# EUR-Lex - 52011DC0471 - EN

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# 52011DC0471

**COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL AND THE COURT OF AUDITORS FINAL ACCOUNTS OF THE 8TH, 9TH AND 10TH EUROPEAN DEVELOPMENT FUNDS - FINANCIAL YEAR 2010 /* COM/2011/0471 final */ **

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TABLE OF CONTENTS

NOTE ACCOMPANYING THE ACCOUNTS 2

IMPLEMENTING AND ACCOUNTING FOR THE EDF RESOURCES 3

PART I – EDF ANNUAL ACCOUNTS: FUNDS MANAGED BY THE EUROPEAN COMMISSION 10

1. FINANCIAL STATEMENTS OF THE 8TH, 9TH AND 10TH EUROPEAN DEVELOPMENT FUNDS 11

1.1 8TH, 9TH AND 10TH EDFs: AGGREGATED BALANCE SHEET, ECONOMIC OUTTURN ACCOUNT, CASH FLOW STATEMENT AND STATEMENT OF CHANGES IN NET ASSETS 11

1.2 8TH EDF: BALANCE SHEET, ECONOMIC OUTTURN ACCOUNT AND STATEMENT OF CHANGES IN NET ASSETS 15

1.3 9TH EDF: BALANCE SHEET, ECONOMIC OUTTURN ACCOUNT AND STATEMENT OF CHANGES IN NET ASSETS 18

1.4 10TH EDF: BALANCE SHEET, ECONOMIC OUTTURN ACCOUNT AND STATEMENT OF CHANGES IN NET ASSETS 21

1.5 NOTES TO THE FINANCIAL STATEMENTS OF THE 8TH, 9TH AND 10TH EDFs 24

2. REPORT ON FINANCIAL IMPLEMENTATION 52

2.1 ALLOCATIONS 57

2.2 CONSOLIDATED ACCOUNTS 60

2.3. OTHER MANAGEMENT INFORMATION 65

PART II – EDF ANNUAL ACCOUNTS: FINANCIAL STATEMENTS OF THE INVESTMENT FACILITY 66

3. FINANCIAL STATEMENTS OF THE INVESTMENT FACILITY 67

3.1 INCOME STATEMENT 67

3.2 BALANCE SHEET 68

3.3 STATEMENT OF CHANGES IN CONTRIBUTORS' RESOURCES 69

3.4 CASH FLOW STATEMENT 70

3.5 NOTES TO THE FINANCIAL STATEMENTS 72

ANNEX TO PART I – CHAPTER 2 (REPORT ON THE FINANCIAL IMPLEMENTATION ): SITUATION BY COUNTRY AND BY INSTRUMENT 101

NOTE ACCOMPANYING THE ACCOUNTS

I hereby declare that the annual accounts of the 8th, 9th and 10th European Development Funds for the year 2010 have been prepared in accordance with Title VIII of the Financial Regulation of the 10th European Development Fund and with the accounting principles, rules and methods set out in annex to the financial statements.

I have obtained from the authorising officer and from the EIB, who certified its reliability, all the information necessary for the production of the accounts that show the European Development Funds' assets and liabilities and the budgetary implementation.

I hereby certify that based on this information, and on such checks as I deemed necessary to sign off the accounts, I have a reasonable assurance that the accounts present a true and fair view of the financial position of the European Development Funds in all material aspects.

[signed]

Philippe Taverne

Accounting Officer

IMPLEMENTING AND ACCOUNTING FOR THE EDF RESOURCES

1. BACKGROUND

The European Union has cooperative development relations with a large number of developing countries. The main purpose is to promote economic and social development with a particular focus on reducing and alleviating poverty in the long-term, by providing beneficiary countries with development aid and technical assistance. To achieve this, the Union draws up, jointly with the partner countries, cooperation strategies and mobilises the financial resources to implement them. These Union resources allocated to development come from three sources:

- The European Union budget

- The European Development Fund

- The European Investment Bank

The European Development Fund (EDF) is the main instrument for providing Union aid for development cooperation to the African, Caribbean and Pacific (ACP) States and Overseas Countries and Territories (OCTs). The 1957 Treaty of Rome made provision for its creation with a view to granting technical and financial assistance, initially limited to African countries which at that time were still colonised and with which some Member States had historical links.

The EDF is not funded by the European Union's budget. It is funded by the Member States, subject to its own financial regulation and managed by a specific committee. The European Commission is responsible for the financial implementation of the operations carried out with EDF resources and the European Investment Bank (EIB) manages the Investment Facility.

During the period 2008-2013, the geographic aid granted to ACP States and OCTs will continue to be mainly funded by the EDF. Each EDF is usually concluded for a period of around five years. Since the conclusion of the first partnership convention in 1964, the EDF programming cycles have generally followed the partnership agreement/convention cycles. Each EDF is governed by its own Financial Regulation which imposes the preparation of financial statements for each individual EDF. Accordingly, financial statements are prepared separately for each EDF in respect of the part that is managed by the European Commission. These financial statements are also presented in an aggregated way so as to provide a global view of the financial situation of the resources for which the European Commission is responsible.

Within the framework of the Cotonou agreement, the Investment Facility was established. This Investment Facility is managed by the European Investment Bank and is used to support private sector development in the ACP States by financing essentially – but not exclusively – private investments. The Facility is designed as a renewable fund, so that loan repayments can be reinvested in other operations, thus resulting in a self-renewing and financially independent Facility. As the Investment Facility is not managed by the European Commission, it is not consolidated in the first part of the annual accounts – the financial statements of the 8th, 9th and 10th EDFs and the related report on financial implementation. The financial statements of the Investment Facility are included as a separate part of the annual accounts (part 2) to provide a full picture of the development aid of the EDF.The 10th EDF covers the period from 2008 to 2013 and has an overall budget of EUR 22 682 million. Of this amount, EUR 21 966 million is allocated to the ACP countries, EUR 286 million to the OCTs and EUR 430 million to the Commission as support expenditure for programming and implementation of the EDF[1].

2. HOW IS THE EDF FUNDED?

The European Council of 15-16 December 2005 adopted the financial perspectives for 2007-2013. In this context it was decided that geographical cooperation with the ACP States would not be integrated into the European Union budget (budgetised), but would continue to be funded through the existing inter-governmental EDF for the period 2008-2013.

The European Union budget is annual and according to the budgetary principle of annuality, expenditure and revenue are planned and authorised for one year. Unlike the European Union, the EDF is a fund operating on the basis of multiannuality. Each EDF is concluded through a partnership agreement between Member States and is associated with an overall fund to implement development cooperation during a period of usually five years. As resources are allocated on a multiannual basis, the allocated funds may be used over the period of the EDF. The lack of budget annuality is highlighted in the budgetary reporting, where the budgetary implementation of the EDFs is measured against the total funds.

The EDF resources are “ad hoc” contributions from the EU Member States. Approximately every five years, Member State representatives meet at intergovernmental level to decide on an overall amount that will be allocated to the Fund and to oversee its implementation. The Commission then manages the fund. Since Member States have their own development and aid policies in addition to the Union wide policies, the Member States must coordinate their policies with the EU to ensure they are complementary. In 2010, contributions related to the 9th EDF were called from the 15 participating Member States. In 2011, the first contributions under the 10th EDF, in which the 27 Member States participate, will be called.

While some funds of the 10th EDF have been set aside for unforeseen needs, most are being programmed in indicative multi-annual frameworks, mainly geographic but also thematic, currently set for the years 2008-2013. Country strategy papers, regional strategy papers and intra-ACP strategy papers have been adopted by the Commission accordingly. Their implementation is monitored annually and the strategies are reviewed at mid-term (2010, ongoing) and at end-of-term (2012). As a result of these mid-term or end-of-term reviews, the Commission may, on behalf of the European Union, revise the strategies and resource allocation in the light of the current needs and the performance of the ACP states or regions concerned.

In addition to the above mentioned contributions, it is also possible for Member States to enter into co-financing arrangements or to make voluntary financial contributions to the EDF.

3. HOW ARE THE EDF RESOURCES MANAGED AND SPENT?

3.1 Operational expenditure

EDF operational expenditure takes different forms, depending on how the money is paid out and managed. In accordance with the Financial Regulation, the Commission implements the EDF resources using the following methods:

Decentralised management : these are the cases where the Commission delegates, more or less substantially according to the local situation of the beneficiary concerned, certain tasks for implementation of the budget to third countries.

Centralised management : this is where the budget is implemented either directly by the Commission services or indirectly where the Commission confers tasks of implementation of the budget to bodies of European Union law or national law, such as the European Union agencies of public law or with public service missions.

Joint management with international organisations : under this method, the Commission entrusts certain implementation tasks to an international organisation.

3.2 The different financial actors

The responsibility of the Authorising Officer by delegation covers the entire management process, from determining what needs to be done to achieve the policy objectives set to manage the activities launched from both an operational and budgetary standpoint, including signing legal commitments, monitoring performance, making payments and even recovering funds, if necessary.

The Head of the Delegation of the European Union is the local liaison between the Commission and the national or regional ACP/OCT authorities in the field. He/she works in close collaboration with the national or Regional Authorising Officers in defining the implementing strategy and Sectoral policies, preparing, studying and reviewing EDF programmes and projects.

The National Authorising Officer in the recipient country is a senior official appointed by the government of each ACP State/OCT. He/she represents the authorities of his/her country for all activities financed by the Fund and managed by the Commission and by the EIB. In most cases, these functions are exercised by a member of the government, generally the State Minister of Planning or Finance. The National Authorising Officer carries out the administrative, technical and financial duties of managing EDF programmes and projects.

The Accounting Officer executes payment and recovery orders drawn up by Authorising Officers and is responsible for managing the treasury, laying down accounting rules and methods, validating accounting systems, keeping the accounts and drawing up the corresponding annual accounts. Furthermore, the Accounting Officer is required to sign the accounts declaring that they provide a true and fair view of the financial position.

3.3 Implementing the EDF resources

The vast majority of financial resources awarded to ACP States and OCTs through the EDF are grants. At the beginning of each EDF, the European Union informs the ACP States and the OCTs about the level of grants which should be available to them over the period of the fund. Resources are allocated based on a country’s specific needs, taking into account the recipient country’s own policies and development efforts.

The beneficiary country develops a cooperation strategy while or after holding consultations with its development partners (donors). The cooperation strategies set with the European Union normally include both the country’s own medium-term development strategies, an analysis of the political and socio-economic context, plus the European Union’s own assessment. The European Commission’s staff provide technical support to the national authorities in preparing the cooperation strategy document.

A National Indicative Programme (NIP) is then drawn up to implement the cooperation strategy. The NIP targets the sectors and fields which will receive the aid, explains how the aid will fulfil its objectives, gives a timetable for implementation, and specifies how other actors such as International Organisations or NGOs will be involved in the programme (if relevant). This indicative global programme is subject to an annual, mid-term and end-of-the-EDF-term review and improvements and changes are made when necessary during its operation period.

3.4 Committing to spend the EDF resources

No EDF resources can be spent unless and until the Commission and the possible recipient of EDF money have entered into a written legal commitment.

Before a legal commitment (for example a contract or grant agreement) can be entered into with a third party, there must be a budget line with sufficient funds authorising the activity in question. If this condition is met, the funds required must be reserved in the budget by means of a budgetary commitment made in the accounting system. This, however, has no effect on the general accounts (or general ledger) since no charge has yet been incurred. This is because the accounting system of the EDF comprises two separate but linked elements:

1. budget accounts, which provide a detailed record of budget implementation; and,

2. general accounts, used to prepare the balance sheet and economic outturn.

The budget accounts show the commitments and payments made. They are based on the cash accounting principle, whereby an item of expense or income is only recorded in the accounts when cash is committed, paid out or received. This type of accounting is typical of the public sector whose focus has, historically, tended to be on the budget and its implementation.

The general accounts (based on the accrual accounting principle) show all expenditure and revenue over the financial year (and thus the economic outturn) and establish the financial position of the EDF in the form of a balance sheet of assets and liabilities at 31 December of a given year.

3.5 Making a payment

No payment can be made unless a budgetary commitment has already been approved by the Authorising Officer.

Pre-financing is a payment intended to provide the beneficiary with a cash advance, i.e. a float. It may be split into a number of payments over a period defined in the particular pre-financing agreement. The float or advance is either used for the purpose for which it was provided during the period defined in the agreement or is repaid – if the beneficiary does not incur eligible expenditure he/she is obliged to return the pre-financing advance to the EDF. Thus pre-financing paid is not a definitive expense until the relevant contractual conditions are met and so is recorded as an asset on the balance sheet when the initial payment is made. The amount of the pre-financing asset is reduced (wholly or partially) by the acceptance of eligible costs (which are taken as expenses in the economic outturn account) and amounts returned.

At year-end, an assessment has to be made concerning eligible expenses incurred by beneficiaries of EDF funds but not yet reported. Following these cut-off calculations, estimated eligible amounts are recorded as accrued charges, while the estimated non-eligible parts remain open in the “eligibility to be checked” accounts. These amounts are shown under current liabilities so as not to overestimate assets and liabilities.

3.6 Recovering undue payments

The eligibility of expenditure charged to the EDF is verified on the basis of the supporting documents stipulated in the applicable rules or in the conditions of each grant. With the aim of optimising the relationship between the costs and the benefits of control systems, checks on the supporting documents for final claims tend to be more detailed than those on interim claims, and thus may detect errors in interim payments which are corrected by adjustment of the final payment. Furthermore, the Commission has the right to verify the probity of the supporting documents by making checks on the claimant's premises, during the implementation of the action financed and/or afterwards (ex-post). Errors found during the implementation period may be corrected by adjustment of subsequent claims. Errors found ex-post will be the subject of a recovery order.

4. YEAR-END REPORTING

4.1 Annual accounts

It is the Accounting Officer's responsibility to prepare the annual accounts and ensure that they present a true and fair view of the financial position of the EDF.

The annual accounts are presented as follows:

Part I: Funds managed by the European Commission

- Financial statements of the 8th, 9th and 10th European Development Funds

- Report on financial implementation of the 8th, 9th and 10th European Development Funds

Part II: Funds managed by the European Investment Bank

- Financial statements of the Investment Facility

The financial statements of the Investment Facility are included as a separate part of the annual accounts so as to provide a full picture of the development aid of the EDF.

The annual accounts are adopted by the Commission by 31 July of the subsequent year and presented to the Court of Auditors for audit and finally to the Council and Parliament for discharge.

4.2 Annual Activity Report

The Authorising Officer is required to prepare an Annual Activity Report (AAR) on the activities under his/her responsibility. In this AAR, the Authorising Officer reports on policy results and on the reasonable assurance he may have that the resources assigned to the activities described in his report have been used for their intended purpose and in accordance with the principles of sound financial management, and that the control procedures put in place give the necessary guarantees concerning the legality and regularity of the underlying transactions.

5. AUDIT AND DISCHARGE

5.1 Audit

The EDF annual accounts and resource management are overseen by its external auditor, the European Court of Auditors, which draws up an annual report for the Council and the European Parliament. The Court's main task is to conduct an external, independent audit of the EDF annual accounts. As part of its activities, the Court of Auditors produces:

3. an annual report, detailing its observations on the annual accounts and underlying transactions;

4. an opinion, based on its audits and given in the annual report in the form of a statement of assurance, on (i) the reliability of the accounts and (ii) the legality and regularity of the underlying transactions;

5. special reports giving the findings of audits covering specific areas of management.

The Court of Auditors is entitled to access all documents required during the course of its audit. The Court audits all areas of EDF activities, right down to examining the legality and regularity of individual transactions and payments. It also audits the annual accounts themselves, reviewing individual balance sheet and economic outturn account items, as well as the overall presentation of the financial statements. Thus the Court can offer its opinion not only on the figures presented, but also on the system and controls in place.

5.2 Discharge

The final control is the discharge of the financial implementation of the EDF resources for a given financial year. The European Parliament is the discharge authority of the EDF. This means that following the audit and finalisation of the annual accounts it falls to the Council to recommend and then to the Parliament to decide whether to grant discharge to the Commission for the financial implementation of the EDF resources for the preceding financial year. This decision is based on a review of the accounts and the annual report of the Court of Auditors (which includes an official statement of assurance) and replies of the Commission, and also following questions and further information requests to the Commission.

The discharge represents the political aspect of the external control of financial implementation and is the decision by which the European Parliament, acting on a Council recommendation, "releases" the Commission from its responsibility for management of the financial implementation of a given financial year. This discharge procedure may produce one of two outcomes: the granting or postponement of the discharge. When granting discharge the Parliament may highlight observations it considers important, often recommending actions that the Commission should take concerning these matters. The Commission sets out the measures taken in a follow-up report and an action plan which it sends to both the Parliament and the Council.

PART I – EDF ANNUAL ACCOUNTS: FUNDS MANAGED BY THE EUROPEAN COMMISSION [2]

1. FINANCIAL STATEMENTS OF THE 8TH, 9TH AND 10TH EUROPEAN DEVELOPMENT FUNDS

1.1 8TH, 9TH AND 10TH EDFs: AGGREGATED BALANCE SHEET, ECONOMIC OUTTURN ACCOUNT, CASH FLOW STATEMENT AND STATEMENT OF CHANGES IN NET ASSETS

AGGREGATED BALANCE SHEET of the 8th, 9th and 10th EDFs

EUR millions |

Note | 31.12.2010 | 31.12.2009 |

NON-CURRENT ASSETS |

Long-term pre-financing | 2.1 | 353 | 196 |

CURRENT ASSETS |

Short-term pre-financing | 2.2 | 1 096 | 800 |

Short-term receivables | 2.3 | 247 | 66 |

Cash and cash equivalents | 2.5 | 808 | 523 |

TOTAL ASSETS | 2 503 | 1 585 |

CURRENT LIABILITIES |

Short-term payables | 2.6 | (1 045) | (860) |

TOTAL LIABILITIES | (1 045) | (860) |

NET ASSETS | 1 458 | 724 |

FUNDS & RESERVES |

Called fund capital | 2.7 | 23 879 | 20 381 |

Other reserves | 2.8 | 2 252 | 2 252 |

Economic outturn carried forward from previous years | (21 909) | (18 814) |

Economic outturn of the year | (2 765) | (3 094) |

NET ASSETS | 1 458 | 724 |

AGGREGATED ECONOMIC OUTTURN ACCOUNT of the 8th, 9th and 10th EDFs

EUR millions |

Note | 2010 | 2009 |

OPERATING REVENUE | 3.1 | 140 | 49 |

OPERATING EXPENSES |

Operating expenses | 3.2 | (2 914) | (3 103) |

Administrative expenses | 3.3 | (86) | (90) |

SURPLUS (DEFICIT) FROM OPERATING ACTIVITIES | (2 860) | (3 144) |

Financial revenue | 3.4 | 95 | 49 |

SURPLUS (DEFICIT) FROM FINANCIAL ACTIVITIES | 95 | 49 |

ECONOMIC OUTTURN OF THE YEAR | (2 765) | (3 094) |

AGGREGATED CASH FLOW STATEMENT of the 8th, 9th and 10th EDFs

EUR millions |

Note | 2010 | 2009 |

Economic outturn of the year | (2 765) | (3 094) |

OPERATING ACTIVITIES | 4.2 |

Ordinary contributions from Member States | 3 420 | 3 294 |

Co-financing contributions from Member States | 65 | 2 |

(Reversal of) impairment losses on receivables | 2 | 0 |

(Increase)/decrease in long-term pre-financing | (157) | 72 |

(Increase)/decrease in short-term pre-financing | (296) | (150) |

(Increase)/decrease in short-term receivables | (62) | (45) |

Increase/(decrease) in short-term payables | 78 | 152 |

NET CASH FLOW | 285 | 230 |

NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS | 285 | 230 |

Cash and cash equivalents at the beginning of the year | 2.5 & 4.3 | 523 | 293 |

Cash and cash equivalents at the end of the year | 2.5 | 808 | 523 |

AGGREGATED STATEMENT OF CHANGES IN NET ASSETS of the 8th, 9th and 10th EDFs

EUR millions |

Capital increase – ordinary contributions | - | (3 300) | 3 300 | - | - | 3 300 |

Capital increase – co-financing contributions | 68 | 66 | 2 | - | - | 2 |

Economic outturn of the year | - | - | - | (3 094) | - | (3 094) |

BALANCE AS AT 31 DECEMBER 2009 | 45 761 | 25 381 | 20 381 | (21 909) | 2 252 | 724 |

Capital increase – ordinary contributions | - | (3 500) | 3 500 | - | - | 3 500 |

Reclassification of co-financing contributions[3] | (70) | (69) | (2) | - | - | (2) |

Economic outturn of the year | - | - | - | (2 765) | - | (2 765) |

BALANCE AS AT 31 DECEMBER 2010 | 45 691 | 21 812 | 23 879 | (24 674) | 2 252 | 1 458 |

1.2 8TH EDF: BALANCE SHEET, ECONOMIC OUTTURN ACCOUNT AND STATEMENT OF CHANGES IN NET ASSETS

BALANCE SHEET of the 8th EDF

EUR millions |

Note | 31.12.2010 | 31.12.2009 |

CURRENT ASSETS |

Short-term pre-financing | 2.2 | 100 | 54 |

Short-term receivables | 2.3 | 9 | 6 |

Liaison accounts | 2.4 | 497 | 708 |

TOTAL ASSETS | 605 | 768 |

CURRENT LIABILITIES |

Short-term payables | 2.6 | (45) | (65) |

TOTAL LIABILITIES | (45) | (65) |

NET ASSETS | 560 | 703 |

FUNDS & RESERVES |

Called fund capital | 2.7 | 12 840 | 12 840 |

Other reserves | 2.8 | (2 237) | (2 153) |

Economic outturn carried forward from previous years | (9 985) | (9 825) |

Economic outturn of the year | (58) | (159) |

NET ASSETS | 560 | 703 |

ECONOMIC OUTTURN ACCOUNT of the 8th EDF

EUR millions |

Note | 2010 | 2009 |

OPERATING REVENUE | 3.1 | 54 | 20 |

OPERATING EXPENSES | 3.2 | (116) | (180) |

SURPLUS (DEFICIT) FROM OPERATING ACTIVITIES | (61) | (160) |

Financial revenue | 3.4 | 4 | 1 |

SURPLUS (DEFICIT) FROM FINANCIAL ACTIVITIES | 4 | 1 |

ECONOMIC OUTTURN OF THE YEAR | (58) | (159) |

STATEMENT OF CHANGES IN NET ASSETS of the 8th EDF

EUR millions |

Capital increase – ordinary contributions | - | - | - | - | - | - |

Economic outturn of the year | - | - | - | (159) | - | (159) |

BALANCE AS AT 31 DECEMBER 2009 | 12 840 | - | 12 840 | (9 985) | (2 153) | 703 |

Capital increase – ordinary contributions | - | - | - | - | - | - |

Transfers to the 10th EDF | - | - | - | - | (85) | (85) |

Economic outturn of the year | - | - | - | (58) | - | (58) |

BALANCE AS AT 31 DECEMBER 2010 | 12 840 | - | 12 840 | (10 042) | (2 237) | 560 |

1.3 9TH EDF: BALANCE SHEET, ECONOMIC OUTTURN ACCOUNT AND STATEMENT OF CHANGES IN NET ASSETS

BALANCE SHEET of the 9th EDF

EUR millions |

Note | 31.12.2010 | 31.12.2009 |

NON-CURRENT ASSETS |

Long-term pre-financing | 2.1 | 158 | 129 |

CURRENT ASSETS |

Short-term pre-financing | 2.2 | 742 | 507 |

Short-term receivables | 2.3 | 233 | 59 |

Liaison accounts | 2.4 | 2 516 | 653 |

Cash and cash equivalents | 2.5 | 7 | 11 |

TOTAL ASSETS | 3 655 | 1 359 |

CURRENT LIABILITIES |

Short-term payables | 2.6 | (392) | (366) |

TOTAL LIABILITIES | (392) | (366) |

NET ASSETS | 3 263 | 993 |

FUNDS & RESERVES |

Called fund capital | 2.7 | 11 039 | 7 539 |

Other reserves | 2.8 | 4 157 | 4 308 |

Economic outturn carried forward from previous years | (10 854) | (8 970) |

Economic outturn of the year | (1 078) | (1 884) |

NET ASSETS | 3 263 | 993 |

ECONOMIC OUTTURN ACCOUNT of the 9th EDF

EUR millions |

Note | 2010 | 2009 |

OPERATING REVENUE | 3.1 | 82 | 26 |

OPERATING EXPENSES |

Operating expenses | 3.2 | (1 230) | (1 880) |

Administrative expenses | 3.3 | (6) | (77) |

SURPLUS (DEFICIT) FROM OPERATING ACTIVITIES | (1 155) | (1 931) |

Financial revenue | 3.4 | 77 | 47 |

SURPLUS (DEFICIT) FROM FINANCIAL ACTIVITIES | 77 | 47 |

ECONOMIC OUTTURN OF THE YEAR | (1 078) | (1 884) |

STATEMENT OF CHANGES IN NET ASSETS of the 9th EDF

EUR millions |

Capital increase – ordinary contributions | - | (3 300) | 3 300 | - | - | 3 300 |

Economic outturn of the year | - | - | - | (1 884) | - | (1 884) |

BALANCE AS AT 31 DECEMBER 2009 | 11 699 | 4 160 | 7 539 | (10 854) | 4 308 | 993 |

Capital increase – ordinary contributions | - | (3 500) | 3 500 | - | - | 3 500 |

Transfers to the 10th EDF | - | - | - | - | (151) | (151) |

Economic outturn of the year | - | - | - | (1 078) | - | (1 078) |

BALANCE AS AT 31 DECEMBER 2010 | 11 699 | 660 | 11 039 | (11 932) | 4 157 | 3 263 |

1.4 10TH EDF: BALANCE SHEET, ECONOMIC OUTTURN ACCOUNT AND STATEMENT OF CHANGES IN NET ASSETS

BALANCE SHEET of the 10th EDF

EUR millions |

Note | 31.12.2010 | 31.12.2009 |

NON-CURRENT ASSETS |

Long-term pre-financing | 2.1 | 195 | 67 |

CURRENT ASSETS |

Short-term pre-financing | 2.2 | 255 | 239 |

Short-term receivables | 2.3 | 5 | 1 |

Cash and cash equivalents | 2.5 | 801 | 512 |

TOTAL ASSETS | 1 255 | 819 |

CURRENT LIABILITIES |

Short-term payables | 2.6 | (608) | (430) |

Liaison accounts | 2.4 | (3 013) | (1 361) |

TOTAL LIABILITIES | (3 621) | (1 791) |

NET ASSETS | (2 366) | (971) |

FUNDS & RESERVES |

Called fund capital | 2.7 | - | 2 |

Other reserves | 2.8 | 333 | 97 |

Economic outturn carried forward from previous years | (1 070) | (19) |

Economic outturn of the year | (1 629) | (1 051) |

NET ASSETS[4] | (2 366) | (971) |

ECONOMIC OUTTURN ACCOUNT of the 10th EDF

EUR millions |

Note | 2010 | 2009 |

OPERATING REVENUE | 3.1 | 4 | 2 |

OPERATING EXPENSES |

Operating expenses | 3.2 | (1 567) | (1 042) |

Administrative expenses | 3.3 | (80) | (13) |

SURPLUS (DEFICIT) FROM OPERATING ACTIVITIES | (1 643) | (1 053) |

Financial revenue | 3.4 | 14 | 2 |

SURPLUS (DEFICIT) FROM FINANCIAL ACTIVITIES | 14 | 2 |

ECONOMIC OUTTURN OF THE YEAR | (1 629) | (1 051) |

STATEMENT OF CHANGES IN NET ASSETS of the 10th EDF

EUR millions |

Capital increase – ordinary contributions | - | - | - | - | - | - |

Capital increase – co-financing contributions | 68 | 66 | 2 | - | - | 2 |

Economic outturn of the year | - | - | - | (1 051) | - | (1 051) |

BALANCE AS AT 31 DECEMBER 2009 | 21 222 | 21 221 | 2 | (1 070) | 97 | (971) |

Capital increase – ordinary contributions | - | - | - | - | - | - |

Reclassification of co-financing contributions[5] | (70) | (69) | (2) | - | - | (2) |

Transfers from the 8th and the 9th EDF | - | - | - | - | 236 | 236 |

Economic outturn of the year | - | - | - | (1 629) | - | (1 629) |

BALANCE AS AT 31 DECEMBER 2010 | 21 152 | 21 152 | - | (2 699) | 333 | (2 366) |

1.5 NOTES TO THE FINANCIAL STATEMENTS OF THE 8TH, 9TH AND 10TH EDFs

1. SIGNIFICANT ACCOUNTING POLICIES

1.1. LEGAL PROVISIONS AND THE FINANCIAL REGULATION

The financial statements are drawn up in accordance with the Financial Regulation applicable to the 10th EDF. In accordance with the provisions of Article 121 of this regulation, the financial statements are prepared respecting the principles of accrual based accounting.

These financial statements have been drafted in conformity with the accounting rules and methods of the EDF drawn up on the basis of International Public Sector Accounting Standards (IPSAS) or by default, International Financial Reporting Standards (IFRS) as respectively issued by the International Public Sector Accounting Standard Board (IPSASB) and the International Accounting Standard Board (IASB). The rules on valuation and accounting methods adopted by the Accounting Officer of the EDF have been applied in respect of the part of the EDF resources for which the European Commission is responsible for financial management.

The EDF Accounting Officer must submit the provisional accounts to the Court of Auditors for audit by 31 March of the following year. The Court of Auditors shall in turn make its observations on the accounts known to the Commission by 15 June (Article 125). On the basis of these observations, the Commission approves the final accounts by 31 July and sends them to the European Parliament, the Council and the Court of Auditors. The accounts are then published in the Official Journal by 15 November, together with the statement of assurance given by the Court of Auditors in respect of the part of the EDF resources for which the Commission is responsible for the financial management.

1.2. ACCOUNTING PRINCIPLES

The objective of the financial statements is to provide information about the financial position, performance and cash flows of an entity that is useful to a wide range of users. For a public sector entity such as the EDF, the objectives are more specifically to provide information useful for decision making, and to demonstrate the accountability of the entity for the resources entrusted to it.

If they are to present a true and fair view, financial statements must not only supply relevant information to describe the nature and range of an organisation’s activities, explain how it is financed and supply definitive information on its operations, but do so in a clear and comprehensible manner which allows comparisons between financial years. It is with these goals in mind that the present document has been drawn up.

The accounting system of the EDF comprises general accounts and budget accounts. The budget accounts give a detailed picture of the implementation of the budget. They are based on the cash accounting principle. The general accounts allow for the preparation of the financial statements as they show all expenses and income for the financial year based on accrual accounting rules and are designed to establish the financial position in the form of a balance sheet at 31 December.

Article 120 of the 10th EDF Financial Regulation sets out the accounting principles to be applied in drawing up the financial statements:

- going concern basis;

- prudence;

- consistent accounting methods;

- comparability of information;

- materiality;

- no netting;

- reality over appearance;

- accrual-based accounting.

1.3. BASIS OF PREPARATION

1.3.1. Functional and reporting currency

The financial statements are presented in millions of euros, the euro being the functional and reporting currency of the EDF.

1.3.2. Currency and basis for conversion

Foreign currency transactions are translated into euros using the exchange rates prevailing on the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of foreign currency transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the economic outturn account.

Year-end balances of monetary assets and liabilities denominated in foreign currencies are converted into euros on the basis of the below exchange rates applying on 31 December:

CZK | 25.0610 | 26.4730 | PLN | 3.9750 | 4.1045 |

DKK | 7.4535 | 7.4418 | RON | 4.2620 | 4.2363 |

EEK | 15.6466 | 15.6466 | SEK | 8.9655 | 10.2520 |

GBP | 0.8607 | 0.8881 | CHF | 1.2504 | 1.4836 |

HUF | 277.9500 | 270.4200 | JPY | 108.6500 | 133.1600 |

LVL | 0.7094 | 0.7093 | USD | 1.3362 | 1.4406 |

1.3.3. Use of estimates

In accordance with IPSAS and generally accepted accounting principles, the financial statements necessarily include amounts based on estimates and assumptions by management based on the most reliable information available. Significant estimates include, but are not limited to, amounts for provisions, impairment losses on accounts receivable and accrued charges. Actual results could differ from those estimates. Changes in estimates are reflected in the period in which they become known.

1.4. BALANCE SHEET

1.4.1 Pre-financing amounts

Pre-financing is a payment intended to provide the beneficiary with a cash advance, i.e. a float. It may be split into a number of payments over a period defined in the particular pre-financing agreement. The float or advance is repaid or used for the purpose for which it was provided during the period defined in the agreement. If the beneficiary does not incur eligible expenditures, he/she has to return the pre-financing advance to the EDF. The amount of the pre-financing is reduced (wholly or partially) by the acceptance of eligible costs and amounts returned.

At year-end, outstanding pre-financing amounts are valued at the original amount(s) paid less: amounts returned, eligible amounts cleared, estimated eligible amounts not yet cleared at year-end and value reductions.

Interest on pre-financing is recognised as it is earned in accordance with the provisions of the relevant agreement. An estimate of the accrued interest revenue, based on the most reliable information, is made at year-end.

1.4.2 Receivables

Receivables are carried at original amount less write-down for impairment. A write-down for impairment of receivables is established when there is objective evidence that the full amount due cannot be collected according to the original terms of the receivable. The amount of the write-down is the difference between the asset’s carrying amount and the recoverable amount, being the present value of expected future cash flows, discounted at the market rate of interest for similar borrowers. Also recognised is a general write-down for outstanding recovery orders not already subject to a specific write-down. This general write-down is based on the historical loss rates. The amount of the write-down is recognised in the economic outturn account.

1.4.3 Cash and cash equivalents

Cash and cash equivalents are financial instruments and are defined as short-term assets. They include cash at hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less.

1.4.4 Payables

A significant amount of the payables of the EDF are not related to the purchase of goods or services – instead they are unpaid cost claims from beneficiaries of grants or other funding. They are recorded as payables for the requested amount when the cost claim is received and, after verification, accepted as eligible by the relevant financial agents. At this stage they are valued at the accepted and eligible amount.

Payables arising from the purchase of goods and services are recognised at invoice reception for the original amount and corresponding expenses are entered in the accounts when the supplies or services are delivered and accepted.

1.4.5 Provisions

Provisions are recognised when the EDF has a present legal or constructive obligation towards third parties as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation, and the amount can be reliably estimated. The amount of the provision is the best estimate of the expenditures expected to be required to settle the present obligation at the reporting date.

1.4.6 Accrued and deferred income and charges

A critical element in accrual accounting is the exercise of ensuring that transactions are recorded in the accounting year to which they relate. This exercise is referred to as the cut-off exercise. In particular, an assessment has to be made concerning eligible expenses incurred by beneficiaries of EDF funds but not yet reported to the EDF (accrued charges). Conversely, some payments made in the current year relate to subsequent periods (deferred charges) and these have to be identified and included in the subsequent period(s).

According to the EDF accounting rules, transactions and events are recognised in the financial statements in the period to which they relate. At the end of the accounting period, accrued expenses are recognised based on an estimated amount of the transfer obligation of the period. The calculation of the accrued expenses is made in accordance with detailed operational and practical guidelines issued by the Commission which aim at ensuring that the financial statements reflect a true and fair view.

Revenue is also accounted for in the period to which it relates. At year-end, if an invoice is not yet issued but the service has been rendered, the supplies have been delivered by the EDF or a contractual agreement exists (i.e. by reference to a treaty), an accrued income will be recognised in the financial statements.

In addition, at year-end, if an invoice is issued but the services have not yet been rendered or the goods supplied have not yet been delivered, the revenue will be deferred and recognised in the subsequent accounting period.

1.5. ECONOMIC OUTTURN ACCOUNT

1.5.1 Revenue

There is no revenue budget of the European Development Fund. The ordinary contributions from Member States are treated as fund capital. Revenue comprises recovery of expenses and interest income.

Recovery of expenses

For operations giving rise to reimbursement of expenditures previously paid by the EDF to a final beneficiary or third country, recovery orders and deductions from subsequent payments are established and accounted for as follows:

- Recovery of expenses: the recovery order issued results in a receivable with the corresponding entry being income in the economic outturn account for that year; or,

- Recovery of pre-financing amounts: in this case the amount is included under the pre-financing heading on the balance sheet.

Interest income

Interest income is recognised in the economic outturn account using the effective interest method. The interest income comprises interest received or receivable on cash balances and demandable deposits held with commercial banks and on late payment of entitlements to the EDF. Interest income is recognised as it accrues.

1.5.2 Expenditure

Exchange expenses arising from the purchase of goods and services are recognised when the supplies are delivered and accepted. They are valued at original invoice cost.

Non-exchange expenses account for the majority of the EDF's expenditure. They relate to transfers to beneficiaries and can be of three types: entitlements, transfers under agreement and discretionary grants, or contributions and donations.

Transfers are recognised as expenses in the period during which the events giving rise to the transfer occurred, as long as the nature of the transfer is allowed by regulation (Financial Regulation or other) or a contract has been signed authorising the transfer; any eligibility criteria have been met by the beneficiary; and a reasonable estimate of the amount can be made.

When any request for payment or cost claim is received and meets the recognition criteria, it is recognised as an expense for the eligible amount. At year-end, incurred eligible expenses already due to the beneficiaries but not yet reported are estimated and recorded as accrued expenses.

Interest expense

Interest expense is recognised in the economic outturn account using the effective interest method. The interest expense comprises interest paid or payable and is recognised as it accrues.

1.6. CONTINGENT ASSETS AND LIABILITIES

1.6.1 Contingent assets

A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the EDF. A contingent asset is disclosed when an inflow of economic benefits or service potential is probable.

Contingent assets are assessed at each balance sheet date to ensure that developments are appropriately reflected in the financial statements. If it has become virtually certain that an inflow of economic benefits or service potential will arise and the asset’s value can be measured reliably, the asset and the related revenue are recognised in the financial statements of the period in which the change occurs.

Guarantees are possible assets that arise from past events and whose existence will be confirmed by the occurrence or non-occurrence of the object of the guarantee. Guarantees can thus qualify as contingent assets. A guarantee is settled when the object of the guarantee no longer exists. It is crystallised when the conditions are fulfilled for calling for a payment from the guarantor.

1.6.2 Contingent liabilities

A contingent liability is a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the EDF; or a present obligation that arises from past events but is not recognised because: it is not probable that an outflow of resources embodying economic benefits or service potential will be required to settle the obligation or, in the rare circumstances where the amount of the obligation cannot be measured with sufficient reliability. A contingent liability is disclosed unless the possibility of an outflow of resources embodying economic benefits or service potential is remote.

Contingent liabilities are assessed at each balance sheet date to determine whether an outflow of resources embodying economic benefits or service potential has become probable. If it becomes probable that an outflow of resources embodying economic benefits or service potential will be required for an item dealt with as contingent liability, a provision is recognised in the financial statements of the period in which the change of probability occurs.

2. NOTES TO THE BALANCE SHEET

NON CURRENT ASSETS

2.1 LONG-TERM PRE-FINANCING

EUR millions |

8th EDF | 9th EDF | 10th EDF | TOTAL 31.12.2010 | TOTAL 31.12.2009 |

Long-term pre-financing | - | 158 | 195 | 353 | 196 |

TOTAL | - | 158 | 195 | 353 | 196 |

Many contracts provide for payments of advances before the commencement of works, deliveries of supplies or the provision of services. Sometimes the payment schedules of contracts foresee payments on the basis of progress reports. Pre-financing is normally paid in the currency of the country or territory where the project is executed.

Following the principles of accrual accounting, advance payments made by the EDF are classified as assets. The pre-financing is presented net of open recovery orders related to advances and estimated amounts not yet cleared at year-end.

The timing of the recoverability or utilisation of the pre-financing governs whether it is disclosed as a short-term or a long-term pre-financing asset. The utilisation is defined by the project's underlying agreement. Any repayments or utilisation due within twelve months of the reporting date is disclosed as short-term pre-financing and therefore as current assets.

As many of the EDF projects are long-term in nature, it is necessary that the related advances are available for more than one year. Thus these pre-financing amounts are shown as long-term assets.

The increase in long-term pre-financing of EUR 157 million compared to 31.12.2009 is mainly explained by an increase in long-term pre-financing related to Intra ACP Projects (EUR 118 million), Programmable aid (EUR 58 million) offset by a decrease in the long-term pre-financing related to Sectoral Policy (EUR 13 million).

CURRENT ASSETS

2.2 SHORT-TERM PRE-FINANCING

EUR millions |

8th EDF | 9th EDF | 10th EDF | TOTAL 31.12.2010 | TOTAL 31.12.2009 |

Short-term pre-financing (gross) | 172 | 2 211 | 732 | 3 115 | 2 957 |

Less estimated clearing of pre-financing | (72) | (1 469) | (477) | (2 019) | (2 158) |

TOTAL | 100 | 742 | 255 | 1 096 | 800 |

The estimated clearing of pre-financing represent the amount of eligible costs that were estimated to have been incurred by the beneficiaries of the outstanding pre-financing amounts at year-end, but not yet reported. These amounts are also taken as expenses in the economic outturn account of the reporting period.

The increase in net short-term pre-financing of EUR 296 million is mainly due to an increase in net pre-financing under the 9th EDF (EUR 235 million) which comprises an increase of pre-financing related to Intra ACP Projects (EUR 191 million), Sectoral Policy (EUR 76 million), Other aid programmes related to former EDFs (EUR 19 million) and Emergency aid (EUR 14 million). This increase was partly compensated by a decrease in the net pre-financing related to Programmable aid (EUR 76 million).

Guarantees received in respect of pre-financing

Guarantees are held to secure pre-financing and released when the final claim under a project is paid. A guarantee has two different values referred to as the “nominal” and the “on-going” values. For the “nominal” value, the generating event is linked to the existence of the guarantee. For the “on-going” value, the guarantee’s generating event is the pre-financing payment and/or subsequent clearings.

At 31 December 2010 the "nominal" value of guarantees received by the EDF in respect of pre-financing amounts to EUR 674 million. The "on-going" value of those guarantees amounts to EUR 363 million. At 31 December 2009 these values were EUR 684 million and EUR 414 million respectively.

2.3 SHORT-TERM RECEIVABLES

EUR millions |

8th EDF | 9th EDF | 10th EDF | TOTAL 31.12.2010 | TOTAL 31.12.2009 |

Receivables from customers | 6 | 4 | 0 | 10 | 14 |

Receivables from Member States | - | 125 | - | 125 | 4 |

Accrued income and deferred charges | 2 | 104 | 6 | 112 | 47 |

TOTAL | 9 | 233 | 5 | 247 | 66 |

Receivables from customers

EUR millions |

8th EDF | 9th EDF | 10th EDF | TOTAL 31.12.2010 | TOTAL 31.12.2009 |

Receivables from customers | 7 | 11 | 0 | 18 | 20 |

-Impairment of receivables from customers | (1) | (6) | (1) | (8) | (6) |

TOTAL | 6 | 4 | 0 | 10 | 14 |

These are recovery orders entered in the accounts at 31 December 2010 as established entitlements to be recovered and not already included under other headings on the assets side of the balance sheet. The closing balance for recovery orders represents the value of recovery orders issued but not yet paid at year-end.

The Accounting Officer estimates a provision for impairment losses for the amounts owed by beneficiaries that are unlikely to be recovered. This provision is based on two variables:

- The evaluation of the risk of non recovery, in collaboration with the Authorising Officer

- The age of the debt, applying a general provision based on historical loss rates to the receivables which are not subject to a specific write-down.

- The fact that such an adjustment is made does not mean that the future recovery of these amounts is waived.

The movements in open recovery orders during the period are detailed below.

EUR millions |

8th EDF | 9th EDF | 10th EDF | TOTAL 2010 | TOTAL 2009 |

Open recovery orders at beginning of year | 7 | 13 | 0 | 20 | 23 |

Recovery orders issued | 24 | 58 | 83 | 164 | 60 |

Recovery orders closed | (24) | (60) | (83) | (166) | (63) |

Cashed | (15) | (50) | (78) | (143) | (45) |

Waived (art 73 FR) | 0 | (1) | - | (1) | (1) |

Cancelled | (4) | (1) | 0 | (5) | (1) |

Offset | (5) | (8) | (4) | (17) | (16) |

Open recovery orders at end of year | 7 | 11 | 0 | 18 | 20 |

Receivables from Member States

The EUR 125 million receivable from Member States in the 9th EDF comprises a contribution receivable due from Italy which was received in January 2011.

Accrued income and deferred charges

Accrued income and deferred charges mainly include accrued interest on pre-financing amounts and interest relating to late payments of recovery orders. Furthermore, accrued interest income on bank accounts is included under this heading.

The increase in accrued income and deferred charges of EUR 65 million is explained by higher accrued interest on pre-financing (EUR 62 million). This increase is in line with the increased long and short-term pre-financing balances (see note 2.1. and 2.2).

2.4 LIAISON ACCOUNTS

EUR millions |

8th EDF | 9th EDF | 10th EDF | TOTAL 31.12.2010 | TOTAL 31.12.2009 |

to/from 6th EDF | (2 065) | (214) | - | (2 279) | (2 279) |

to/from 7th EDF | - | 2 279 | - | 2 279 | 2 279 |

to/from 8th EDF | - | (3 076) | 513 | (2 563) | (2 773) |

to/from 9th EDF | 3 076 | - | (3 526) | (450) | 1 412 |

to/from 10th EDF | (513) | 3 526 | - | 3 013 | 1 361 |

TOTAL | 497 | 2 516 | (3 013) | 0 | 0 |

For reasons of efficiency, the single treasury covering all the EDFs is allocated to the 10th EDF; this leads to operations between the various EDFs, which are balanced out in the liaison accounts between the various EDF balance sheets.

The major 2010 movements in the liaison accounts include payments made by the 10th EDF for implementation of the 8th and 9th EDFs and cash received by the 10th EDF related to contributions called under the 9th EDF.

2.5 CASH AND CASH EQUIVALENTS[6]

EUR millions |

8th EDF | 9th EDF | 10th EDF | TOTAL 31.12.2010 | TOTAL 31.12.2009 |

Cash at banks | - | - | 781 | 781 | 444 |

STABEX security accounts | - | - | 17 | 17 | 65 |

Co-financing bank accounts | - | 7 | 2 | 10 | 13 |

Democratic Republic Congo special fund[7] | - | - | 0 | 0 | 1 |

TOTAL | - | 7 | 801 | 808 | 523 |

Cash at banks

EUR millions |

8th EDF | 9th EDF | 10th EDF | TOTAL 31.12.2010 | TOTAL 31.12.2009 |

Special accounts - financial institutions of Member States | - | - | 599 | 599 | 392 |

Current accounts – commercial banks | - | - | 180 | 180 | 48 |

Local Paying Agents | - | - | 1 | 1 | 3 |

TOTAL | - | - | 781 | 781 | 444 |

The overall increase in cash at banks is mainly explained by a lower budget execution in 2010 than planned.

Furthermore, due to the additional bank holidays at the end of 2010, the State Treasuries were not accessible in the last week of the year. Therefore the EDF treasury had to assure that sufficient funds were available to cover all payments that could have been instructed in the last week of the year. This led to higher cash balances both in the financial institutions of the Member States and in the current accounts in commercial banks at year-end.

Local paying agent accounts represent amounts held in bank accounts within ACP States and OCTs used for making payments in local currency within the beneficiary state. These accounts are kept in euros or in a currency of a Union Member State. In order to achieve a more centralised management of payments, during 2010, 9 out of the 17 remaining local paying agent accounts were closed.

STABEX Security accounts

EUR millions |

Balance at 31.12.2010 | Balance at 31.12.2009 |

Sudan | 0 | 36 |

Saint Lucia | 7 | 15 |

St Vincent and the Grenadines | 4 | 4 |

Zimbabwe | 0 | 3 |

Ivory Coast | 2 | 2 |

Malawi | 1 | 1 |

Other countries | 2 | 3 |

TOTAL | 17 | 65 |

STABEX is the acronym for a European Union compensatory finance scheme to stabilise export earnings of the ACP countries. It was first introduced in the Lomé Convention (1975) with the purpose of remedying the harmful effects of the instability of export revenue from agricultural products. The balance on the STABEX security accounts represents the total of STABEX funds available which will be transferred to the relevant beneficiary ACP State at a future date. This balance is allocated to the 10th EDF. In 2010, four STABEX security accounts were closed following the winding up of the STABEX aid instrument.

In addition to these funds, there are other STABEX funds held by beneficiary ACP States. Once the Commission and the beneficiary (ACP) State reach agreement on how the STABEX funds are to be utilised, a transfer convention is signed by both parties. In accordance with the provisions of Article 211 of the Lomé IV Agreement[8] (as revised), the funds are transferred into an interest bearing double signature account (European Commission and Beneficiary State) opened in the name of the ACP State. The funds remain in these double signature accounts until a FMO (Framework of Mutual Obligations) justifies a transfer for a project.

The Commission's Authorising Officer retains the power of signature over the account in order to ensure that the funds are disbursed as intended. The funds in the double signature accounts are the property of the ACP State and are consequently not recorded as assets in the EDF accounts. The transfers to these accounts are recorded as STABEX payments.

In 2010, EUR 32 million was returned to the EDF from double signature accounts in ACP countries following Article 1.4 of the Internal Agreement of the 10th EDF[9]. These funds were transferred from Senegal (EUR 26 million) and Cameroon (EUR 2 million). In addition, EUR 3 million was returned from a double signature account in Lesotho following an audit.These revenues are included in operating income (STABEX aid instrument) in the economic outturn account of the 10th EDF.

Co-financing bank accounts

EUR millions |

8th EDF | 9th EDF | 10th EDF | TOTAL 31.12.2010 | TOTAL 31.12.2009 |

Co-financing bank accounts | - | 7 | 2 | 10 | 13 |

TOTAL | - | 7 | 2 | 10 | 13 |

These bank accounts include amounts related to co-financing agreements dated 2007 and earlier. These co-financing funds are the property of the Member States concerned and hence a corresponding amount is registered as payable. Therefore, the effect on the net assets is nil.

The Italian co-financing under the 9th EDF is still ongoing in Somalia. One project in Tanzania relating to the same co-financing was finalised in 2010.

The co-financing bank accounts of the 10th EDF relate to old co-financing projects in the process of closure. These funds will be returned to the Member States after instruction from the Authorising Officer.

CURRENT LIABILITIES

2.6 SHORT-TERM PAYABLES

EUR millions |

8th EDF | 9th EDF | 10th EDF | TOTAL 31.12.2010 | TOTAL 31.12.2009 |

Current payables | 25 | 189 | 273 | 487 | 343 |

Accrued charges | 20 | 203 | 63 | 286 | 286 |

Deferred capital contribution | - | - | 272 | 272 | 232 |

TOTAL | 45 | 392 | 608 | 1 045 | 860 |

The overall increase in short-term payables of EUR 185 million is explained by an increase in current payables of EUR 144 million and an increase in deferred capital contribution from Ireland of EUR 40 million.

Current payables

EUR millions |

8th EDF | 9th EDF | 10th EDF | TOTAL 31.12.2010 | TOTAL 31.12.2009 |

Suppliers and other | 25 | 182 | 193 | 400 | 320 |

Payables to Member States – co-financing | - | 7 | 68 | 75 | 13 |

Sundry payables | - | - | 12 | 12 | 10 |

TOTAL | 25 | 189 | 273 | 487 | 343 |

Short-term payables include cost statements received by the EDF under the framework of the grant and procurement activities. They are recorded for the amount being claimed from the moment the demand is received. The same procedure applies to invoices and credit notes received under procurement activities. The cost claims concerned have been taken into account for the year-end cut-off procedures. Following the cut-off entries, estimated eligible amounts have been recorded as accrued charges.

Suppliers and other

Included under this heading are amounts owed to suppliers as well as amounts payable to public bodies and third states.

The increase of EUR 80 million compared to the previous reporting period is mainly composed of a 40 million increase in payables to suppliers, a EUR 21 million increase in payables to third states and a EUR 14 million increase of amounts payable to public bodies.

Payables to Member States co-financing

Co-financing contributions received are presented as payables to Member States as they fulfil the criteria of revenues from non-exchange transactions under condition. The EDF is required to use the contributions to deliver services to third parties or is otherwise required to return the assets (the contributions received) to the Member States. The outstanding payable for co-financing agreements represents the co-financing contribution received less the expenses incurred related to the project. The effect on the net assets is nil.

EUR 10 million of the co-financing payables to Member States relate to co-financing agreements dated 2007 and earlier. These funds are kept in dedicated bank accounts, see 2.5, co-financing bank accounts, above.

In 2010, new co-financing contributions of EUR 65 million were received (France EUR 39 million, Spain EUR 12 million, Belgium EUR 11 million, Denmark EUR 2 million and the Netherlands EUR 1 million). The funds relating to co-financing agreements signed in 2008 and later are not kept in dedicated bank accounts.

EUR 2 million of co-financing contributions was reclassified from reserves (see 1.1 aggregated statement of changes in net assets).

The co-financing payables were decreased by EUR 1 million to compensate the expenses incurred related to the co-financing projects (see 3.1 and 3.2).

Sundry payables

Sundry payables mainly comprise unallocated cash receipts and returned amounts.

Accrued charges

EUR millions |

8th EDF | 9th EDF | 10th EDF | TOTAL 31.12.2010 | TOTAL 31.12.2009 |

Accrued charges | 20 | 203 | 63 | 286 | 286 |

TOTAL | 20 | 203 | 63 | 286 | 286 |

At year-end, an assessment is made concerning eligible expenses incurred by beneficiaries of EDF funds but not yet reported. Following these cut-off calculations, estimated eligible amounts are recorded as accrued charges. The part of the accrued charges which is covered by a pre-financing amount is presented as an estimated clearing of pre-financing (see 2.2).

Deferred fund capital contribution

EUR millions |

8th EDF | 9th EDF | 10th EDF | TOTAL 31.12.2010 | TOTAL 31.12.2009 |

United Kingdom | - | - | 269 | 269 | 228 |

Ireland | - | - | 3 | 3 | 3 |

TOTAL | - | - | 272 | 272 | 232 |

This comprises Member States' contributions paid in advance.

NET ASSETS

2.7 CALLED FUND CAPITAL

EUR millions |

8th EDF | 9th EDF | 10th EDF | TOTAL |

Fund Capital | 12 840 | 11 699 | 21 152 | 45 691 |

Fund Capital co-financing[10] | - | - | 70 | 70 |

Uncalled fund capital | - | (4 160) | (21 152) | (25 312) |

Uncalled fund capital co-financing10 | - | - | (69) | (69) |

Called fund capital 31.12.2009 | 12 840 | 7 539 | 2 | 20 381 |

Fund Capital | 12 840 | 11 699 | 21 152 | 45 691 |

Uncalled fund capital | - | (660) | (21 152) | (21 812) |

Called fund capital 31.12.2010 | 12 840 | 11 039 | 0 | 23 879 |

The fund capital represents the total amount of contributions from the Member States for the relevant EDF fund as laid down in each of the Internal Agreements.

Uncalled funds represent the initial allocation not yet called up from Member States.

Called fund capital represents the amount of the initial allocations which has been called up for transfer to the treasury accounts by the Member States in accordance with the procedure laid down in Article 16 of the 10th EDF Financial Regulation.

The capital of the 8th EDF has been called up and received in its entirety.

The initial allocation for the 9th EDF, which originally totalled EUR 10 555 million, has since been increased by an amount of EUR 105 million in 2004, which was released by the EIB in accordance with the provisions of Council Decision 2003/583/EC. This additional allocation is in favour of actions to be undertaken in the Democratic Republic of the Congo.

Article 2(2) of the Internal Agreement for the 9th EDF set a EUR 1 000 million reserve which was released from 2004 to 2007 by different Council decisions[11]. Following the decision of the joint ACP/EU Council in 2007[12], the Commission decided to launch a call for additional voluntary contributions to support the African Peace Facility in the framework of intra ACP cooperation which increased the 9th EDF by EUR 39 million.

The 10th EDF entered into force in 2008 with a fund capital amounting to EUR 21 152 million, according to the Internal Agreement applicable to the 10th EDF.

Fund capital

EUR millions |

Contributions | % | uncalled 9th EDF 31.12.2009 | called up in 2010 | uncalled 9th EDF 31.12.2010 |

Austria | 2.65 | (111) | 93 | 19 |

Belgium | 3.92 | (165) | 137 | 27 |

Denmark | 2.14 | (90) | 75 | 15 |

Finland | 1.48 | (62) | 52 | 10 |

France | 24.30 | (1 021) | 851 | 170 |

Germany | 23.36 | (981) | 818 | 164 |

Greece | 1.25 | (53) | 44 | 9 |

Ireland | 0.62 | (26) | 22 | 4 |

Italy | 12.54 | (487) | 439 | 88 |

Luxemburg | 0.29 | (12) | 10 | 2 |

Netherlands | 5.22 | (219) | 183 | 37 |

Portugal | 0.97 | (41) | 34 | 7 |

Spain | 5.84 | (245) | 204 | 41 |

Sweden | 2.73 | (115) | 96 | 19 |

United Kingdom | 12.69 | (533) | 444 | 89 |

EIB | N.A. | - | - | (40) |

TOTAL | 100.00 | (4 160) | 3 500 | (660) |

The ordinary contributions called up and received under the 9th EDF from the 15 participating Member States during the years 2010 and 2009 are detailed above.

In 2011, the final call under the 9th EDF will be made and the first contributions under the 10th EDF, in which the 27 Member States participate, will be called.

2.8 OTHER RESERVES

EUR millions |

8th EDF | 9th EDF | 10th EDF | TOTAL 31.12.2010 | TOTAL 31.12.2009 |

to/from 6th EDF | 94 | 490 | - | 584 | 584 |

to/from 7th EDF | 533 | 1 135 | - | 1 668 | 1 668 |

to/from 8th EDF | - | 2 762 | 102 | 2 864 | 2 779 |

to/from 9th EDF | (2 762) | - | 231 | (2 531) | (2 682) |

to/from 10th EDF | (102) | (231) | - | (333) | (97) |

TOTAL | (2 237) | 4 157 | 333 | 2 252 | 2 252 |

Since the entry into force of the 10th EDF in 2008, all decommitted funds of previous EDFs are transferred to the performance reserve of the 10th EDF. This reserve may be committed only under the conditions set out in Article 1.4 of the Internal Agreement on the 10th EDF.

In 2010, EUR 85 million and EUR 151 million of decommitted funds were transferred to the 10th EDF from the 8th and 9th EDFs respectively.

3. NOTES TO THE ECONOMIC OUTTURN ACCOUNT

3.1 OPERATING REVENUE

EUR millions |

8th EDF | 9th EDF | 10th EDF | TOTAL 2010 | TOTAL 2009 |

Recovery of expenses | 8 | 20 | 0 | 29 | 24 |

Recovery of STABEX funds | 32 | - | - | 32 | - |

Exchange gains | 14 | 61 | 3 | 78 | 25 |

Operating income co-financing | - | - | 1 | 1 | - |

TOTAL | 54 | 82 | 4 | 140 | 49 |

This heading represents the recovery orders issued by the EDF and the deduction from subsequent payments recorded in the EDF accounting system, to recover expenditures previously paid out, based on controls, audits or eligibility analysis. It should be noted that recovery of pre-financing amounts is not included as revenue, but credited to the pre-financing heading on the balance sheet.

Recovery of undue payments

In 2010, recovery orders for EUR 11 million were issued in respect of undue payments, compared to EUR 3 million in 2009. Of these, EUR 7 million related to the recovery of expenses and were thus recorded as operating revenue. EUR 4 million represented recoveries of pre-financing amounts paid and were credited to the pre-financing asset on the balance sheet.

The nature of the recovery of undue payments can be summarised as follows:

EUR millions |

Irregularity | 5 | 3 | 8 | 0 | 1 | 1 |

OLAF Notified | 1 | - | 1 | 1 | - | 1 |

TOTAL | 7 | 4 | 11 | 2 | 1 | 3 |

Recovery of STABEX funds

In 2010, EUR 32 million was returned to the EDF from double signature accounts in ACP countries following Article 1.4 of the Internal Agreement of the 10th EDF[13]. These funds were transferred from Senegal (EUR 26 million) and Cameroon (EUR 2 million). In addition, EUR 3 million was returned from a double signature account in Lesotho following an audit.These revenues are included in operating income (STABEX aid instrument) in the economic outturn account of the 10th EDF.

Exchange gains

Exchange gains arise from the everyday activities and related transactions made in currencies other than the euro, as well as the year-end revaluation required to prepare the annual accounts. They contain both realised and unrealised gains.

Operating income co-financing

The operating income relating to co-financing represents the contributions used (see 3.2). As these contributions fulfil the criteria of revenues from non-exchange transactions under condition, the contribution is recognised in accordance with the implementation of the co-financing project.

3.2 OPERATING EXPENSES

EUR millions |

8th EDF | 9th EDF | 10th EDF | TOTAL 2010 | TOTAL 2009 |

Operating expenses – aid instruments | 105 | 1 188 | 1 559 | 2 852 | 3 058 |

Operating expenses co-financing | 1 | 1 | 0 |

Exchange losses | 10 | 41 | 7 | 58 | 44 |

Impairment of receivables | 0 | 2 | 1 | 3 | 1 |

TOTAL | 116 | 1 230 | 1 567 | 2 914 | 3 103 |

Operating expenses – aid instruments

EUR millions |

8th EDF | 9th EDF | 10th EDF | TOTAL 2010 | TOTAL 2009 |

Programmable aid | 13 | 114 | 1 000 | 1 127 | 877 |

Macro-economic support | 0 | 35 | - | 35 | 93 |

Sectoral policy | 3 | 762 | - | 765 | 1 139 |

Intra ACP projects | - | 181 | 154 | 336 | 364 |

Emergency aid | - | 78 | 364 | 442 | 464 |

Refugee aid | (1) | - | - | (1) | 0 |

STABEX | 46 | - | - | 46 | 23 |

Sysmin | 10 | - | - | 10 | 3 |

Other aid programmes related to former EDFs[14] | - | (17) | - | (17) | 40 |

Debt relief - Heavily Indebted Poor Countries and World Bank | 14 | - | - | 14 | (5) |

Institutional support | - | 3 | 41 | 44 | 31 |

Compensation export receipts | 21 | 16 | - | 37 | 34 |

Democratic Republic Congo Fund | - | 15 | - | 15 | (6) |

Total | 105 | 1 188 | 1 559 | 2 852 | 3 058 |

Operating expenses co-financing

These are the expenses incurred on co-financing projects in 2010. As the co-financing contributions received fulfil the criteria of revenues from non-exchange transactions under condition, a corresponding amount of contributions has been recognised as operating revenue (see 3.1).

The EDF operating expenditure covers the various aid instruments and takes different forms, depending on how the money is paid out and managed.

Exchange losses

Exchange losses occur on the everyday activities and related transactions made in currencies other than the euro, as well as the year-end revaluation required to prepare the annual accounts – they are both realised and unrealised.

Looking at the net position, there was a net exchange gain of EUR 20 million for the year (exchange gains of EUR 78 million less exchange losses of EUR 58 million). Most of the net exchange gain relates to the currencies NGN (Nigerian naira): EUR 4 million, NAD (Namibian dollar): EUR 3 million, FJD (Fijian dollar): EUR 2 million, PGK Papua New Guinean kina): EUR 2 million, HTG (Haitian gourde): EUR 2 million and SZL (Swazi lilangeni): EUR 2 million.

Impairment of receivables

This heading includes mainly pre-financing corrections and amounts written down/lost on realisation concerning debtors.

3.3 ADMINISTRATIVE EXPENSES

EUR millions |

8th EDF | 9th EDF | 10th EDF | TOTAL 2010 | TOTAL 2009 |

Administrative expenses | 0 | 6 | 80 | 86 | 90 |

TOTAL | 0 | 6 | 80 | 86 | 90 |

This heading includes support expenditure; i.e. the administrative costs related to the programming and implementation of the EDFs. This includes expenses for preparation, follow-up, monitoring, and evaluation of projects as well as expenses for computer networks, Technical Assistance etc.

3.4 FINANCIAL REVENUE

EUR millions |

8th EDF | 9th EDF | 10th EDF | TOTAL 2010 | TOTAL 2009 |

Interest income - European banks | - | 0 | 0 | 1 | 1 |

Interest income – STABEX[15] | 0 | - | - | 0 | 1 |

Interest income on late payments of recovery orders | 0 | 0 | 2 | 3 | 1 |

Interest on pre-financing | 3 | 76 | 12 | 91 | 47 |

TOTAL | 4 | 77 | 14 | 95 | 49 |

The interest income in 2010 remains low due to the continued low interest rates (mainly the EONIA (Euro Over Night Index Average) and the ECB marginal rate (the one used for the ECB refinancing operations).

Interest income on late payments of recovery orders

This is interest earned on late payments of recovery orders by debtors, including late payments of contributions by Member States. Such funds can be used for financing projects in accordance with Articles 1 and 6 of the Internal Agreement applicable to the 10th EDF.

Interest on pre-financing

Interest on pre-financing is recognised as it is earned in accordance with the provisions of the 10th EDF Financial Regulation. The increase in pre-financing interest earned compared to 2009 is in line with the increase in both long and short-term pre-financing (see note 2.1. and 2.2).

4. NOTES TO THE CASH FLOW STATEMENT

4.1 PURPOSE AND PREPARATION OF THE CASH FLOW STATEMENT

Cash flow information is used to provide a basis for assessing the ability of the EDF to generate cash and cash equivalents, and its needs to utilise those cash flows.

The cash flow statement is prepared using the indirect method. This means that the net surplus or deficit for the financial year is adjusted for the effects of transactions of a non-cash nature and any deferrals or accruals of past or future operating cash receipts or payments.

Cash flows arising from transactions in a foreign currency are recorded in the EDF's reporting currency (euro), by applying to the foreign currency amount the exchange rate between the euro and the foreign currency at the date of the cash flow.

4.2 OPERATING ACTIVITIES

The EDF cash flow statement only shows cash flows from operating activities as the EDF does not have investment or financing activities. The objective of the operating activities is to participate in the achievement of policy targeted outcomes.

5. CONTINGENT ASSETS AND LIABILITIES AND OTHER DISCLOSURES

5.1 CONTINGENT ASSETS

EUR millions |

8th EDF | 9th EDF | 10th EDF | TOTAL 31.12.2010 | TOTAL 31.12.2009 |

Performance guarantees | 33 | 270 | 57 | 360 | 287 |

Retention guarantees | 15 | 192 | 20 | 227 | 186 |

Contingent assets relating to legal cases | - | 1 | - | 1 | - |

TOTAL | 48 | 462 | 77 | 587 | 473 |

Performance guarantees

Performance guarantees are sometimes requested to ensure that beneficiaries of EDF funding meet the obligations of their contracts with the EDF.

The increase of EUR 73 million in performance guarantees is due to new guarantees received under the 9th EDF (EUR 29 million linked mainly to Sectoral policy aid) and under the 10th EDF (EUR 43 million mainly linked to programmable aid).

Retention guarantees

Retention guarantees concern only works contracts. Typically, 10% of the interim payments to beneficiaries are withheld to ensure that the contractor fulfils his/her obligations. These withheld amounts are reflected as amounts payable. Subject to the approval of the contracting authority, the contractor may instead submit a retention guarantee which replaces the amounts withheld on interim payments. These received guarantees are disclosed as contingent assets.

The increase of EUR 41 million in retention guarantees is mainly explained by new guarantees received under the 9th EDF (EUR 23 million linked primarily to Sectoral policy aid) and new guarantees received under the 10th EDF (EUR 19 million linked to programmable aid).

5.2 CONTINGENT LIABILITIES

EUR millions |

8th EDF | 9th EDF | 10th EDF | TOTAL 31.12.2010 | TOTAL 31.12.2009 |

Amounts relating to legal cases | 0 | 6 | - | 6 | 1 |

TOTAL | 0 | 6 | - | 6 | 1 |

The above amounts relate to actions for damages currently being brought against the EDF, other legal disputes and the estimated legal costs. All contingent liabilities and commitments would be financed, should they fall due, by the EDF in the years to come. The EDFs are financed by the Member States .

5.3 OTHER DISCLOSURES

Budgetary commitments

EUR millions |

8th EDF | 9th EDF | 10th EDF | TOTAL 31.12.2010 | TOTAL 31.12.2009 |

Outstanding budgetary commitments not yet paid | 267 | 2 562 | 3 161 | 5 991 | 5 920 |

Related amounts included in the economic outturn account | (46) | (404) | (264) | (714) | (605) |

TOTAL | 221 | 2 158 | 2 897 | 5 277 | 5 314 |

Outstanding budgetary commitments represent open commitments for which payments and/or decommitments have not yet been made. This is a normal consequence of the existence of multiannual programmes. At 31 December 2010 the outstanding budgetary commitments totalled EUR 5 991 million. The amount disclosed as a future commitment to be funded is this outstanding budgetary commitment less related amounts that have been included as expenses in the 2010 economic outturn account, giving a total of EUR 5 277 million.

6. FINANCIAL RISK MANAGEMENT

The following disclosures with regard to the financial risk management of the European Development Fund relate to the treasury operations carried out by the European Commission on behalf of the European Development Fund in order to implement its resources;

6.1 RISK MANAGEMENT POLICIES AND HEDGING ACTIVITIES

The rules and principles for the management of the EDF's treasury operations are laid down in Council Regulation 215/2008 on the Financial Regulation applicable to the 10th EDF, and in the Internal Agreement.

As a result of the above regulation, the following main principles apply:

- The EDF contributions are paid by Member States in special accounts opened with the bank of issue of each Member State or the financial institution designated by it. The amounts of the contributions shall remain in those special accounts until the payments of EDF need to be made.

- EDF contributions are paid by Member States in EUR, while the EDF's payments are denominated in EUR and in other currencies, including less well-known ones.

- Bank accounts opened by the Commission on behalf of the EDF may not be overdrawn.

In addition to the special accounts, other bank accounts are opened by the Commission on behalf of the EDF, with financial institutions (central banks and commercial banks), for the purpose of executing payments and receiving receipts other than the Member State contributions to the budget according to art. 44 of the Council Regulation 215/2008 (see 6.4 below).

All commercial banks where accounts other than the "special accounts" mentioned above have been opened for the EDF, are selected by the Commission by call for tenders.

Treasury and payment operations are highly automated and rely on modern information systems. Specific procedures are applied to guarantee system security and to ensure segregation of duties in line with the Financial Regulation, the Commission’s internal control standards, and audit principles.

A written set of guidelines and procedures regulate the management of the treasury and payment operations with the objective of limiting operational and financial risk and ensuring an adequate level of control. They cover the different areas of operation, and compliance with the guidelines and procedures is checked regularly.

6.2 MARKET RISK

6 .2.1 Currency risk

All contributions are held in EUR, and other currencies are purchased only when they are needed for the execution of payments. As a result the EDF's treasury operations are not exposed to currency risk.

6.2.2 Interest rate risk

The EDF does not borrow monies; as a consequence it is not exposed to interest rate risk.

It however earns interest on balances it holds on its different banks accounts. The Commission, on behalf of the EDF, has therefore put in place measures to ensure that interest earned regularly reflect market interest rates as well as their possible fluctuation.

Overnight balances held on commercial bank accounts are remunerated on a daily basis. The remuneration of balances on such accounts is based on variable market rates to which a contractual margin (positive or negative) is applied. For most of the accounts the interest calculation is linked to the EONIA (Euro Over Night Index Average), and is adjusted to reflect any fluctuations of this rate. For some other accounts the interest calculation is linked to the ECB marginal rate (the one used for the ECB refinancing operations). As a result no risk is taken by the EDF that its balances be remunerated at rates lower than market rates.

6.3 CREDIT RISK (COUNTERPARTY RISK)

Most of the EDF's treasury resources are kept, in accordance with Council Regulation 215/2008, in the "special accounts" opened by Member States for the payment of their contributions. The majority of such accounts are held with Member States' treasuries or national central banks. These institutions carry the lowest counterparty risk for the EDF (exposure is with its Member States).

For the part of the EDF's treasury resources kept with commercial banks in order to cover the execution of payments, replenishment of these accounts is executed on a just-in-time basis and is automatically managed by the Commission treasury's cash management system. Minimum cash levels, proportional to the average amount of daily payments made from it, are kept on each account. As a consequence the amounts kept overnight on these accounts remain constantly at low levels which ensure the EDF's risk exposure is limited.

In addition, specific guidelines are applied for the selection of commercial banks in order to further minimise counterparty risk to which the EDF is exposed.

All commercial banks are selected by call for tenders. The minimum short-term credit rating required for admission to the tendering procedures is Moody's P-1 or equivalent (S&P A-1 or Fitch F1). A lower level may be required in specific and duly justified circumstances.

6.4 LIQUIDITY RISK

Budget principles applied to the EDF ensure that overall cash resources for the budgetary period are always sufficient for the execution of all related payments. Indeed the total Member States' contributions equal the overall amount of payment appropriations for the relevant budgetary period.

Member States contributions to EDF, however, are paid in three instalments per year, while payments are subject to certain seasonality.

In order to ensure that treasury resources are always sufficient to cover the payments to be executed in any given month, information on the treasury situation is regularly exchanged between the Commission' treasury and the relevant spending departments in order to ensure that payments executed in any given period do not exceed the available treasury resources.

In addition to the above, in the context of the EDF's daily treasury operations, automated cash management tools ensure that sufficient liquidity is available on each of the EDF's bank accounts, on a daily basis.

7. RELATED PARTY DISCLOSURES

No related party transactions requiring separate disclosure under this heading have been identified.

8. EVENTS AFTER THE BALANCE SHEET DATE

At the date of approval of these accounts, no material issues had come to the attention of the Accounting Officer of the EDF or were reported to him that would require separate disclosure under this section. The annual accounts and related notes were prepared using the most recently available information and this is reflected in the information presented above.

9. RECONCILIATION ECONOMIC OUTTURN - BUDGET OUTTURN

The economic outturn of the year is calculated on the basis of accrual accounting principles. The budget outturn is however based on cash accounting rules, in accordance with the Financial Regulation. As both are the result of the same underlying transactions, it is a useful control to ensure that they are reconcilable. The table below shows this reconciliation, highlighting the key reconciling amounts, split between revenue and expenditure items.

EUR millions |

2010 | 2009 |

ECONOMIC OUTTURN OF THE YEAR | (2 765) | (3 094) |

REVENUE |

Entitlements not affecting the budget outturn | (33) | - |

Entitlements established in the current year but not yet collected | (4) | (3) |

Entitlements established in previous years and collected in the current year | 10 | 13 |

Net effect of pre-financing | 53 | 24 |

Net accrued revenue | (173) | (75) |

EXPENDITURE |

Expenses of the current year not yet paid | 178 | 228 |

Expenses of previous years paid in the current year[16] | (155) | - |

Payment cancellations | 39 | 12 |

Net effect of pre-financing | (353) | (506) |

Net accrued expenses | (31) | 331 |

BUDGET OUTTURN OF THE YEAR | (3 233) | (3 069) |

Reconciling items – Revenue

The budgetary revenue of a financial year corresponds to the revenue collected from entitlements established in the course of the year and amounts collected from entitlements established in previous years.

The entitlements not affecting the budget outturn are recorded in the economic outturn but from a budgetary perspective cannot be considered as revenues as the cashed amount is transferred to reserves and cannot be recommitted without a Council decision.

The entitlements established in the current year but not yet collected are to be deducted from the economic outturn for reconciliation purposes as they do not form part of budgetary revenue. On the contrary, the entitlements established in previous years and collected in the current year must be added to the economic outturn for reconciliation purposes.

The net effect of pre-financing is the clearing of the recovered pre-financing amounts. This is a cash receipt which has no impact on the economic outturn.

The net accrued revenue mainly consists of accruals made for year-end cut-off purposes. Only the net effect, i.e. the accrued revenue of the current year less the reversal of accrued revenue of the previous year, is taken into consideration.

Reconciling items – Expenditure

Expenses of the current year not yet paid are to be added for reconciliation purposes as they are included in the economic outturn but do not form part of budgetary expenditure. On the contrary, the expenses of previous years paid in the current year must be deducted from the economic outturn for reconciliation purposes as they are part of the current year's budgetary expenditure but have no effect on the economic outturn.

The cash receipts from payment cancellations do not affect the economic outturn whereas they impact the budget outturn.

The net effect of pre-financing is the combination of the new pre-financing amounts paid in the current year (recognised as budgetary expenditure of the year) and the clearing of pre-financing paid in the current year or previous years through the acceptance of eligible costs. The latter represents an expense in accrual terms but not in the budgetary accounts since the payment of the initial pre-financing had already been considered as a budgetary expenditure at the time of its payment.

The net accrued expenses mainly consist of accruals made for year-end cut-off purposes, i.e. eligible expenses incurred by beneficiaries of EDF funds but not yet reported to the EDF. Only the net effect, i.e. the accrued expenses of the current year less the reversal of accrued expenses of the previous year, is taken into consideration.

2. REPORT ON FINANCIAL IMPLEMENTATION

INTRODUCTORY NOTE

Previous EDFs

- Decision 1/2000 of the ACP-EC Council of 27 July 2000 regarding transitional measures provides for some of the unallocated resources from previous EDFs to be used for programmes consistent with the relevant provisions of the Cotonou Agreement and put into early application under transitional measures.

- Commission Decision 410/2001 of 16 March 2001, which fixes the allocations for the indicative programmes of the ACP countries under the ACP-EC Partnership Agreement, provides that the unallocated resources from previous EDFs up to a maximum of EUR 1.2 billion are to be used for implementation in accordance with the rules and procedures of the relevant EDFs, pending the entry into force of the Financial Protocol to the 9th EDF.

- Commission Decision 1033/2001 of 15 June 2001 fixed the allocations for regional programmes and intra-ACP cooperation under the Financial Protocol to the ACP-EC Partnership Agreement.

- Commission Decision 1252/2002 of 11 July 2002 increased the envelope intended for intra-ACP cooperation by EUR 60 million, from the general reserves of the 6th and 7th EDFs, and also provided for the use of these additional funds pending the entry into force of the Financial Protocol to the 9th EDF, in accordance with the rules and procedures applicable to the original EDFs.

- Lastly, Decision 3/2002 of the ACP-EC Council of Ministers of 23 December 2002 took an amount of EUR 25 million from the unallocated resources of the 8th EDF (general reserve) and allocated it to regional cooperation under the ACP-EC Partnership Agreement.

- As the 6th EDF was closed in 2006 and the 7th EDF was closed in 2008, the annual accounts no longer contain implementation tables for these EDFs. However, implementation of the transferred balances can be found in the 9th EDF.

- As in past years, to ensure transparency in the presentation of the accounts for 2009, the tables below set out separately for the 8th EDF the part used for Lomé Convention programming and the part used for programming under the Cotonou Agreement. Regarding the latter, entry in the accounts and the presentation of accounts is based on Article 3(2) of Annex IV to the ACP-EC Partnership Agreement, as regards countries. That Article gives the ACP countries an A envelope to cover macroeconomic support and support for programmes and projects and a B envelope to cover unforeseen needs such as emergency assistance, debt relief initiatives and support to offset the adverse effects of instability in export earnings[17] For the regions, the accounts are set out according to the regional programming as referred to in Chapter 2 of the ACP-EC Partnership Agreement (i.e. regional indicative programmes and intra-ACP cooperation).

- Under Point 4 of Annex Ib (Multiannual financial framework for the period 2008 to 2013) to the ACP-EC Partnership Agreement, the remaining balances and the amounts decommitted under the Funds between 31.12.2007 and the entry in force of the 10th EDF were transferred to the 9th EDF to ensure the working ability of the EU administration and to cover the ongoing costs to sustain running projects until the 10th EDF comes into force.

10th EDF

The ACP-EC Partnership Agreement signed on 23 June 2000 in Cotonou by the Member States of the European Community and the States of Africa, the Caribbean and the Pacific (ACP States) entered into force on 1 April 2003. The Cotonou Agreement was amended by the agreement signed by the same States in Luxembourg on 25 June 2005.

The EU Council Decision of 27 November 2001 (2001/822/EC) on the association of the overseas countries and territories (OCT) with the European Union entered into force on 2 December 2001. This Decision was amended on 19 March 2007 (Decision 2007/249/EC).

The Internal Agreement on the financing of Community aid under the multiannual financial framework for the period 2008-2013 in accordance with the revised Cotonou Agreement, adopted by the Representatives of the Governments of the Member States of the European Community on 17 July 2006, entered into force on 1 July 2008.

Under the Cotonou Agreement, the second period (2008-2013) of Community aid to the ACP States and OCT is funded by the 10th EDF with total funds of EUR 22 682 million, of which:

- EUR 21 966 million allocated to the ACP countries in accordance with the multiannual financial framework in Annex Ib to the revised Cotonou Agreement;

- EUR 286 million allocated to the OCT in accordance with Annex IIAa of the revised Council Decision on the association of the OCT with the European Community;

- EUR 430 million for the Commission to finance the costs arising from the programming and implementation of 10th EDF resources, in accordance with Article 6 of the Internal Agreement.

On the date of entry into force of the 10th EDF, these amounts were supplemented by unexpended balances and are still supplemented by decommitted funds resulting from the system to guarantee the stabilisation of export earnings from primary agricultural products (STABEX) under the Funds prior to the 9th EDF. These balances and decommitted funds should be used and managed in accordance with the revised Cotonou Agreement and the Internal Agreement.

10th EDF allocations for the ACP States and regions are as follows (in EUR):

- EUR 15 300 million for the national indicative programmes, of which:

- EUR 13 500 million for the A envelopes of which EUR 12 385 million allocations were opened and from this amount, a sum of EUR 33 million was transferred to regional allocations (MTR region-PALOP). In addition, Senegal A envelope was increased with EUR 26 million representing Stabex decommitted funds;

- EUR 1 800 million for the B envelopes, of which EUR 601 million as initial allocations, and EUR 1 199 million as a reserve for unforeseen needs (used for financing different instruments like the yearly FLEX, and the ad-hoc Vulnerability FLEX and response to food prices crisis);

- EUR 1 783 million for the regional indicative programmes, all allocations opened;

- EUR 2 700 million Intra-ACP allocations, of which EUR 2 330 million opened;

- EUR 683 million as a reserve for subsequent allocation to the national and regional indicative programmes following the mid-term and end-of-term reviews.

- 10 th EDF non-mobilisable performance reserve

Since the 10th EDF came into force on 1 July 2008, the remaining balances and the amounts de-committed from projects under the 9th and previous EDFs are transferred to the performance reserve of the 10th EDF, with the exception of Stabex funds and 9th EDF administrative envelope. This reserve may be used under the conditions set out in Article 1.4 of the Internal Agreement on the 10th EDF.

Please find below the detail of this reserve as at 31.12.2010 (EUR million):

Total funds transferred to the 10th EDF non-mobilisable reserve: | 318 |

plus funds decommitted but not yet transferred at 31.12.2010: | 22 |

minus funds already decided by the Council in favour of Sudan, Council Decision 2010/406/EU of 12.07.2010 | -150 |

Total available in the reserve (ACP+OCT): | 190 |

10 th EDF Stabex reserve

Following the closure of Stabex accounts, unused/decommitted funds are transferred to the 10th EDF Stabex A Envelope reserve (10th EDF Internal Agreement art.1.4) and then to the national indicative programmes of the countries concerned.

The situation of these decommitments and transfers at 31.12.2010 is as follows (EUR million):

Country concerned | Reserve A Envelope STABEX | A Envelope |

Cameroon | 2.28 |

Jamaica | 0.06 |

Lesotho | 3.44 |

Senegal | 26.31 |

Total | 5.78 | 26.31 |

10 th EDF Co-financings

Under the 10th EDF, transfer agreements for co-financings from Member States were signed and commitment appropriations were opened for a total amount of EUR 74.83 million, while payment appropriations were opened for the cashed amounts EUR 54.38 million.

The situation of co-financing appropriations at 31.12.2010 is shown in the table below (EUR million):

Commitment appropriations | Payment appropriations |

Co-financing - A Envelope | 61.12[18] | 52.85 |

Co-financing - Intra ACP | 12.15 | 0.64 |

Co-financing - Administrative expenses | 1.56 | 0.89 |

74.83 | 54.38 |

The following tables, concerning the amounts decided, contracted and paid, show net figures.

The tables presenting the situation by country and by instrument are in annex.

2.1 ALLOCATIONS

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2.2 CONSOLIDATED ACCOUNTS

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2.3. OTHER MANAGEMENT INFORMATION

Italian co-financing (1985)

In 1985 the European Commission signed an agreement with the Italian Government providing for the co-financing of development projects managed by the Commission.

The agreement was regularly extended by means of exchanges of letters between the Italian Government and the Development Commissioner until 31 December 2004.

Then by written procedure E/1588/2004 the Commission took a decision on implementation of the co-financing framework agreement. The purpose of the decision was to lay down the budgetary and regulatory framework for commitments made under the agreement. The Commission decision accordingly provided that this co-financing should be implemented in accordance with the provisions of the EDF financial regulation. The decision empowered the EDF authorising officers by delegation or subdelegation to manage Italy's contribution to this co-financing. They were also empowered to determine the final date for its implementation in compliance with the relevant rules.

In accordance with Article 4, point 4 of the July 1985 agreement between the European Commission and the Italian Government, a provision confirmed in Article 3, point 3 of decision E/1588/2004, the Italian Government requested by letter of 15 December 2006 that the Commission repay the account balances of the closed projects. These balances totalled EUR 4 708 867.66. This amount was reimbursed to the Italian Government in March 2008.

The situation of the Italian funds managed by the Commission for projects in the ACP countries at 31.12.2010 is presented below.

In all, 52 projects implemented in the ACP countries have been co-financed by Italy since the signing of the above agreement, only one of which '4th rehabilitation programme – Somalia', is still in progress and is managed by the EU delegation in Kenya:

Project N° | Country | Project | Balance (EUR) | Contribution | Payments | Balance (EUR) |

31/12/2009 | 2010 | 2010 | 31/12/2010 |

ITA COF | 37 | Interest from cofinancing | 317 230.20 | 1 922.22 | 20 695.45 | 298 456.97 |

ITA COF | 40 | Administrative expenditure | 408 990.37 | 95.97 | - | 409 086.34 |

ITA COF | 50 | SOMALIE | Rehabilitation | 8 411 323.52 | - | 1 689 159.97 | 6 722 163.55 |

TOTAL | 9 137 544.09 | 2 018.19 | 1 709 855.42 | 7 429 706.86 |

For the project Tanzania Bogamoyo Road, the last payment was executed in 2010 and the account was closed.

N° project | Country | Project | Balance (EUR) 31/12/2009 | Contribution from ITA COF 37 | Payment | Balance EUR) 31/12/2010 |

ITA COF | 51 | TANZANIE | Bogamoyo road | 1 386 304.54 | 20 695.45 | 1 407 000 | - |

PART II – EDF ANNUAL ACCOUNTS: FINANCIAL STATEMENTS OF THE INVESTMENT FACILITY

3. FINANCIAL STATEMENTS OF THE INVESTMENT FACILITY

3.1 INCOME STATEMENT

(In EUR’000)

From 01.01.2010 | From 01.01.2009 |

Notes | to 31.12.2010 | to 31.12.2009 |

Interest and similar income | 5 | 54 601 | 49 923 |

Interest and similar expense | 5 | -2 591 | -1 878 |

Net interest and similar income | 52 010 | 48 045 |

Fee and commission income | 6 | 11 775 | 1 985 |

Fee and commission expenses | 6 | -372 | - |

Net fee and commission income | 11 403 | 1 985 |

Net result on financial operations | 7 | -15 823 | 9 124 |

Change in impairment on loans and receivables, net of reversal | 11 | 25 428 | -44 350 |

Impairment on available-for-sale financial assets | 12 | -3 714 | - 2 |

General administrative expenses | 8 | -34 086 | -36 410 |

Profit/Loss for the year | 35 218 | -21 608 |

3.2 BALANCE SHEET

(In EUR’000)

Notes | 31.12.2010 | 31.12.2009 |

ASSETS |

Cash and cash equivalents | 9 | 411 587 | 330 057 |

Derivative financial instruments | 10 | 1 376 | 12 870 |

Loans and receivables | 11 | 844 428 | 693 441 |

Available-for-sale financial assets | 12 | 194 828 | 164 606 |

Amounts receivable from contributors | 13/18 | 100 000 | 87 310 |

Other assets | 14 | 3 172 | 925 |

Total Assets | 1 555 391 | 1 289 209 |

LIABILITIES AND CONTRIBUTORS' RESOURCES |

LIABILITIES |

Derivative financial instruments | 10 | 6 110 | 5 522 |

Deferred income | 15 | 29 579 | 24 317 |

Amounts owed to third parties | 16 | 298 415 | 213 850 |

Other liabilities | 17 | 940 | 1 560 |

Total Liabilities | 335 044 | 245 249 |

CONTRIBUTORS' RESOURCES |

Member States Contribution called | 18 | 1 131 309 | 995 000 |

Retained earnings | 64 468 | 29 250 |

Fair value reserve | 24 570 | 19 710 |

Total Contributors' resources | 1 220 347 | 1 043 960 |

Total Liabilities and Contributors' resources | 1 555 391 | 1 289 209 |

3.3 STATEMENT OF CHANGES IN CONTRIBUTORS' RESOURCES

(In EUR’000)

Contribution called | Retained earnings | Fair Value Reserve | Total |

At 1 January 2010 | 995 000 | 29 250 | 19 710 | 1 043 960 |

Net unrealised gains and losses on available-for-sale financial assets | - | - | 4 860 | 4 860 |

Member States contribution called during the year | 130 000 | - | - | 130 000 |

Unused interest subsidies | 6 309 | - | - | 6 309 |

Profit for the year 2010 | - | 35 218 | - | 35 218 |

Changes in contributors’ resources | 136 309 | 35 218 | 4 860 | 176 387 |

At 31 December 2010 | 1 131 309 | 64 468 | 24 570 | 1 220 347 |

Contribution called | Retained earnings | Fair Value Reserve | Total |

At 1 January 2009 | 845 000 | 50 858 | 15 122 | 910 980 |

Net unrealised gains and losses on available-for-sale financial assets | - | - | 4 588 | 4 588 |

Member States contribution called during the year | 150 000 | - | - | 150 000 |

Loss for the year 2009 | - | -21 608 | - | -21 608 |

Changes in contributors’ resources | 150 000 | -21 608 | 4 588 | 132 980 |

At 31 December 2009 | 995 000 | 29 250 | 19 710 | 1 043 960 |

3.4 CASH FLOW STATEMENT

(In EUR’000)

From 01.01.2010 to 31.12.2010 | From 01.01.2009 to 31.12.2009 |

OPERATING ACTIVITIES |

Profit / Loss for the financial year | 35 218 | -21 608 |

Adjustments |

Impairment on available-for-sale financial assets | 3 714 | 2 |

Net change in impairment on loans and receivables | -25 428 | 44 350 |

Interest capitalised on loans and receivables | -13 239 | -4 889 |

Change in accrued interest and amortised cost on loans and receivables | -466 | 890 |

Increase in deferred income | 5 262 | 4 131 |

Effect of exchange rate changes on loans | -24 626 | 10 963 |

Effect of exchange rate changes on available-for-sale financial assets | -538 | 1 935 |

Profit on operating activities before changes in operating assets and liabilities | -20 103 | 35 774 |

Loan disbursement | -212 180 | -158 400 |

Repayments of loans | 119 724 | 61 094 |

Fair value changes on derivatives | 12 082 | -14 599 |

Increase in available-for-sale financial assets | -50 952 | -40 306 |

Sale of available-for-sale financial assets | 22 414 | 7 497 |

Increase in other assets | -2 247 | - 400 |

Decrease in other liabilities | -620 | -2 717 |

Decrease / Increase in other amounts payable to the European Investment Bank | -2 324 | 669 |

Net cash flows from operating activities | -128 978 | -111 388 |

From 01.01.2010 to 31.12.2010 | From 01.01.2009 to 31.12.2009 |

FINANCING ACTIVITIES |

Contribution received from Member States | 187 310 | 128 581 |

Amounts received from Member States with regard to interest subsidies | 40 000 | 40 000 |

Amounts paid on behalf of Member States with regard to interest subsidies | -16 802 | -20 552 |

Net cash flows from financing activities | 210 508 | 148 029 |

Net increase in cash and cash equivalents | 81 530 | 36 641 |

Cash and cash equivalents at beginning of financial year | 330 057 | 293 416 |

Cash and cash equivalents at end of financial year | 411 587 | 330 057 |

3.5 NOTES TO THE FINANCIAL STATEMENTS

GENERAL INFORMATION

The Investment Facility (“the Facility”) has been established within the framework of the Cotonou Agreement (the “Agreement”) on co-operation and development assistance negotiated between the African, Caribbean and Pacific Group of States (the “ACP States”) and the European Union and its Member States on 23 June 2000, revised on 25 June 2005 and 23 June 2010.

Financing under the Agreement is provided from EU Member States’ budgets and is disbursed according to financial protocols defined for successive five- to six-year periods. Within the framework of the Agreement and following the entry into force of a second financial protocol on 1st July 2008 (covering the period 2008-2013), referred to as the 10th European Development Fund (“EDF”), the European Investment Bank (“EIB”) is entrusted with the management of:

- the Facility, a EUR 3 137 million risk-bearing revolving fund geared to fostering private sector investment in ACP countries;

- grants for the financing of interest rate subsidies worth EUR 400 million, of which up to EUR 40 million can be used to fund project-related technical assistance.

- The Board of Directors of EIB adopted the financial statements, on 10 March 2011, and authorised their submission to the Board of Governors for approval at their meeting on 15 June 2011.

SIGNIFICANT ACCOUNTING POLICIES

Basis of preparation

In line with the Investment Facility Management Agreement, the preparation of the financial statements of the Facility is guided by International Financial Reporting Standards, as adopted by the European Union. The Facility's financial statements have been prepared on the basis of the following significant accounting principles:

Significant accounting judgments and estimates

The preparation of financial statements requires the use of certain critical accounting estimates. It also requires the European Investment Bank’s Management to exercise its judgment in the process of applying the Investment Facility’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed hereafter. The most significant use of judgments and estimates are as follows:

Fair value of financial instruments

Where the fair values of financial assets and financial liabilities recorded on the balance sheet cannot be derived from active markets, they are determined using a variety of valuation techniques that include the use of mathematical models. The input to these models is taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values. The judgments include considerations of liquidity and model inputs such as correlation and volatility for longer dated derivatives.

Impairment losses on loans and receivables

The Facility reviews its problem loans and receivables at each reporting date to assess whether an allowance for impairment should be recorded in the income statement. In particular, judgment by the European Investment Bank’s Management is required in the estimation of the amount and timing of future cash flows when determining the level of allowance required. Such estimates are based on assumptions about a number of factors and actual results may differ, resulting in future changes to the allowance. In addition to specific allowance against individually significant loans and receivables, the Facility may also book a collective impairment allowance against exposures which, although not specifically identified as requiring a specific allowance, have a greater risk of default than when originally granted.

In principle, a loan is considered as non performing when payment of interest and principal are past due by 90 days or more and, at the same time, the European Investment Bank’s Management considers that there is an objective indication of impairment.

Valuation of unquoted available-for-sale equity investments

Valuation of unquoted available-for-sale equity investments is normally based on one of the following:

- recent arms length market transactions;

- current fair value of another instrument that is substantially the same;

- the expected cash flows discounted at current rates applicable for items with similar terms and risk characteristics; or

- other valuation models.

The determination of the cash flows and discount factors for unquoted available-for-sale equity investments requires significant estimation. The Facility calibrates the valuation techniques periodically and tests them for validity using either price from observable current market transactions in the same instrument or from other available observable market data.

Impairment of available-for-sale financial assets

The Facility treats available-for-sale equity investments as impaired when there has been a significant or prolonged decline in the fair value below its cost or where other objective evidence of impairment exists. The determination of what is “significant” or “prolonged” requires judgment. The Facility treats “significant” generally as 30% or more and “prolonged” greater than 12 months. In addition, the Facility evaluates other factors, including normal volatility in share price for quoted equities and the future cash flows and the discount factors for unquoted equities.

Change in accounting policies

The accounting policies adopted are consistent with those used in the previous financial years.Summary of significant accounting policies

Foreign currency translation

The Facility uses the Euro (EUR) for presenting its financial statements, which is also the functional currency.

Foreign currency transactions are translated, at the exchange rate prevailing on the date of the transaction.

Monetary assets and liabilities denominated in currencies other than Euro are translated into Euro at the exchange rate prevailing at the balance sheet date. The gain or loss arising from such translation is recorded in the income statement.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

Exchange differences arising on the settlement of transactions at rates different from those at the date of the transaction, and unrealised foreign exchange differences on unsettled foreign currency monetary assets and liabilities, are recognised in the income statement.

The elements of the income statement are translated into Euro on the basis of the exchange rates prevailing at the end of each month.

2.4.2 Cash and cash equivalents

The Facility defines cash and cash equivalents as current accounts, short-term deposits or commercial papers with original maturities of three months or less.

2.4.3 Financial assets other than derivatives

Financial assets are accounted for using the settlement date basis.

- Loans

Loans originated by the Facility are recognised in the assets of the Facility when cash is advanced to borrowers. They are initially recorded at cost (net disbursed amounts), which is the fair value of the cash given to originate the loan, including any transaction costs, and are subsequently measured at amortised cost, using the effective yield method, less any provision for impairment or uncollectability.

- Available-for-sale financial assets

Available-for-sale financial assets are those which are designated as such or do not qualify to be classified as designated at fair value through profit or loss, held-to-maturity or loans and receivables. They include equity instruments, investments in venture capital funds and other debt instruments.

After initial measurement, available-for-sale financial assets are subsequently carried at fair value. Note the following details for the fair value measurement of equity investments, which cannot be derived from active markets:

- a. Venture capital funds

The fair value of each venture capital fund is based on the latest available Net Asset Value (NAV), reported by the fund, if calculated based on international valuation guidelines recognised to be in line with IFRS (for example: the International Private Equity and Venture Capital Valuation guidelines, IPEV Guidelines, as published by the European Venture Capital Association). The Facility may however decide to adjust the NAV reported by the fund if there are issues that may affect the valuation.

- b. Direct equity investments

The fair value of the investment will be based on the latest set of financial statements available, re-using, if applicable, the same model as the one used at the acquisition of the participation.

Unrealised gains or losses on venture capital funds and direct equity investments are reported in contributors’ resources until such investments are sold, collected or disposed of, or until such investments are determined to be impaired. If an available-for-sale investment is determined to be impaired, the cumulative unrealised gain or loss previously recognised in equity is included in the income statement.

For unquoted investment, the fair value is determined by applying recognised valuation techniques (for example discounted cash flows or multiple). These investments are accounted for at cost when the fair value cannot be reliably measured.

- Guarantees

At initial recognition, the financial guarantees are recognised at fair value corresponding to the Net Present Value (NPV) of expected premium inflows. This calculation is performed at the starting date of each transaction and is recognised on balance sheet as “Financial guarantees” under “other assets” and “other liabilities”.

Subsequent to initial recognition, the Facility’s liabilities under such guarantees are measured at the higher of:

- The best estimate of expenditure required to settle any financial obligation arising as a result of the guarantee, which is estimated based on all relevant factors and information existing at the balance sheet date.

- The amount initially recognised less cumulative amortisation. The amortisation of the amount initially recognised is done using the actuarial method.

Any increase or decrease in the liability relating to financial guarantees is taken to the income statement under “fee and commission income”.

The Facility’s assets under such guarantee are subsequently amortized using the actuarial method and tested for impairment.

In addition, when a guarantee agreement is signed, it is presented as a contingent liability for the Facility and when the guarantee is engaged, as a commitment for the Facility.

2.4.4 Impairment of financial assets

The Facility assesses at each balance sheet date whether there is any objective evidence that a financial asset is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred “loss event”) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

For the loans outstanding at the end of the financial year and carried at amortised cost, impairments are made when presenting objective evidence of risks of non recovery of all or part of their amounts according to the original contractual terms or the equivalent value. If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the assets carrying amount and the present value of estimated future cash flows. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the income statement. Interest income continues to be accrued on the reduced carrying amount based on the effective interest rate of the asset. Loans together with the associated allowance are written off when there is no realistic prospect of future recovery. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account.

The Facility conducts credit risk assessments based on which there is no need for a collective impairment provision.

For the available-for-sale financial assets, the Facility assesses at each balance sheet date whether there is objective evidence that an investment is impaired. Objective evidence would include a significant or prolonged decline in the fair value of the investment below its costs. Where there is evidence of impairment, the cumulative loss (measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognised in the income statement) is removed from contributors’ resources and recognised in the income statement. Impairment losses on available-for-sale financial assets are not reversed through the income statement; increases in their fair value after impairment are recognised directly in contributors’ resources.

The European Investment Bank’s Risk Management reviews financial assets for impairment at least once a year. Resulting adjustments include the unwinding of the discount in the income statement over the life of the asset, and any adjustments required in respect of a reassessment of the initial impairment.

2.4.5 Derivative financial instruments

Derivatives include cross currency swaps, cross currency interest rate swaps, currency forwards and warrants.

In the normal course of its activity, the Facility may enter into swap contracts with a view to hedge specific lending operations or into currency forward contract with a view to hedge its currency positions, denominated in actively traded currencies other than the Euro, in order to offset any gain or loss caused by foreign exchange rate fluctuations.

The Facility has not entered into any hedge accounting transactions as at December 31, 2009 and 2010. All derivatives are measured at fair value through the income statement. Fair values are derived primarily from discounted cash-flow models, option-pricing models and from third party quotes.

Derivatives are recorded at fair value and carried as assets when their fair value is positive and as liabilities when their fair value is negative. Changes in the fair value of derivative financial instruments are included in “Net result on financial operations”.

2.4.6 Contributions

Contributions from Member States are recognised as receivables in the balance sheet on the date of the Council Decision fixing the financial contribution to be paid by the Member States to the Facility.

The Member States contributions meet the following conditions and are consequently classified as equity:

- As defined in the contribution agreement, they entitle the Member States to decide on the utilisation of the Facility’s net assets in the events of the Facility’s liquidation;

- They are in the class of instruments that is subordinate to all other classes of instruments;

- All financial instruments in the class of instruments that is subordinate to all other classes of instruments have identical features;

- The instrument does not include any features that would require classification as a liability; and

- The total expected cash flows attributable to the instrument over its life are based substantially on the profit or loss, the change in the recognised net assets or the change in the fair value of the recognised and unrecognised net assets of the Facility over the life of the instrument.

2.4.7 Interest income on loans

Interest on loans originated by the Facility is recorded in the income statement (‘Interest and similar income’) and on the balance sheet (‘Loans and receivables’) on an accrual basis using the effective interest rate, which is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the loan to the net carrying amount of the loan. Once the recorded value of a loan has been reduced due to impairment, interest income continues to be recognised using the original effective interest rate applied to the new carrying amount.

2.4.8 Interest subsidies and technical assistance

As part of its activity, the Facility manages interest subsidies and technical assistance on behalf of the Member States.

The part of the Member States contributions allocated to the payment of interest subsidies is not accounted for in the Facility’s contributors’ resources but is classified as amounts owed to third parties. The Facility operates the disbursement to the final beneficiaries and then decreases the amounts owed to third parties.

When amounts contributed with regard to interest subsidies and technical assistance are not fully granted, they are reclassified as contribution to the Facility.

2.4.9 Interest income on treasury

Interest income on treasury is recognised in the income statement of the Facility on an accrual basis.

2.4.10 Fees, commissions and dividends

Fees received in respect of services provided over a period of time are recognised as income as the services are provided. Commitment fees are deferred and recognised in income using the effective interest method over the period from disbursement to repayment of the related loan.

Dividends relating to available-for-sale financial assets are recognised when received.

2.4.11 Taxation

The Protocol on the Privileges and Immunities of the European Communities, appended to the Treaty of 8 April 1965 establishing a Single Council and a Single Commission of the European Communities, stipulates that the assets, revenues and other property of the Institutions of the Union are exempt from all direct taxes.

RISK MANAGEMENT

CREDIT RISK

This section presents financial information about the investments made by the Facility.

Exposure on loans and receivables and available-for-sale financial assets disbursed, by nature of borrower/issuer (in EUR’000)

The table hereafter analyses the Facility exposure disbursed by nature of borrower.

31.12.2010 | 31.12.2009 |

Banks / Financial Institutions | 272 217 | 267 986 |

Project Finance / Structured Operation | 421 318 | 330 654 |

Sovereign / Public Authorities | 154 371 | 100 042 |

Venture Capital Fund | 155 764 | 136 179 |

Corporates | 35 586 | 23 186 |

Total | 1 039 256 | 858 047 |

Exposure on loans and receivables and available-for-sale financial assets disbursed, by nature of instrument (in EUR’000)

The table hereafter analyses the Facility exposure disbursed by nature of investment instrument used.

31.12.2010 | 31.12.2009 |

Senior Loans | 761 882 | 604 354 |

of which Global Loans and Agency Agreements | 233 437 | 224 859 |

Subordinated Loans | 82 546 | 89 087 |

Equity | 194 828 | 164 606 |

Total | 1 039 256 | 858 047 |

Risk concentrations of the exposure on loans and receivables and available-for-sale financial assets disbursed (in EUR’000)

The table below analyses the Facility exposure disbursed by sector. The operations which are first disbursed to a financial intermediary before being disbursed to the final beneficiary are reported under global loans.

31.12.2010 | 31.12.2009 |

Global loans and agency agreements | 233 437 | 224 858 |

Airlines and aircraft manufacture | 729 | 695 |

Airports and air traffic management systems | 30 062 | - |

Basic material and mining | 154 258 | 145 566 |

Drinking water, water treatment | 17 074 | 2 998 |

Electricity, coal and others | 320 491 | 236 198 |

Food chain | 1 491 | 734 |

Investment goods/consumer durables | 3 751 | - |

Marine transport and other | 6 779 | 7 243 |

Materials processing, construction | 64 | - |

Paper chain | 2 603 | 2 422 |

Roads and motorways | 23 125 | - |

Telecommunications | 26 621 | 26 911 |

Tertiary and other | 218 771 | 210 422 |

Total | 1 039 256 | 858 047 |

Liquidity risk and funding management

The table below sets out the Facility’s assets and liabilities by relevant maturity groupings based on the remaining period to the contractual maturity date (in EUR’000).

At 31 December 2010 | Up to 3 months | 3 to 12 months | 1 to 5 years | Over 5 years | Undefined | Total |

ASSETS |

Cash and cash equivalents | 411 587 | - | - | - | - | 411 587 |

Derivative financial instruments | - | 3 | 572 | 801 | - | 1 376 |

Loans and receivables | 7 431 | 7 146 | 131 222 | 698 629 | - | 844 428 |

Available for sale financial assets | - | - | - | 171 637 | 23 191 | 194 828 |

Amounts receivable from contributors | 100 000 | - | - | - | - | 100 000 |

Other assets | 2 822 | - | - | - | 350 | 3 172 |

Liabilities |

Derivative financial instruments | - | 10 | 1 300 | 4 800 | - | 6 110 |

Deferred income | - | - | - | 92 | 29 487 | 29 579 |

Amounts owed to third parties | 298 415 | - | - | - | - | 298 415 |

Other liabilities | 169 | 419 | - | 352 | - | 940 |

Member States Contribution called | - | - | - | - | 1 131 309 | 1 131 309 |

Retained earnings | - | - | - | - | 64 468 | 64 468 |

Fair value reserve | - | - | - | 10 113 | 14 457 | 24 570 |

ASSETS |

Cash and cash equivalents | 330 057 | - | - | - | - | 330 057 |

Derivative financial instruments | 2 454 | 736 | 5 885 | 3 795 | - | 12 870 |

Loans and receivables | 8 164 | 5 100 | 86 565 | 593 612 | - | 693 441 |

Available for sale financial assets | - | - | - | 151 049 | 13 557 | 164 606 |

Amounts receivable from contributors | 87 310 | - | - | - | - | 87 310 |

Other assets | 490 | - | - | 435 | - | 925 |

LIABILITIES AND CONTRIBUTORS’ RESOURCES |

Liabilities |

Derivative financial instruments | 379 | 155 | 320 | 4 668 | - | 5 522 |

Deferred income | - | - | - | 24 317 | - | 24 317 |

Amount owed to third parties | 36 410 | - | - | - | 177 440 | 213 850 |

Other liabilities | 707 | 418 | - | 435 | - | 1 560 |

Member States Contribution called | - | - | - | - | 995 000 | 995 000 |

Retained earnings | - | - | - | - | 29 250 | 29 250 |

Fair value reserve | - | - | - | 14 887 | 4 823 | 19 710 |

Fixed rate interest | 412 428 | 354 638 |

Floating rate interest | 432 000 | 338 803 |

Total | 844 428 | 693 441 |

Currency risk (or Foreign exchange risk) (in EUR’000)

At 31 December 2010 | EUR | USD | CAD | ACP/OCT Currencies | Total |

ASSETS |

Cash and cash equivalents | 378 570 | 33 017 | - | - | 411 587 |

Derivative financial instruments | 332 399 | - 331 023 | - | - | 1 376 |

Loans and receivables | 385 187 | 403 417 | - | 55 824 | 844 428 |

Available-for-sale financial assets | 40 184 | 137 505 | 12 444 | 4 695 | 194 828 |

Amounts receivable from contributors | 100 000 | - | - | - | 100 000 |

Other assets | 2 742 | - | - | 430 | 3 172 |

Total assets | 1 239 082 | 242 916 | 12 444 | 60 949 | 1 555 391 |

LIABILITIES AND CONTRIBUTORS’ RESOURCES |

Liabilities |

Derivative financial instruments | - 69 815 | 75 925 | - | - | 6 110 |

Deferred income | 29 235 | 344 | - | - | 29 579 |

Amounts owed to third parties | 298 415 | - | - | - | 298 415 |

Other liabilities | 577 | 1 | - | 362 | 940 |

Total liabilities | 258 412 | 76 270 | - | 362 | 335 044 |

Contributors’ resources |

Member States Contribution called | 1 131 309 | - | - | - | 1 131 309 |

Retained earnings | 64 468 | - | - | - | 64 468 |

Fair value reserve | 24 570 | - | - | - | 24 570 |

Total Contributors’ resources | 1 220 347 | - | - | - | 1 220 347 |

Total liabilities and Contributors’ resources | 1 478 759 | 76 270 | - | 362 | 1 555 391 |

Currency position as at 31 December 2010 | - 239 677 | 166 646 | 12 444 | 60 587 | - |

Currency position as at 31 December 2009 | - 21 415 | - 56 616 | 7 782 | 70 249 | - |

At 31 December 2010 | EUR | USD | CAD | ACP/OCT Currencies | Total |

COMMITMENTS |

Un-disbursed loans and equity investments | 858 279 | 236 035 | - | - | 1 094 314 |

Guarantees drawn | - | - | - | 9 484 | 9 484 |

CONTINGENT LIABILITIES |

Guarantees undrawn | 45 000 | - | - | - | 45 000 |

SEGMENT INFORMATION

The primary segment of the Facility is business operation and the secondary segment is geographical.

By business segment (in EUR’000)

The activity of the Facility is divided into two main business segments on a worldwide basis:

- Banking operations – incorporating investments in projects which are made with the purpose of supporting investments of private and commercially run public sector entities. The main investment products are loans, available-for-sale equity investments and financial guarantees.

- Treasury activities – including investing surplus liquidity and managing the Facility foreign exchange risk.

At 31 December 2010 | Treasury | Banking | Total |

Revenue from segments | 16 553 | 63 629 | 80 182 |

Expenses and charges from segments | -3 883 | -6 995 | -10 878 |

Unallocated expenses | -34 086 |

Profit for the year | 35 218 |

Segment assets | 421 043 | 1 034 348 | 1 455 391 |

Unallocated assets | 100 000 |

Total assets | 1 555 391 |

Segment liabilities | 6 689 | 29 940 | 36 629 |

Unallocated liabilities | 298 415 |

Total liabilities | 335 044 |

Other segment information |

Commitments and contingent liabilities | - | 1 148 798 | 1 148 798 |

At 31 December 2009 | Treasury | Banking | Total |

Revenue from segments | 10 904 | 51 225 | 62 129 |

Expenses and charges from segments | - 2 975 | - 44 352 | - 47 327 |

Unallocated expenses | - 36 410 |

Loss for the year | -21 608 |

Segment assets | 343 417 | 858 483 | 1 201 900 |

Unallocated assets | 87 309 |

Total assets | 1 289 209 |

Segment liabilities | 39 325 | 25 336 | 64 661 |

Unallocated liabilities | 180 588 |

Total liabilities | 245 249 |

Other segment information |

Commitments and contingent liabilities | - | 1 153 366 | 1 153 366 |

By geographical segment (in EUR’000)

The Facility’s activities are divided into five regions for internal management purposes.

At 31 December 2010 | Revenues (*) | Total assets | Total liabilities | Commitments |

Caribbean and Pacific | -2 306 | 164 771 | 793 | 62 554 |

Central and Eastern Africa | 15 848 | 330 557 | 20 692 | 234 512 |

Regional Africa and ACP states | 5 975 | 179 827 | - | 526 596 |

Southern Africa and Indian ocean | 32 157 | 204 279 | 4 005 | 86 662 |

West Africa and Sahel | 4 960 | 154 914 | 4 450 | 238 474 |

Others (**) | - | 521 043 | 305 104 | - |

Total | 56 634 | 1 555 391 | 335 044 | 1 148 798 |

At 31 December 2009 | Revenues (*) | Total assets | Total liabilities | Commitments |

Caribbean and Pacific | -22 796 | 102 363 | 1 173 | 143 297 |

Central and Eastern Africa | 9 410 | 249 261 | 21 425 | 371 286 |

Regional Africa and ACP states | 3 260 | 153 006 | - | 340 437 |

Southern Africa and Indian ocean | 13 195 | 202 809 | 524 | 104 654 |

West Africa and Sahel | 3 804 | 151 043 | 2 214 | 193 692 |

Others (**) | - | 430 727 | 219 913 | - |

Total | 6 873 | 1 289 209 | 245 249 | 1 153 366 |

(*) Revenues represent the net profit on the Facility’s banking activity (i.e. interest and similar income, interest subsidies, net fee and commission income, impairment on loans and receivables and impairment on available-for-sale financial assets).

(**) Under geographical segment “Others” are considered the amount payable to or receivable from the Member States or the European Investment Bank and the Facility cash and cash equivalents.

NET INTEREST INCOME (IN EUR’000)

The main components of interest and similar income are as follows:

From 01.01.2010 | From 01.01.2009 |

to 31.12.2010 | to 31.12.2009 |

Cash and cash equivalent | 1 878 | 2 978 |

Loans and receivables | 50 299 | 45 359 |

Interest subsidies | 2 424 | 1 586 |

Total interest and similar income | 54 601 | 49 923 |

The main component of interest and similar expense is as follows:

From 01.01.2010 | From 01.01.2009 |

to 31.12.2010 | to 31.12.2009 |

Derivative financial instruments | -2 591 | -1 878 |

Total interest and similar expense | -2 591 | -1 878 |

NET FEE AND COMMISSION INCOME (IN EUR’000)

The main components of fee and commission income are as follows:

From 01.01.2010 | From 01.01.2009 |

to 31.12.2010 | to 31.12.2009 |

Fee and commission on loans and receivables | 11 510 | 1 709 |

Fee and commission on financial guarantees | 265 | 276 |

Total fee and commission income | 11 775 | 1 985 |

The main component of fee and commission expenses is as follows:

From 01.01.2010 | From 01.01.2009 |

to 31.12.2010 | to 31.12.2009 |

Commission paid to third parties with regard to available-for-sale portfolio | -372 | - |

Total fee and commission expenses | -372 | - |

NET RESULT ON FINANCIAL OPERATIONS (IN EUR’000)

The main components of net result on financial operations are as follows:

From 01.01.2010 | From 01.01.2009 |

to 31.12.2010 | to 31.12.2009 |

Fair value change on derivatives | -12 082 | 14 599 |

Foreign exchange | -5 556 | -6 673 |

Dividend income and realised gain from available-for-sale financial assets | 1 815 | 1 198 |

Net result on financial operations | -15 823 | 9 124 |

GENERAL ADMINISTRATIVE EXPENSES (IN EUR’000)

General administrative expenses represent the actual costs incurred by the EIB for managing the Facility less income generated from standard appraisal fees directly charged by the EIB to clients of the Facility.

From 01.01.2010 | From 01.01.2009 |

to 31.12.2010 | to 31.12.2009 |

Actual cost incurred by the EIB | -36 028 | -37 653 |

Income from appraisal fees directly charged to clients of the Facility | 1 942 | 1 243 |

Net general administrative expenses | -34 086 | -36 410 |

Following the entry in force of the revised Cotonou Partnership Agreement on the 1st of July 2008, general administrative expenses are not covered anymore by the Member States.

CASH AND CASH EQUIVALENTS (IN EUR’000)

For the purposes of the cash flow statement, cash and cash equivalents comprise the following balances with less than three months maturity from the date of acquisition.

The cash and cash equivalents can be broken down between the funds received from the Member States and not yet disbursed and the funds from the Facility’s operational and financial activities.

31.12.2010 | 31.12.2009 |

Member states contributions received and not yet disbursed | 33 128 | 120 807 |

Funds from the Facility’s financial and operational activities | 378 459 | 209 250 |

Cash and cash equivalents | 411 587 | 330 057 |

DERIVATIVE FINANCIAL INSTRUMENTS (IN EUR’000)

The main components of derivative financial instruments are as follows:

At 31 December 2010 | Fair Value | Notional amount |

Assets | Liabilities |

Cross currency swaps | 1 235 | -945 | 47 526 |

Cross currency interest rate swaps | 141 | -5 165 | 57 681 |

FX Forwards | - | - | 458 000 |

Derivative financial instruments | 1 376 | -6 110 |

At 31 December 2009 | Fair Values | Notional amount |

Assets | Liabilities |

Cross currency swaps | 8 542 | -237 | 87 720 |

Cross currency interest rate swaps | 2 041 | -5 285 | 95 713 |

FX Forwards | 2 287 | 290 000 |

Derivative financial instruments | 12 870 | -5 522 |

LOANS AND RECEIVABLES (IN EUR’000)

The main components of loans and receivable are as follows:

Global loans (*) | Senior loans | Subordinated loans | Total |

Nominal as at 1 January 2010 | 230 989 | 406 799 | 145 482 | 783 270 |

Disbursement | 39 596 | 171 009 | 1 575 | 212 180 |

Repayments | -33 573 | -46 053 | -40 098 | -119 724 |

Interest capitalised | - | - | 13 239 | 13 239 |

FX Difference | 9 488 | 10 567 | 3 712 | 23 767 |

Nominal as at 31 December 2010 | 246 500 | 542 322 | 123 910 | 912 732 |

Impairment as at 1 January 2010 | -8 371 | -30 217 | -59 556 | -98 144 |

Impairment recorded in income statement during the year | -6 522 | - | -582 | -7 104 |

Reversal of impairment | 266 | 13 843 | 18 423 | 32 532 |

FX Difference | -379 | -1 682 | -2 308 | -4 369 |

Impairment as at 31 December 2010 | -15 006 | -18 056 | -44 023 | -77 085 |

Amortised Cost | -1 727 | -2 047 | - 118 | -3 892 |

Accrued interest | 3 670 | 6 226 | 2 777 | 12 673 |

Loans and receivables as at 31 December 2010 | 233 437 | 528 445 | 82 546 | 844 428 |

(*) including agency agreements

Global loans (*) | Senior loans | Subordinated loans | Total |

Nominal as at 1 January 2009 | 205 430 | 334 397 | 153 109 | 692 936 |

Disbursement | 67 275 | 91 125 | 158 400 |

Repayments | -37 035 | -14 361 | -9 698 | -61 094 |

Interest capitalised | - | 553 | 4 336 | 4 889 |

FX Difference | -4 681 | -4 915 | -2 265 | -11 861 |

Nominal as at 31 December 2009 | 230 989 | 406 799 | 145 482 | 783 270 |

Impairment as at 1 January 2009 | -2 996 | -19 749 | -31 947 | -54 692 |

Impairment recorded in income statement during the year | -5 375 | -11 018 | -27 957 | -44 350 |

FX Difference | - | 550 | 348 | 898 |

Impairment as at 31 December 2009 | -8 371 | -30 217 | -59 556 | -98 144 |

Amortised Cost | -1 355 | -1 801 | -1 628 | -4 784 |

Accrued interest | 3 596 | 4 714 | 4 789 | 13 099 |

Loans and receivables as at 31 December 2009 | 224 859 | 379 495 | 89 087 | 693 441 |

(*) including agency agreements

AVAILABLE-FOR-SALE FINANCIAL ASSETS

The main components of available-for-sale equity financial assets are as follows:

Venture Capital Fund | Direct Equity Investment | Total |

Cost as at 1 January 2010 | 116 652 | 30 462 | 147 114 |

Disbursement | 48 040 | 2 912 | 50 952 |

Repayments | -22 414 | - | -22 414 |

FX Difference | 654 | -24 | 630 |

Cost as at 31 December 2010 | 142 932 | 33 350 | 176 282 |

Unrealised gains and losses as at 1 January 2010 | 18 138 | -644 | 17 494 |

Net change in unrealised gains and losses | -6 803 | 11 663 | 4 860 |

FX Difference | - | -92 | -92 |

Unrealised gains and losses as at 31 December 2010 | 11 335 | 10 927 | 22 262 |

Impairment as at 1 January 2010 | -2 | - | -2 |

Impairment recorded in income statement during the year | - | -3 714 | -3 714 |

Impairment as at 31 December 2010 | -2 | -3 714 | -3 716 |

Available-for-sale financial assets as at 31 December 2010 | 154 265 | 40 563 | 194 828 |

Venture Capital Fund | Direct Equity Investment | Total |

Cost as at 1 January 2009 | 89 920 | 26 195 | 116 115 |

Disbursement | 36 624 | 3 682 | 40 306 |

Repayments | -7 497 | - | -7 497 |

FX Difference | -2 395 | 585 | -1 810 |

Cost as at 31 December 2009 | 116 652 | 30 462 | 147 114 |

Unrealised gains and losses as at 1 January 2009 | 20 190 | -7159 | 13 031 |

Net change in unrealised gains and losses | -2 052 | 6 640 | 4 588 |

Realised FX Difference | - | -125 | -125 |

Unrealised gains and losses as at 31 December 2009 | 18 138 | -644 | 17 494 |

Impairment as at 1 January 2009 | - | - | - |

Impairement recorded in income statement during the year | -2 | - | -2 |

Impairment as at 31 December 2009 | -2 | - | -2 |

Available-for-sale financial assets as at 31 December 2009 | 134 788 | 29 818 | 164 606 |

The split of the available-for-sale financial assets between quoted and unquoted instruments was as follows:

Fair Value as at 31.12.2010 | Fair Value as at 31.12.2009 |

Quoted instruments | 23 190 | 13 557 |

Unquoted instruments | 171 638 | 151 049 |

Total | 194 828 | 164 606 |

AMOUNTS RECEIVABLE FROM CONTRIBUTORS (IN EUR’000)

The main components of amounts receivable from contributors are as follows:

31.12.2010 | 31.12.2009 |

Contribution called but not paid | 100 000 | 87 310 |

Total amount receivable from contributors | 100 000 | 87 310 |

OTHER ASSETS (IN EUR’000)

The main components of other assets are as follows:

31.12.2010 | 31.12.2009 |

Amount receivable from EIB | 2 743 | 490 |

Financial guarantees | 429 | 435 |

Total other assets | 3 172 | 925 |

DEFERRED INCOME (IN EUR’000)

The main components of deferred income are as follows:

31.12.2010 | 31.12.2009 |

Deferred interest subsidies | 29 073 | 23 888 |

Deferred commissions on loans and receivables | 506 | 429 |

Total deferred income | 29 579 | 24 317 |

AMOUNTS OWED TO THIRD PARTIES (IN EUR’000)

The main components of amounts owed to third parties are as follows:

31.12.2010 | 31.12.2009 |

Net general administrative expenses payable to EIB | 34 086 | 36 410 |

Interest subsidies not yet disbursed owed to Member States | 264 329 | 177 440 |

Total amounts owed to third parties | 298 415 | 213 850 |

OTHER LIABILITIES (IN EUR’000)

The main components of other liabilities are as follows:

31.12.2010 | 31.12.2009 |

Financial guarantees | 351 | 435 |

Other | 589 | 1 125 |

Total amount of other liabilities | 940 | 1 560 |

MEMBER STATES CONTRIBUTION CALLED (IN EUR’000)

Member States | Contribution to the Facility | Contribution to interest subsidies | Total contributed | Called and not paid (*) |

Austria | 29 979 | 8 843 | 38 822 | 2 650 |

Belgium | 44 347 | 13 081 | 57 428 | 3 920 |

Denmark | 24 210 | 7 141 | 31 351 | 2 140 |

Finland | 16 743 | 4 939 | 21 682 | 1 480 |

France | 274 909 | 81 086 | 355 995 | 24 300 |

Germany | 264 275 | 77 949 | 342 224 | 23 360 |

Greece | 14 142 | 4 171 | 18 313 | 1 250 |

Ireland | 7 014 | 2 069 | 9 083 | 620 |

Italy | 141 866 | 41 845 | 183 711 | 12 540 |

Luxembourg | 3 281 | 968 | 4 249 | 290 |

Netherlands | 59 054 | 17 419 | 76 473 | 5 220 |

Portugal | 10 974 | 3 237 | 14 211 | 970 |

Spain | 66 068 | 19 488 | 85 556 | 5 840 |

Sweden | 30 884 | 9 110 | 39 994 | 2 730 |

United Kingdom | 143 563 | 42 345 | 185 908 | 12 690 |

Total as at 31 December 2010 | 1 131 309 | 333 691 | 1 465 000 | 100 000 |

Total as at 31 December 2009 | 995 000 | 230 000 | 1 225 000 | 87 310 |

(*) On 17.11.2010, the Council fixed the amount of financial contributions to be paid by each Member State by 21.01.2011.

During the year 2010, an amount of EUR ‘000 6 309 of unused subsidies has been allocated to contribution to the Facility.

CONTINGENT LIABILITIES AND COMMITMENTS (IN EUR’000)

31.12.2010 | 31.12.2009 |

Commitments |

Undisbursed loans | 808 865 | 784 612 |

Undisbursed commitment in respect of available-for-sale financial assets | 285 449 | 251 954 |

Guarantees drawn | 9 484 | 11 800 |

Contingent liabilities |

Guarantees undrawn | 45 000 | 105 000 |

Total | 1 148 798 | 1 153 366 |

SUBSEQUENT EVENTS

There have been no material post balance sheet events which could require disclosure or adjustment to the 31 December 2010 financial statements.

ANNEX TO PART I – CHAPTER 2 (REPORT ON THE FINANCIAL IMPLEMENTATION ): SITUATION BY COUNTRY AND BY INSTRUMENT

Notes to the tables :

- The figure "0.00" indicates that the corresponding amount is between EUR –4999 and EUR 4999. Where no figure is given, the amount is zero.Countries with a nil balance in all columns are not listed in the tables.

- The heading "All ACP/OCT countries" refers to projects which cover a number of countries but are not financed by regional cooperation.

- The heading "Financial and administrative expenses" represents projects financed by EDF interest or the envelope covering administrative expenditure.

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[1] OJ L 247 of 09.09.2006

[2] All figures are rounded into millions of euros. It should be noted that due to the rounding of figures, some financial data in the tables may not add up. Amounts shown as 0 represent figures of less than EUR 500 000. Amounts that equal to zero are shown as a dash (-).

[3] In 2010, the co-financing contributions were reclassified and presented as payables to Member States. The co-financing contributions fulfil the criteria of revenues from non-exchange transactions under condition and should be presented as such. The amount reclassified represents the cumulative co-financing contributions from the years 2008 and 2009.

[4] The net assets of the 10th EDF are negative due to the fact that no contributions have been called yet for this fund.

[5] In 2010, the co-financing contributions were reclassified and presented as payables to Member States. The co-financing contributions fulfil the criteria of revenues from non-exchange transactions under condition and should be presented as such. The amount reclassified represents the cumulative co-financing contributions from the years 2008 and 2009.

[6] In accordance with Article 153 of the 10th EDF Financial Regulation, the treasury is presented in the balance sheet of the 10th EDF. The nature of the various bank accounts is outlined in chapter 6, Financial Risk Management

[7] This balance represents the amounts available for the Democratic Republic of the Congo in accordance with the provisions of Council Decision 2003/583/EC[8]. These funds are earmarked for a specific purpose and beneficiary state.

[9] OJ L 156 of 29.05.1998 pp. 3-106

[10] OJ L 247 of 09.09.2006

[11] In 2010, the co-financing contributions were reclassified and presented as payables to Member States. The co-financing contributions fulfil the criteria of revenues from non-exchange transactions under condition and should be presented as such. The amount reclassified represents the cumulative co-financing contributions from the years 2008 and 2009.

[12] Council Decision 2004/289/CE, decisions 6/2005 and 7/2005 of the ACP-EC Council of Ministers of 22.11.2005.

[13] Joint Council Decision 2/2007 of 25.05.2007: on the position to be adopted by the Community within the ACP-EC Council of Ministers to allow additional bilateral contributions, to be managed by the Commission, in support of the objectives of the African Peace Facility.

[14] OJ L 247 of 09.09.2006

[15] The negative balance for other aid programmes related to former EDF is caused by a reversal of accrued charges relating to dormant projects.

[16] This represents income generated by the STABEX accounts. Whilst such income appears to increase the total of the Fund it should be borne in mind that any income generated by these accounts is earmarked for a specific purpose and beneficiary state.

[17] In 2009, due to the migration to the new accounting system ABAC/SAP, exceptionally, all expenses of 2008 and previous years were paid before 31 December 2008. This explains why there is no adjustment on this line in 2009.

[18] The unallocated resources from the previous EDFs include the balance of the Sysmin funds, which by Decision 3/2000 of the ACP-EC Council of Ministers was set at EUR 410,926 million. Commission Decision PE/410/2001 includes these resources in programming for the national indicative allocations (part B) under the financial protocol to the ACP-EC Partnership Agreement.

[19] For one co-financing in SEK, the transfer agreement was signed for SEK 85 million, representing approximately EUR 8 million but the appropriations were opened only for the cash received, EUR 0,96 million, so as to avoid the exchange rate losses risk .