity of the working environment and resurgence in conflict.

The contribution template agreed with International Organisations foresees that interest earned on pre-financing payments is not due except if the rules of the organisation foresee the reimbursement of interest. This is in line with the Financial Regulation and basic acts. However, to avoid accumulation of pre-financing on the account of the organisation, the contribution agreement in article 15 of the General Conditions foresees that a next instalment can only be released upon commitment of 70% of the immediately preceding instalment (and 100% of the previous ones).

With regards to the impact of cost-control provisions in EU-UN contracts, the Commission is allowed to apply the notional approach, according to which the relevant authorising officer may decide to consider that EU requirements are met as long as the amount contributed by the other donors to the co-financed action is sufficient to pay for the activities which are ineligible under EU rules.

Recommendation 4 – Cost-effectiveness of the multi-donor actions

The Commission takes note of the position of the Court, but does not accept this recommendation.

The level of indirect costs is specific to each action and organisation structure. In many cases, organisations consider that the EU contribution to the indirect costs (which is capped in the Financial Regulation at 7%) is not sufficient to cover their costs. The Commission, as signatory of the Grand Bargain on Humanitarian Aid, has committed itself to work together with a number of partners on harmonising the qualification of those costs (direct vs indirect). That will inform a larger debate on the level of the indirect costs.

67

The Commission applies its standard rules and procedures as well as the internal rules that allow derogating from these standard rules under certain conditions e.g. in crisis situations. Flexibility provisions in line with the Financial Regulation and basic acts have allowed saving time compared to more traditional approaches by implementing crisis procedures while maintaining a balance between speed and transparency.

The Commission has used the crisis declaration on a limited number of occasions and using well-justified solid arguments for not using call for proposals. Under certain circumstances, direct awards of grants and procurement contracts are justified in light of article 190 of the RAP and a prior approval requested accordingly. Moreover, direct award means nevertheless a negotiated procedure, with a report explaining the rationale of the choice and discussions relating to the negotiation of the actions and of the budget being duly recorded. Consequently, the procedures remain always transparent and fully in line with the procedures of the Financial Regulation and with a view to ensure cost-effectiveness.

68

Several projects audited were still under implementation at the time of the audit and have in the meantime improved on the achievement of results.

The Commission is carrying out a strategic country evaluation on EU development cooperation in Myanmar/Burma in 2018 that will look into outcomes and sustainability.

The Commission has been taking important steps to improve logframes, including indicators, and EU visibility.

Recommendation 5 – Monitoring of the actions

The Commission accepts the recommendation and will implement it as follows:

First bullet: The Commission is developing a new Operational Information System (OPSYS) to amongst others aggregate project logframe data.

Second bullet: The Commission will continue insisting with implementing partners that the contractual provisions concerning the visibility of EU actions need to be applied. The EU Delegation has already observed a substantial improvement in this area. The Commission has also included a significant visibility component under a large directly managed service contract, with the aim to ensure coordinated messaging on, and higher visibility of, EU support.

69

While half of the projects audited have fully delivered the planned outputs, another 40% have partially achieved them, being still under implementation at the time of the audit. In the meantime several have recorded improvements on the achievement of results.

Programmes are being implemented in a very challenging context in which a complex transition is happening. All these factors have a direct impact on many of the projects audited. The Commission seeks to mitigate such risks to programme implementation to the extent possible. Setbacks and unexpected low absorption capacity is sometimes a feature of the reality of development in Myanmar/Burma.

Recommendation 6 – Achievement of results

The Commission accepts the recommendation.

First bullet: The Commission will remain very active in improving project management under both direct and indirect management, and regularly assess the status of implementation and insist on corrective action. The Commission will continue carrying out ROM on a regular basis in Myanmar/Burma. The ROM project sample will include the more problematic projects.

Second bullet: Rakhine State is already included in the Joint Peace Fund's sphere of competence. However, projects involving Rakhine State can only be funded if they demonstrate a direct link to the implementation of the Nationwide Ceasefire Agreement and other formal elements of the peace process, subject to rigorous risk assessment and conflict sensitivity analysis. There are other mechanisms providing support for intercommunal harmony in Rakhine State.