County Prefects and the President of the Association of Croatian Cities, Mr Željko Turk, meeting in Zagreb, supported a proposal by Radimir Čačić to establish a state indemnity fund that would cover eventual fines imposed by the EU with regards to its large agglomeration projects. They are asking for the proposal to be discussed by Crroatian Water Company (“Hrvatske Vode”) board as soon as possible.

County prefects believe this problem is holding back projects worth almost Kn 1 billion that are already contracted, but are stopped or slowed down precisely because of a possibility of EU fines or denial of funds. Fines can range between 5% and 25%, and can be imposed for unintentional errors. In Varaždin, there is currently a possibility of fines assessed at around 25% of the project, which could amount to Kn 300 million. Varaždin’s water company Varkom cannot take on that level of financial risk, and the same is, according to Mr Čačić, true for other utility companies around Croatia.

Varkom’s case was used as an example, as the company managed to get the tenders done after two years of delays, but had to stop the project because of the risk of being fined. According to Varkom’s CEO, Mr Marijan Cesarec, Varkom can take on potential liabilities of up to Kn 10 million or thereabout but cannot survive potential liabilities of hundreds of millions of Kuna.

Ministry for Regional Development and EU Funds issued Rules on Financial Corrections for EU-funded projects, on the basis of which funds can be temporarily suspended or fines imposed. Possibility of high fines resulted in delay of agglomeration projects, and utility companies are refusing to apply for new projects for fear of suspension of funding during the realization.

Mr Čačić believes that the state, which is currently losing 25% of VAT income which it would receive if the projects would be implemented, is the only one that can and should guarantee possible fines.

Comment: The problem seems to be the fear of utility companies applying for expensive projects in case they make a mistake. Immediate remedy would, of course, be to refrain from mistakes and to apply for funds that one can handle. It is hard to say more without reviewing the Rules issues by the MRDEUF, but it is also possible that this document could benefit from corrections if the examples provided by Varkom are correct. The EU, if memory serves, rarely imposes severe sanctions for unintentional mistakes, especially those that could endanger projects of such importance to communities. But it has been known to penalize what it sees as recurring breach of procedure, misappropriation of funds, and other transgressions which are not related to lack of experience or are otherwise hard to consider as innocent mistakes.