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5. CO-ORDINATION WITH OTHER FUNDS

Co-ordination of the Structural Funds with other relevant funding streams is a regulatory requirement, but it is given greater importance in the 2007-13 programming period. Compared to previous funding rounds, the scale of funding in Highlands & Islands is significantly reduced, making it more critical that the value of the 2007-13 Structural Funds are enhanced by ensuring they work closely with complementary sources of funding. Similarly, the scope of eligibility in the 2007-13 programming round is more targeted than in previous rounds, giving greater opportunities for Structural Funds to work in combination with other, similarly targeted policies.

In this context, there are several relevant funding streams. This chapter discusses how the ERDF Programme will work closely with:

• the European Social Fund;
• the European Territorial Co-operation Objective;
• EU support for agriculture and fisheries; and
• support through the European Investment Bank.

5.1 European Social Fund

As the other major funding stream within EU cohesion policy, it is essential that ERDF works closely with the European Social Fund, while recognising their distinctive objectives. In parallel with this ERDF programme, there will be a European Social Fund programme for the Convergence Objective of the Structural Funds, covering the same eligible area. This is an important change from the 2000-06 programming period, where the Programme for the Highlands & Islands covered all four funds.

The experience of the 2000-06 programming period in co-ordinating ERDF and ESF funding (as discussed in Section 3.2 above) has fed into developing the approach for the 2007-13 programming period. As the mid-term evaluations of the 2000-06 programmes attested, ERDF and ESF co-ordination was broadly successful but there have been lessons to be learnt. Foremost among these has been the need to build in greater complementarity at the start of the programme, not least with respect to setting up formal mechanisms to ensure that not only co-ordination takes places systematically, but that it is monitored and assessed on a regular basis.

The main co-ordination mechanism will be through the Programme Monitoring Committees overseeing the ERDF and the ESF programmes for the Highlands & Islands. The arrangements for the ERDF Programme Monitoring Committee ( PMC) are discussed in detail in Section 6.2. While the two Committees are technically separate, there would be considerable advantage in a common membership to assist co-ordination of use of the funds. Annual reporting on how ERDF and ESF is being used jointly by an ad-hoc sub-committee composed of ERDF and ESF programme representatives, to be established by the Managing Authority for both programmes. These annual reports - taking the form of papers to be discussed at PMC meetings - would be the basis for a review of the procedures for ensuring funding co-ordination and the targeting of funding on eligible activities. Decisions on the basis of the sub-committee recommendations would have to be taken jointly by the two PMCs.

As part of this annual reporting, the use of the funding flexibility allowed in the 2007-13 programming period will also be reviewed. Under the Article, up to 10% of total ERDF programme resources can be spend on ESF-related activities. This will enable project sponsors to avoid unnecessary applications on projects where such activities are likely to be a small proportion of total project funding. At the start of the programming period, the Managing Authority will set out detailed guidelines on the types of activities that could be covered by the flexibility rule. The Managing Authority will monitor spending on ' ESF' activities and provide the information as part of the annual report on ERDF- ESF co-ordination.

One of the ERDF programme priorities will be delivered jointly with one of the priorities in the ESF programme for the region. Joint awards of funding under Priority 2 of the ERDF Programme and Priority 1 of the ESF programme will be made to local partnerships. Priority 2 focused on the community sustainability needs of targeted parts of the region and would be used effectively as part of an integrated approach for tackling social inclusion in the ESF programme Priority 1. As Section 6.1 describes, a selection of local partnerships - such as the Community Planning Partnerships - will be given multi-year packages of ERDF and ESF funding to support eligible activities set out in the Structural Funds Outcome Agreements, prepared by the Partnerships and updated and monitored on an annual basis - initially on a pilot basis. The Agreements would identify the specific activities to be funded by the ERDF contribution and would also outline how the funding would be used in conjunction with the ESF contribution.

In addition, Priority 1 of the ERDF Programme has been designed to complement Priority 2 of the ESF programme. As Priority 1 targets the development needs of SMEs, new enterprises and entrepreneurs and encourages RTD and innovation activity, Priority 2 of the ESF programme - which focuses on improving the skills levels of those in work - explicitly concentrates funding on the skills needs of SME managers and those wanting to set up, or who have just set up, new enterprises as well as any skills deficits connected to the RTD/innovation capacity of enterprises. Lastly, the investments in further and higher education infrastructure envisaged under Priority 3 of the ERDF Programme will directly complement the support for lifelong learning under Priority 3 of the ESF programme, particularly in the case of funding packages provided to UHI as one of the Intermediary Delivery Bodies

5.2 Territorial Co-operation Objective

There are a number of programmes in the different strands of the Territorial Co-operation Objective which cover part of the Highlands & Islands area. Activity supported under these Co-operation programmes will be co-ordinated, where appropriate, with the ERDF programme.

In the transnational co-operation strand, there are two relevant programmes. The Northern Periphery programme covers the Highlands & Islands. The programme's partners include Finland, Ireland and Sweden within the EU and Norway Iceland outwith. The programme's thematic priorities mesh with the eligible activities set out under Priorities 1 and 3 in the ERDF programme. Similarly, the area is eligible under the North Sea, North West Europe and Atlantic Coast programmes. Priorities in these programmes relate to Priorities 1 and 3. In all cases, demarcation of eligible activities have been made by the Managing Authority.

The transnational programmes are continuations of programmes from the 2000-06 period and will build on their experience. Under the cross-border co-operation strand, the Highlands & Islands area will be eligible for support from a programme with partners in Northern Ireland and Ireland. Its key themes are likely to fit with Priorities 1 and 3 of the ERDF programme.

As Managing Authority, the Executive will identify opportunities for projects that have received funding from one programme to have a later stage of their development funded under another programme, if appropriate - for example, a project developing an innovation through Priority 1 of the ERDF Programme could benefit in a successive development phase through best-practice/benchmarking work with international partners through one of the transnational programmes - or, vice versa, where co-operation projects suggest a way forward, solutions might be mainstreamed into the Highlands & Islands programme.

There is an option for inter-regional co-operation to be pursued as a strand of the ERDF programme. Given the limited funding and the greater effectiveness of keeping co-operation activities under a single banner, the option is not currently envisaged for the Highlands & Islands area in the 2007-13 programming period.

5.3 The European Agricultural Fund for Rural Development

Both the General and the ERDF Regulations specify that the Operational Programmes must set out how ERDF and the European Agricultural Fund for Rural Development ( EAFRD) will complement each other. EAFRD in Scotland is governed by the Scottish Rural Development Programme, which covers the whole of Scotland. The Managing Authority for the Fund is the Scottish Executive through the Environment and Rural Affairs Department.

The ERDF Programme and the Scotland Rural Development Programme ( SRDP) have been developed in parallel by the Scottish Executive with particular attention given to the areas where project eligibility could overlap. The consultations on the two sets of documents made explicit reference to each other with responses solicited on the relationship between the two.

The main area where demarcation is important is with Axis 3 of the SRDP and the delivery arrangements for Leader. Both programmes have some common areas of scope, as set out by their respective regulations. In the SRDP, the main area for potential overlap lies in Axis 3 - 'The quality of life in rural areas and diversification of the rural economy' - but the scope exists across the whole programme.

To ensure that there is no overlap in eligibility, but at the same time, that there is full complementarity in the activities supported, the lists of eligible activities of the programmes have been drawn up on a regional basis so that projects receiving funding through one stream in one phase of their development could receive follow-on support from the other stream in a new development phase. The following tables set out the eligible activity areas where this is envisaged.

Complementarity will be regularly reviewed through an annual meeting of the three Managing Authorities. This will produce a report on joint implementation of the different Funds which will be presented on an annual basis to the respective oversight committees and to the Commission as part of annual reporting exercises. As part of any mid-term evaluation, the strategic and operational fit between the programmes will be part of formal evaluation.

5.4 The European Fisheries Fund

The regulatory requirements applying to the EAFRD apply similarly to the European Fisheries Fund ( EFF). In Scotland, EFF strategic priorities are set out in [add] and the Managing Authority is also the Scottish Executive Environment and Rural Affairs Department. Demarcation issues are more limited in the case of the EFF, because of the limited geographical overlap with the ERDF programmes. The main parts of the Highlands & Islands area where EFF support is available is largely concentrated on the west coast and the islands.

The main areas where complementarity is evident are set out in the following table.

As with the EAFRD, the two Managing Authorities will meet on an annual basis to review strategic and operational co-ordination.

6.5 The European Investment Bank

The General Regulation specifies the need for the Operational Programme to discuss how the cohesion-policy funding initiatives of the European Investment Bank will be co-ordinated with the use of Structural Funds. The principal funding stream to which this applies is the JEREMIE and JESSICA Initiatives. JEREMIE provides a mechanism for setting up revolving loan instruments for providing development capital to enterprises while JESSICA provides for long-term revolving funding for enterprises in disadvantaged communities.

With respect to JEREMIE, as part of Priority 1 of the ERDF programme, support for financing engineering instruments has been identified as a potential area for ERDF spending. As Section 4.3 details, eligible activity will include funding for venture capital schemes operating in the Highlands & Islands area, building on the experience of the Structural Funds-supported Scottish Co-investment Scheme of the 2000-06 programming period. The use of JEREMIE as a mechanism for delivering financial engineering instruments will be actively explored with the European Commission and the European Investment Bank.

With respect to JESSICA, the scope for using the Initiative to support the sustainable communities aims of Priority 2 will be actively explored as well.

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