REVENUE AND EXPENDITURE ACCOUNT AND BALANCE SHEET

RELATING TO OPERATIONS UNDER THE 1998 BUDGET

(Articles 78 and 81 of the Financial Regulation of 21 December 1977)

VOLUME IV

CONSOLIDATED REVENUE AND EXPENDITURE ACCOUNT AND BALANCE SHEET

(Revised version)

(1999/C 350/01)

CONTENTS

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FOREWORD

STRUCTURE

1. The revenue and expenditure account and the balance sheet of the European Communities are drawn up in accordance with Articles 78, 80 and 81 of the Financial Regulation of 21 December 1977 applicable to the general budget of the European Communities, as last amended by Council Regulation (EC, ECCS, Euratom) No 2779/98 of 17 December 1998.

2.

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3. Volume I sets out the salient features of budgetary implementation in the year.

Volumes II and III describe the implementation of revenue and expenditure in each of the institutions, following the budgetary nomenclature, and contain tables showing the capital operations of borrowing and lending.

This volume (IV) contains the consolidated revenue and expenditure account and balance sheet of the European Communities, accompanied by explanatory notes. The consolidated revenue and expenditure account and balance sheet give the corresponding figures for the previous year.

1. ACCOUNTING PRINCIPLES

1.1. According to international standards(1), the aims of a financial statement must be to describe the nature and range of an institution's activities, explain how it is financed and supply definitive information on its operations.

These are certainly the objectives of the consolidated revenue and expenditure account and balance sheet produced annually by the European Commission. The manner in which financial operations were conducted in the course of the financial year are described in Volume I, Part 2 "Analysis of financial management".

If they are to present a true and fair picture, financial statements must not only supply relevant information, 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.

1.2. The accounting system of the European institutions comprises general accounts and budget accounts. These accounts are kept by calendar year in ecus.

1.2.1. Using "the double-entry method" the general accounts show all expenditure and revenue over the financial year and are designed to establish the financial position of the institutions in the form of a balance sheet of assets and liabilities at 31 December the previous year.

The general accounts are based on the following principles:

- The principle of the continuity of activities;

- The principle of prudence, whereby assets are not overvalued and liabilities are not undervalued;

- The principle of consistent accounting methods;

- The principle of no-netting between assets and liabilities.

For the future the Commission is studying the possibility of presenting a broader accounting result to ensure that balance sheet entries are transferred from one year to the next via the revenue and expenditure account. The chart of accounts will maintain the distinction between the revenue and expenditure accounts and the balance sheet. To do so it must contain:

(a) the revenue and expenditure accounts, subdivided as follows:

- the budgetary revenue and expenditure accounts, providing an overall view of budget implementation, and accounts showing exchange-rate differences; these accounts will serve to determine the year's balance;

- the additional revenue and expenditure accounts, which can be used to determine the broader accounting result;

(b) the balance-sheet accounts, which can be used to establish the institution's financial position, and will show the estimated effect of liabilities and entitlements.

1.2.2. The budget accounts give a detailed picture of the implementation of the budget. They are designed to establish:

- the consolidated revenue and expenditure account referred to in Title VI of the Financial Regulation,

- the figures showing the implementation of the budget referred to in Article 34 of the Financial Regulation.

2. ACCOUNTING RULES AND METHODS

2.1. The accounts are kept in accordance with the Financial Regulation of 21 December 1977, as last amended by Council Regulation No 2779/98 of 17 December 1998 and supplemented by a Regulation laying down certain implementing rules.

2.2. Conversion into ecus

2.2.1. Accounts are kept in ecus.

2.2.2. The ecu conversion rates used to prepare the balance sheet were the rates applying on 31 December 1998, except for the following:

- tangible assets, which retain their value in ecus at the accounting rate that applied when they were purchased;

- appropriations carried over, some of which are to cover commitments in national currencies converted into ecus at the monthly accounting rates for December; the total amount in ecus of appropriations carried over cannot be subsequently revalued.

- advances paid under the Guarantee Section of the European Agricultural Guidance and Guarantee Fund, which are converted at the exchange rates applying on the 10th day of the month following the month in which they are granted.

- the transitional accounts which retain their value in ecus at the accounting rate that applied at the time of the accounting operation.

2.3. Revenue

2.3.1. The amounts of own resources and financial contributions entered in the accounts are those credited in the course of the year to the accounts opened in the Commission's name by the governments of the Member States.

The difference between the amount of VAT own resources, GNP-based resources and financial contributions entered in the budget and the amount actually due is calculated by 1 July of the following year and entered in an amending budget for that year.

2.3.2. The other revenue entered in the accounts is the amount actually received in the course of the year.

2.4. Expenditure

2.4.1. For the purposes of calculating the balance for the year, expenditure covers payments made against the year's appropriations for payments plus any of those same appropriations that are carried over.

2.4.2. Payments made against the year's appropriations for payments means payments for which authorisation reaches the Financial Controller by 31 December and which are paid by the accounting officer by 15 January of the following year.

In the case of the Guarantee Section of the European Agricultural Guidance and Guarantee Fund, the payments are those effected by the Member States between 16 October 1997 and 15 October 1998, provided that the accounting officer was notified of the commitment and authorisation by 31 January 1999.

2.4.3. Appropriations for payments may be carried over to the following financial year only. The procedure is as follows:

- non-differentiated appropriations: carryover is generally automatic if it is to cover outstanding commitments; otherwise the budgetary authority has to give prior authorisation;

- differentiated appropriations: unused payment appropriations usually lapse; however, the Commission may decide to carry them over if the payment appropriations for the following year are not sufficient to meet previous commitments or commitments made against commitment appropriations which have themselves been carried over.

2.5. Balance for the year

The balance for the year consists of two components (the result of the European Union and the result of the involvement of the EFTA countries belonging to the EEA) It represents the difference between:

- total revenue received for that year,

- total payments made against that year's appropriations plus the total amount of that year's appropriations carried over (definition of expenditure at 2.4.2)(2).

The following are added to or deducted from the resulting figure:

- the net balance of lapsing carryovers from previous years and any payments which, because of fluctuations in the ecu rate, exceed non-differentiated appropriations carried over from the previous year,

- the balance of exchange-rate gains and losses recorded during the year.

2.6. Rules on valuation

Except where indicated in the explanatory notes to the balance sheet, the various headings are valued as follows:

2.6.1. Tangible and intangible fixed assets are valued at their historic value converted into ecus at the rate applying when they were purchased. The Commission's fixed assets must also be subject to depreciation for each full year, according to the linear method (Section 8 of the Commission's Inventory Regulation).

2.6.2. Stocks are valued at the price of the last supplies received, converted at the ecu rate applying on 31 December.

2.6.3. Financial assets are valued at their purchase price. If denominated in foreign currency, they are converted at the ecu rate applying on 31 December. In line with the principle of prudence, an adjustment is entered in the accounts where there is a probable loss.

2.6.4. Entitlements are entered in the accounts at their face value, converted at the ecu rate applying on 31 December, with the exception of entitlements denominated at a fixed rate. Although the European Community wishes to comply with the principle of prudence, the value of most of the entitlements is not adjusted. The Commission is considering this possibility for the future. Where this is the case, a special indication is given in the notes on the balance sheet.

2.6.5. Cash investments and disposable assets are valued at their face value converted into ecus at the rate applying on 31 December. For the sake of prudence, an adjustment must be entered in the accounts where there is a probable loss.

2.6.6. Debts are valued at their face value in ecus at the rate applying on 31 December if they are denominated in a foreign currency.

2.7. Payments on account

Payments on account for operational purposes are included in the year's expenditure and do not appear as assets in the balance sheet.

2.8. EFTA involvement in the 1998 general budget

The figures in the accompanying tables include the appropriations entered to cover the involvement in the Community budget of the EFTA countries belonging to the European Economic Area.

2.9. Consolidation

The consolidated accounts cover the accounts of the European Parliament (including the Ombudsman), the Council, the Commission (including the Publications Office and the Joint Research Centre), the Court of Justice, the Court of Auditors, the Economic and Social Committee and the Committee of the Regions.

The method used is that of full consolidation.

CHAPTER I

BASIC DATA ON THE EXECUTION OF THE BUDGET OF THE EUROPEAN COMMUNITIES FOR 1998

1998 BUDGET OUTTURN

The 1998 budget outturn is shown under heading I.B (liabilities) of the consolidated balance sheet.

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CONSOLIDATED SUMMARY OF 1998 BUDGET IMPLEMENTATION

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CONSOLIDATED SUMMARY OF 1998 BUDGET IMPLEMENTATION

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CONSOLIDATED SUMMARY OF 1998 BUDGET IMPLEMENTATION

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CHAPTER II

CONSOLIDATED REVENUE AND EXPENDITURE ACCOUNT FOR 1998

Table 1

BALANCE FOR THE YEAR

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Table 2

REVENUE FOR 1998

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Table 3

EXPENDITURE

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Table 4

APPROPRIATIONS FOR PAYMENTS CARRIED OVER FROM 1997

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Table 5

APPROPRIATIONS FOR COMMITMENTS FOR 1998

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Table 6

APPROPRIATIONS FOR PAYMENTS FOR 1998

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Table 7

COMMITMENTS FROM DIFERENTIATED APPROPRIATIONS OUTSTANDING AT 31 DECEMBER 1998

CLASSIFICATION BY HEADING IN FINANCIAL PERSPECTIVE

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Table 8

COMMITMENTS FROM DIFFERENTIATED APPROPRIATIONS OUTSTANDING AT 31 DECEMBER 1998

PAYMENTS SINCE INITIAL COMMITMENT

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Table 9

COMMITMENTS FROM DIFFERENTIATED APPROPRIATIONS SETTLED IN THE COURSE OF 1998

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Table 10

COMMITMENTS OUTSTANDING AT 31 DECEMBER 1998

MOVEMENTS SINCE INITIAL COMMITMENT

(including commitments cleared in 1998)

EAGGF GUIDANCE (B2-1 0)

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FIFG (B2-1 1)

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ERDF (B2-1 2)

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ESF (B2-1 3)

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COMMUNITY INITIATIVES (B2-1 4)

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TRANSITIONAL MEASURES, INNOVATION SCHEMES AND ACTION AGAINST FRAUD (B2-1 5, B2-1 6 and B2-1 8)

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COHESION FUND (B2-3)

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EEA FINANCIAL MECHANISM (B2-4)

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RESEARCH (B6)

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OTHER AGRICULTURAL OPERATIONS (B2-5)

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OTHER REGIONAL OPERATIONS (B2-6)

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TRANSPORT (B2-7)

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FISHERIES AND THE SEA (B2-9)

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EDUCATION, VOCATIONAL TRAINING, YOUTH (B3-1)

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CULTURE AND AUDIOVISUAL (B3-2)

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INFORMATION AND COMMUNICATION (B3-3)

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OTHER SOCIAL OPERATIONS (B3-4)

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ENERGY (B4-1)

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EURATOM NUCLEAR SAFEGUARDS (B4-2)

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ENVIRONMENT (B4-3)

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CONSUMER PROTECTION (B5-1)

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AIDES FOR RECONSTRUCTION (B5-2)

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INTERNAL MARKET (B5-3)

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INDUSTRY (B5-4)

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INFORMATION MARKET (B5-5)

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STATISTICAL INFORMATION (B5-6)

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TRANS-EUROPEAN NETWORKS (B5-7)

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COOPERATION IN THE FIELDS OF JUSTICE AND HOME AFFAIRS (B5-8)

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MEASURES TO COMBAT FRAUD (B5-9)

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FOOD AID (B7-2 0)

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HUMANITARIAN AID (B7-2 1)

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COOPERATION - ASIA (B7-3 0)

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COOPERATION - LATIN AMERICA (B7-3 1)

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COOPERATION - SOUTHERN AFRICA AND SOUTH AFRICA (B7-3 2)

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COOPERATION - MEDITERRANEAN COUNTRIES AND THE MIDDLE EAST (B7-4)

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COOPERATION - CENTRAL AND EASTERN EUROPE (B7-5 0)

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EUROPEAN BANK FOR RECONSTRUCTION AND DEVELOPMENT (B7-5 1)

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COOPERATION - NEW INDEPENDENT STATES AND MONGOLIA (B7-5 2)

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EXCEPTIONAL ASSISTANCE TO ARMENIA, GEORGIA AND TADJIKISTAN (B7-5 3)

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COOPERATION - FORMER YUGOSLAVIA (B7-5 4)

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OTHER COOPERATION MEASURES (B7-6)

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DEMOCRACY AND HUMAN RIGHTS (B7-7)

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INTERNATIONAL FISHERIES AGREEMENTS (B7-8 0)

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OTHER EXTERNAL ASPECTS (B7-8 1 TO B7-8 7)

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SUPPORT EXPENDITURE (B7-9 5)

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COMMON FOREIGN AND SECURITY POLICY (B8-0)

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ADMINISTRATIVE EXPENDITURE - PART A

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Table 11

BREAKDOWN OF 1998 PAYMENTS, BY TYPE

DIFFERENTIATED APPROPRIATIONS

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Table 12

OUTTURN OF BUDGET IMPLEMENTATION OF THE CONTRIBUTION BY THE EFTA COUNTRIES BELONGING TO THE EEA

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CHAPTER III

CONSOLIDATED BALANCE SHEET OF THE EUROPEAN COMMUNITIES AT 31 DECEMBER 1998

ASSETS

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LIABILITIES

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COMMENTS ON THE BALANCE SHEET AT 31.12.1998

1. This balance sheet takes account of the rules laid down in the Regulation on Inventories and Management of the property of the European Commission, which came into effect on 1 January 1997. The costs of purchasing tangible and intangible fixed assets are included in budget expenditure for the year of purchase. They continue to appear in the balance sheet until they are no longer the property of the Commission. The contra-entry in the liabilities section of the balance sheet comes under the own capital heading and under debts for assets purchased under rental contracts but not yet paid.

2. Tangible and intangible fixed assets include all property with a purchase value of at least ECU 400, in accordance with Article 130 of Commission Regulation (Euratom, ECCS, EC) No 3418/93 laying down detailed rules for implementing the Financial Regulation.

3. In accordance with Section 8 of the Inventory Regulation(3), the Commission must allow for the depreciation of every asset except land. Depreciation is calculated for each full year (not pro rata temporis), using the linear method. The annual depreciation rates applicable from 1 January 1997 are given in Annex 6 to the Inventory Regulation.

Since no calculation could be made for assets held by the delegations and information offices and the other institutions are not required to allow for depreciation(4), the Commission has not included any deprecations in the accounts in order to produce a consistent balance sheet. However, the aggregate totals calculated at 31 December 1998 are shown in the explanatory notes.

EXPLANATORY NOTES TO THE FINANCIAL BALANCE SHEET

ASSETS

II. INTANGIBLE FIXED ASSETS

Although the other institutions are not required to include such assets in their accounts(5), the Court of Justice has in fact done so.

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The cumulative depreciation calculated from 31 December 1998 for the Commission alone on an amount of ECU 5361599 comes to ECU 2517972,25.

III. TANGIBLE FIXED ASSETS

A. Land and buildings

The value of the land and buildings of the JRC at Ispra and Geel is based on an evaluation conducted by independent experts in the course of 1998.

Land and buildings purchased before 1992 at delegation sites have been revalued by independent experts in the light of market prices.

In May 1998 Parliament invoked its purchase option in respect of a complex in Brussels for which the final investment cost (not including land) comes to ECU 1097 million. In two memoranda of understanding with Parliament, the Kingdom of Belgium made a contribution to the purchase of the land and the development costs. One clause in the memorandum stipulates that, if Parliament moves to other premises, the land will be returned to the Belgian State for BEF 1 or for its market value. An adjustment has therefore been made for the value of the land, which is now entered in the balance sheet at BEF 1.

E. Leasing, financing and similar entitlements

In accordance with Article 7 of the Commission's Inventory Regulation, leasing, long-term rental operations and property held under a long lease conferring a right in rem are entered in the inventory if the following three conditions are met:

- the risks and advantages are transferred to the lessee;

- the rental is terminable only on payment by the lessee of an indemnity of a deterrent amount;

- the rental enables the lessor to recover the cost of the investment plus remuneration.

If one of the above conditions is not met, the assets are entered in the off-balance-sheet commitments.

Since the Interinstitutional Inventory Regulation has not been adopted, the other institutions are not required to enter these assets in the accounts. The amounts due for leasing/financing and similar entitlements are therefore entered in the off-balance-sheet commitments.

G. Fixed assets under construction and advances in respect of tangible fixed assets

The buildings for some Commission offices or delegations which were originally financed by the ECSC have been included under this heading in the balance sheet. Although the ECSC had been repaid in full for them at the end of 1995, they are still included in the ECSC's balance sheet since the deeds of transfer have not been signed.

An inventory exercise is under way on the movable property belonging to the JRC and the results should be available in the course of 1999.

At 31 December 1998, depreciation, for the Commission, the Publications Office and the Court of Auditors(6) alone, was calculated as follows:

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These figures do not take into account the depreciation of assets in the delegations and offices as the computer software used for inventories is not suited to calculating depreciation; in addition, information on the date of acquisition of goods is incomplete.

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IV. INVESTMENTS

This heading covers, first, capital investments made with a view to establishing permanent links and which are seen as supporting the activities of the European Community, and, second, investments made to help beneficiaries develop their business activities but with no long-term participation.

It also includes permanent guarantees and advances granted and the net assets of the Guarantee Fund. A distinction should be drawn between guarantees granted by the European Community to third parties and the Guarantee Fund, which is designed to cover risks associated with loans granted to non-member countries.

A. Investments in related organisations:

A.1 Subscriptions and participations

EBRD subscription

The European Bank for Reconstruction and Development was given initial capital of ECU 10 billion, of which 3 % was subscribed by the Community. The proportion of this capital called up - 30 % - has been paid in full.

On 15 April 1996, at their annual meeting, the Bank's governors decided to double the amount of authorised capital. Under this decision, the Community has subscribed for 30000 additional shares with a face value of ECU 10000 each. This operation involves paid-in shares and callable shares in the following proportions: 22,5 % of the subscribed shares represent a full number of paid-in shares and the remainder will be callable shares.

This item covers the full amount of the Commission's subscription to the EBRD's capital which has been called up and paid. Payments outstanding on non-called up capital, amounting to ECU 442,5 million, are included in the off-balance-sheet commitments.

European Investment Fund (EIF) subscription

Under the Council Decision of 6 June 1994 the European Community, represented by the Commission, is to subscribe a total of ECU 600 million to the EIF's capital. This represents 30 % of the EIF's capital. The Commission has paid all the called-up capital, which amounts to 20 %.

As with the EBRD subscription, payments outstanding on non-called up capital (80 %), amounting to ECU 480,00 million, are included in the off-balance-sheet commitments.

B. Other investments

B.1 Subscriptions and participations

This heading includes subscriptions and participations purchased to help beneficiaries develop their business activities.

ECIP programme equity

This heading covers Community participation in the provision of equity and subordinated loan capital for joint ventures set up under the European Community Investment Partners Programme (ECIP).

Eurotech capital, Venture consort and JOP

The purpose of the Eurotech capital instrument is to encourage the private funding of transnational high-technology projects developed by small and medium-sized undertakings through a network of risk-capital investors. It covers payments since 1990, in the form of advances repayable in certain circumstances when contracts run out.

The purpose of the Venture consort instrument is to promote the transnational syndication of risk-capital operators in small and medium-sized undertakings. It covers contributions since 1985 for investments in small and medium-sized enterprises (SMEs) engaging in innovatory projects.

The purpose of the Joint Venture programme Phare-Tacis (JOP) is to foster the creation and development of joint ventures in the countries of central and eastern Europe and the new independent States.

Since all three are risk capital operations, it is very difficult to assess the real current value of the contributions. In line with the principle of prudence, a 100 % adjustment has been made for the value of these contributions, which are therefore entered in the balance sheet at zero.

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B.3. Guarantees and advances granted

This heading incorporates fixed assets not included under tangible assets, such as deposits and guarantees paid, permanent advances for building charges, the operating funds advanced to third parties and the Guarantee Fund.

Guarantee Fund

This Fund is designed to cover the risks associated with loans and loan guarantees for non-member countries or projects carried out in those countries.

It was set up by Council Regulation (EC, Euratom) No 2728/94 of 31 October 1994.

The Fund is endowed by payments from the Community budget, the proceeds from interest on investments made from the Fund's assets, and sums recovered from defaulting debtors for whom the Fund has had to activate its guarantee. The first payments to the Fund from the Community budget were made in December 1994. The Fund is managed by the European Investment Bank (EIB) under a mandate from the Community.

The entry in the assets side of the Commission's balance sheet represents the Fund's net assets at 31 December 1998.

Since the Fund may be called on to cover defaulting debtors at any time, a provision has been created for risks and liabilities corresponding to the total net assets of the Fund in line with the principle of prudence.

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V. LONG-TERM ASSETS

This heading includes amounts owed to the European Community by Member States, non-member countries and third parties on loans granted for more than one year, either from borrowed funds or from budget appropriations. It also includes amounts owed to third parties under the MEDIA programme.

A. Loans granted from the budget

This item principally covers risk capital loans on special terms granted as part of cooperation with non-member countries. It also covers loans granted under the ECIP programme to promote the setting-up of investment joint ventures in Asia, Latin America, the Mediterranean region and South Africa.

In 1991 Turkey was granted a loan of ECU 175 million as part of the effort to assist the countries most affected by the Gulf crisis.

Amounts owed under the MEDIA II programme are also included under this heading as the Commission concluded the contracts directly with the recipients. As loan repayments depend on the always uncertain success of the projects, an adjustment has been made for the loans which have been converted into grants.

The item also includes other, much smaller loans granted from the budget: loans for migrant workers and building loans for Community officials.

Detailed tables on these loans appear in volume II.

B. Loans granted from borrowed funds

Under the Treaty, the Council, acting unanimously, has the power to adopt guarantee or borrowing programmes if it considers this necessary to attain the objectives of the Community. Community borrowings are direct commitments by the Community itself and not by any individual Member State.

As these loans are financial assets covered by borrowings, in order to give a true and fair view of the Union's assets and liabilities, financial position and results, all the operations are now set out in the form of a balance sheet and revenue and expenditure account.

The balance sheets of these financial operations have been incorporated in the combined balance sheet by means of full consolidation.

The balance sheets, revenue and expenditure accounts and changes in the volume of loans relating to financial activities are shown in detailed tables contained in volume II.

For borrowing and lending operations, the yield on loans and costs of borrowings in 1998 are as follows:

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Under an agreement with the EIB, the latter bears the risks of the NCI treasury instrument. Consequently, the surplus of loan proceeds over borrowing costs is charged to the EIB.

Changes in volume of loans:

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The amounts outstanding on ECIP loans and loans granted from borrowed funds at 31 December 1998 are entered under long-term assets in the case of loans due in more than a year and under short-term assets in the case of loans due in less than one year. As the duration of the MEDIA II loans is uncertain, the amount outstanding at 31 December 1998 is included under long-term assets.

No such distinction could be made at 31 December for other loans granted from the budget. They are therefore included under long-term assets.

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C. Other long-term receivables

Loans granted under the MEDIA I programme to promote the development of the audiovisual industry in Europe are included under this item. Since they are not concluded directly between the Commission and the final recipients, these loans are not entered under the heading for loans granted from the budget. Similarly, repayment of loans under the MEDIA II programme depends on the financial success of the projects. An adjustment of ECU 11.2 million has therefore been made for the loans which have been converted into grants.

These entitlements were included under the heading for short-term sundry receivables in the balance sheet at 31 December 1997, but have now been reclassified as long-term receivables. The corresponding figures for 1997 have been classified in the same way.

This heading also includes the financial contribution of ECU 176 million from the Kingdom of Belgium (see note III.A) which is to be paid for a minimum of ten years.

VI. STOCKS

This item covers the stocks of office supplies and consumables at 31 December 1998, valued at the price of the last supplies received and converted to ecus at the closing rate, in line with the interinstitutional method for valuing stocks.

The heading also covers the scientific and technical equipment of the Joint Research Centre. In line with the principle of prudence, the stocks of heavy water, fissile material and samples for industrial and scientific use are valued every year and entered in the balance sheet at their commercial value, which is less than the real historic cost.

It also includes the stocks of publications held by the Office for Official Publications of the European Communities, valued according to its own valuation rules(7).

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VII. SHORT-TERM ASSETS

A. Long-term receivables due in less than one year

This heading contains the amounts owed in respect of long-term receivables which are due in less than one year.

B. Current assets

B.2. Amounts owed by Member States

- EAGGF: amounts payable by the Member States in relation to the clearance of EAGGF Guarantee Section accounts.

- VAT paid by institutions and recoverable from the Member States: this item covers the amounts due in respect of taxes paid by the institutions and recoverable from the Member States.

- Other receivables: this item mainly concerns amounts due in respect of own resources still to be recovered.

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The figure of ECU 1812996 million represents the total amount owed by the Member States in respect of entitlements that have been duly established. Forward estimates have been made for other entitlements where no tangible and valid obligation to pay has yet been identified, and a token entry has been included in the Commission's accounts. They are shown in Table 3.

Table 1

A. ACCOUNTS: OWN RESOURCES ESTABLISHED AND STILL TO BE RECOVERED AT END - 1998

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Table 2

SEPARATE ACCOUNTS: OWN RESOURCES ESTABLISHED AND STILL TO BE RECOVERED AT END - 1998

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Table 3

FORWARD ESTIMATES AT END - 1998

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B.3. Amounts owed by Community institutions and bodies

This heading contains various amounts owed to the European Communities by Community bodies, for which the institutions pay certain expenditure, which will subsequently be repaid.

B.4. Sundry debtors

This item covers amounts owed as a result of the activities of the European Communities, including:

1. The recovery orders entered in the revenue accounts at 31 December 1998 as established entitlements outstanding. The item also contains outstanding fines and fines which have been suspended and for which a bank guarantee has been lodged. The volume of bank guarantees received to cover fines comes to ECU 647169000. In the case of outstanding fines, ECU 1037355550 has been disregarded following an appeal against the Commission decision.

2. All debtors owing sums resulting from loans paid from borrowed funds.

3. All amounts owed as a result of Guarantee Fund operations. These amounts break down as follows:

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In view of the risk of non-recovery and in accordance with the principle of prudence, a 100 % adjustment was entered in the accounts for all Guarantee Fund operations which had not been repaid by debtors at 31 December 1998. This was deducted from the value of these entitlements on the assets side of the balance sheet.

4. Advance payments to technical assistance offices: ECU 33.9 million which had not been paid to the final recipients at 31 December 1998.

C. Sundry receivables

Basically, this item covers amounts owed to the institutions by their staff, in particular advances on salary and other sums to be recovered.

VIII. CASH INVESTMENTS

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IX. DISPOSABLE ASSETS

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This heading covers all the funds which the Commission keeps in its accounts in each Member State and EFTA country (Treasury or central bank), in current accounts and imprest accounts, petty cash and the proceeds of loans made from borrowed funds and loans granted to improve housing conditions for migrant workers.

Funds totalling ECU 1225013,33 kept in current accounts with two banks outside the Community which have gone bankrupt will probably prove irrecoverable. As a result, and in accordance with the principle of prudence, an adjustment has been made for these accounts and entered on the assets side (reducing the value of the "Imprest accounts" heading).

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X. TRANSITIONAL ACCOUNTS

This heading includes interest receivable, mainly accrued interest on loans, investments and swaps; miscellaneous expenditure still to be booked, which could not be finally booked before the closing date, and prepaid expenses.

As a result of change in the accounting software, the conversion differences not achieved, i.e. the differences arising from revaluations, are now entered in the transitional accounts.

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LIABILITIES

I. OWN CAPITAL

A. Net capital resulting from economic adjustments

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B. Balance for the year

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C. Surpluses of loan proceeds over borrowing/lending costs

This heading covers outturns carried over and the outturn for the year of loans granted from borrowed funds.

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The Commission has for the first time entered some of these profits from borrowing and lending activities in the budget.

II. PROVISIONS FOR LIABILITIES AND CHARGES

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In view of the risks involved in lending activities, a provision for liabilities and charges has been set up for the whole of the Guarantee Fund (see note IV.B.3).

III. LONG-TERM LIABILITIES

This heading includes liabilities due in more than one year.

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The amounts outstanding on borrowings at 31 December 1998 are entered under long-term liabilities in the case of loans due in more than a year and under short-term liabilities in the case of loans due in less than one year.

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IV. SHORT-TERM LIABILITIES

A. Long-term liabilities falling due in less than one year

This heading includes borrowings which fall due for payment in less than one year's time and leasing debts of less than one year (see table below). Detailed tables on borrowing are to be found in Volume II.

B. Other financial liabilities

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C. Current liabilities

C.1. Member States and EFTA countries

This heading covers amounts owed by the Communities to Member States as a result of supplementary and amending budget No 1/1998, which entered the 1997 balance in the budget, and the revised forecasts for customs duties, VAT and GNP bases and budget corrections. After its adoption by Parliament on 14 December 1998, the Member States deducted ECU 1780 million from the payments called in for VAT, GNP and the UK correction in January 1999.

This heading also includes the 1997 balance of contributions from the EFTA States belonging to the EEA (ECU 1.9 million), which has not yet been regularised.

C.2. Community institutions and bodies

This item covers amounts owed by the institutions to certain Community bodies.

This item also contains deductions and repayments in respect of building loans granted to Community officials.

C.3. Appropriations to be carried over

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C.4. Sundry creditors

This item covers debts arising from the activities of the European Communities.

D. Other liabilities

These are mainly amounts owed to staff and revenue to be transferred to various organisations or other third parties.

V. TRANSITIONAL ACCOUNTS

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This item relates to loans granted from borrowed funds for which the balance sheets and profit and loss accounts are presented in Volume II. It covers accrued interest on borrowings and swaps and swap operations.

It also includes revenue not booked, i.e. revenue which could not be definitively booked to the budget before the close of the year and revenue available for re-use.

CHAPTER IV

COMMITMENTS NOT INCLUDED IN THE BALANCE SHEET

POTENTIAL OBLIGATIONS, LIABILITIES AND ASSETS OF THE EUROPEAN COMMUNITIES AT 31 DECEMBER 1998

POTENTIAL LIABILITIES AT 31 DECEMBER 1998

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POTENTIAL ASSETS AT 31.12.1998

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EXPLANATORY NOTES

OFF-BALANCE-SHEET COMMITMENTS - POTENTIAL LIABILITIES AND ASSETS

1. Commitments against differentiated appropriations still outstanding at 31 December 1998 totalled ECU 58848403922,64 of which ECU 571229853,38 is covered by carryovers of payment appropriations from 1998 to 1999.

2. Some aid remained uncommitted because the Commission decided to enter into commitments in respect of amounts that were not covered by commitment appropriations in the budget.

2.1 + 2.2. The Commission regards the overall budget allocation agreed at Edinburgh as a spending commitment by the Community vis-à-vis the Member States. The 1999 budget was established in such a way that this allocation had to be respected. As a consequence, the amount of aid earmarked but not committed under the Structural Funds and the Cohesion Fund is calculated by subtracting the budget commitments made for the period 1994-98 from the Edinburgh allocation. The difference represents total commitments vis-à-vis the Member States after 31 December 1998 for Community Support Frameworks, Community Initiatives and the Cohesion Fund (except appropriations for combating fraud, evaluating the environment, and transitional and innovatory measures) for the programming period 1994-99. In accordance with the principle of prudence, it reflects the maximum potential liabilities for these two Funds.

3. EAGGF Guarantee

3.1. The payments taken into account for the Guarantee Section of the European Agricultural Guidance and Guarantee Fund are those made by the Member States between 16 October and 15 October of the following year, provided that the Accounting Officer was notified of the commitment and authorisation by the following 31 January. Payments made by Member States between 16 October and 31 December 1998 are included in the off-balance-sheet commitments.

3.2. Potential liabilities towards the Member States connected with the clearance procedures. The determination of the final amount of the liability and the year in which it will be charged to the budget will depend on the length of the procedure before the Court of Justice.

4.1. As formulated, the guarantee legally covers the loans signed by the EIB at 31 December 1998 (including loans granted to three Member States before accession). However, it should be noted that these loans have not been fully paid out. At 31 December 1998 the amount paid out totalled ECU 7802 million (ECU 7708,5 million when the countries which have become Member States are excluded) and this, therefore, is the amount of the risk incurred by the Union. Of the ECU 10987 million paid out up to 31 December 1998, ECU 3185 million has already been repaid.

The following table shows the annual forecasts of amounts outstanding on these EIB loans guaranteed under the general budget (with the exception of those for third countries which have joined the Community) on the basis of the amounts paid out at 31 December 1998.

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For the loans granted by the EIB covered by the Community budget guarantee (ECU 14286100000), the third-country guarantees break down as follows:

- 84 % sovereign guarantees or similar;

- 1,1 % guarantees by public institutions;

- 4,9 % guarantees by private financial institutions;

- 8,7 % guarantees by a consortium of financial institutions;

- 1,3 % guarantees by other institutions.

4.2. The Community has received guarantees from third-party guarantors in respect of guarantees it has granted on loans under its borrowing and lending activities. The guarantees received may be classified as follows:

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The Community has not received third-party guarantees for loans granted under the financial assistance scheme or food aid. However, these loans, totalling ECU 1683 million, are guaranteed by the Guarantee Fund.

4.3. At 31 December 1998 the EIF had signed guarantees totalling ECU 2583 million; as 89,95 % of EIF capital has been subscribed, this represents a maximum potential risk of ECU 861,4 million for the European Community. As the Community contributes a total of ECU 600 million to the capital of the EIF, the latter might, in the worst possible scenario, repay ECU 261,4 million. The proportion of the capital subscribed by the European Community which has not been called up (80 %, amounting to ECU 480 million) is also included in the off-balance-sheet commitments as a potential liability (point 9).

5.1. As these assets come from outside the accounts, the figures shown for this item are not exhaustive. This item also covers buildings occupied under a leasing contract with purchase option.

5.1.1. Parliament

In March 1994 Parliament signed a long-term leasing contract with a purchase option for a complex in Strasbourg for which the estimated provisional investment cost (figure updated in June 1998) is ECU 472 million (FRF/ECU exchange rate at 31 December 1998). No fee had been paid when the balance sheet was drawn up.

Parliament has also concluded contracts to hire computer equipment under which it is committed to pay around ECU 0,9 million and tenancy agreements under which it is committed to pay around ECU 47 million.

5.1.2. Court of Justice

On 15 November 1994 the Court signed a lease-purchase contract with the Luxembourg Government for Annexes A, B and C of the Palais building with a total surface area of 26635 m[sup2 ], 24505 m[sup2 ] and 14809 m[sup2 ] respectively.

The Court will rent the buildings for the whole term of the agreement and will not be able to exercise the purchase option until the selling price has been paid in full (Article 8(4)); at the latest this will be on 31 December 2015. Under supplementary agreement No 1 to the main agreement, the annual charge payable by the Court was reduced to LUF 405 million from 1 January 1997.

The selling price is determined by an independent expert agreed upon by both parties (Article 9). The consultancy KPMG has been appointed.

The latest expert's report in our possession was drawn up on 20 January 1999 and the conclusions are set out below:

Selling price at 31.12.1997

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Selling price at 31.12.1998 (estimate)

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If the budgetary authority had decided to pay the balance due at 31 December 1998 instead of the annual charge laid down in the contract, the payment would thus have been LUF 2.89 billion (ECU 71,6 million). The main reason why this balance has remained at a comparable level to that of 31 December 1997 is because a provisional amount of LUF 203125182 has been entered to cover the most recent expenditure not yet included with the total cost of these buildings.

5.2. This heading covers buildings occupied under a long-term leasing contract (with an initial term of more than five years) without any purchase option. These contracts may take various forms such as a rental contract or long-term lease. The amounts indicated correspond to commitments still to be paid during the term of the contract, except for the Court of Justice's Palais building, which is occupied under an indefinite lease; here, the amounts correspond to the annual rent.

5.2.1. 2.29 ha of land held in Luxembourg under a 29-year lease.

5.2.2. This heading covers buildings occupied by the Commission under a long-term rental or leasing contract which do not meet the three conditions laid down in Article 7 of the Inventory Regulation (see point III.E of the explanatory notes to the balance sheet). The amounts entered correspond to the rents still to be paid in accordance with the conditions of the contract, plus tax on immovable property. The total amount breaks down as follows:

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5.2.3. Buildings occupied by the Commission in Luxembourg under leasing contracts.

5.3. As these amounts come from outside the accounts, the figures shown for this item are not exhaustive. This heading covers buildings occupied under a long-term operational leasing contract (more than five years). The amounts entered correspond to the rents still to be paid in accordance with the conditions of the contract.

8. Commitments in respect of pensions

The rules governing the Community pension scheme are laid down in the Staff Regulations of Officials of the European Communities, in particular Chapter 3 (Pensions) of Title V (Emoluments and social security benefits of officials) and Annex VIII (Pension scheme). They are directly applicable in all the Member States.

The scheme covers different types of pension (retirement, invalidity, survivor's) and the payment of family benefits.

Under Article 83 of the Staff Regulations, benefits paid under the pension scheme are charged to the budget of the Communities (Chapter A-19 (Pensions and severance grants) covering all the institutions). Member States jointly guarantee payment of such benefits in accordance with the scale laid down for financing such expenditure (first subparagraph of paragraph 1).

Officials contribute one third of the long-term cost of financing the scheme by means of a compulsory levy set at 8,25 % of the basic salary (second subparagraph of Article 83(1)).

Thus the scheme is covered both by the budget (it is booked to the Commission budget) and by contributions, while the payments are guaranteed collectively by the Member States.

The calculation of the estimate of total pensions liabilities (in line with the financing provided for in Article 83 of the Staff Regulation) is consistent with standard IAS 19, an international accounting standard which requires the employer to determine his actuarial commitment on a continuation basis, reflecting service-prorated benefits and taking into account foreseeable salary increases. The actuarial valuation method used to calculate this liability is known as the projected unit credit method (or accumulated entitlements method).

The estimate of total pension liabilities is based on an actuarial study based on the figures at 31 December 1997, but adjusted to 31 December 1998 in line with the additional entitlements acquired in 1998.

The liabilities cover the pension rights of the following persons:

1. Staff in active employment at 31 December 1998 in all the institutions and agencies covered by the Community pensions scheme;

2. Persons receiving a retirement pension;

3. Persons receiving a survivor's pension;

4. Orphans;

5. Persons receiving an invalidity pension.

The actuarial calculation is based on standard IAS 19 and, in particular, the following parameters:

1. Updated mortality tables;

2. Calculation interest in accordance with standard IAS 19: 2,5 % compound;

3. Closed-group model (participants at 31 December 1998);

4. Application of the principle of married staff in active employment, without taking orphans' pensions into account;

5. The marital situation of persons no longer at work, taking orphans' pensions into account;

6. Elimination of the effect of the weighting, inflation or general revaluation of salaries/pensions;

7. Average salary progression of around 2 %;

8. A pensionable age of 60;

9. The statistics on early retirement and invalidity are based on current data.

The calculations of gross pensions and family allowances are based on the provisions of the Staff Regulations.

9. Potential debts due to contributions to related organisations.

This sum represents payments outstanding on non-called-up capital subscribed by the Commission to the EBRD and the EIF:

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10. The Brussels Capital Region has introduced a tax on office workers. The Commission asked the regional authorities about its exemption under the Protocol on privileges and immunities. The initial reply given was favourable.

However, the local authorities took the question to court, where the judge confirmed that the Commission qualified for exemption under the protocol.

The Court of Cassation delivered its judgment on 11 February and rejected the Commission's appeal. The Commission must therefore comply with this judgment and pay the tax due.

11. The following table, classified by year of Commission decision, shows all the cases involving fines for infringement of the rules of competition which were still pending at 31 December 1998. It does not show cases completely settled by that date.

In view of the complicated nature of these cases, the number of companies involved and the possible options, this table cannot reflect historical developments over a number of years. It therefore merely gives the current situation for each case pending in relation to the Commission's initial decision. (A more detailed table is contained in Volume II).

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12. The two tables are based on the formal reports submitted by the Member States in accordance with Regulations (EEC) No 595/91(8) and (EC) No 1681/94(9), with amounts being broken down by Member State. The tables show the difference between amounts identified by the Member States as still to be recovered (calculated on the basis of established entitlements or estimates) and amounts already recovered or declared irrecoverable.

The figures given in this table represent a theoretical maximum rather than the amounts which will actually be made available to the Community budget, for the following reasons:

- The Member States do not always report the results of their recovery operations (and certainly not promptly).

- Although Member States must inform the Commission of the likelihood of recovery, it is impossible to determine exactly what proportion of the amounts still to be recovered will actually be recovered. National laws sometimes provide for a 30-year limitation period, which may well make the national authorities think twice about formally giving up on recovery even if the chances of success are only theoretical. Nevertheless, the Commission regularly asks the Member States to revise the list of cases which have been pending for a number of years in order to exclude amounts that should be written off as irrecoverable.

- A large proportion of the total for EAGGF Guarantee are, for objective reasons, irrecoverable for no fault of the Member State concerned.

- If, for objective reasons, recovery proves impossible in a particular case, the Commission must decide whether the irrecoverable amount should be charged to the Community budget or to the Member State which failed to fulfil its obligations. This decision may be taken after several years have elapsed (in the case of EAGGF Guarantee expenditure, as part of the clearance of accounts procedure).

- Even if the Member State concerned launches recovery proceedings in time, a positive outcome is not guaranteed. This is particularly true where recovery orders are contested in the courts.

- In the field of structural operations, individual projects are cofinanced as part of multiannual programmes. As long as a multiannual programme has not been closed, it is impossible to put an exact figure on the amounts to be recovered because the sums involved in irregularities may, in certain circumstances, be reallocated to other, legitimate projects and because payment by instalments, in particular final payments, can sometimes be used as a means of adjusting expenditure.

The figures in these tables are provisional figures based on the reports received and processed up to the end of March 1999. These figures may therefore be changed in line with further reports arriving late.

The prospects of recovery in individual cases cannot be assessed with sufficient accuracy from the information forwarded by the Member States. Experience in recent years shows that the actual rate of recovery scarcely exceeds 20 %.

On the date when the revenue and expenditure account was drawn up, the annual report on the fight against fraud for 1998 had not yet been adopted.

EAGGF-GUARANTEE

TOTAL IRREGULARITIES REPORTED AND RECOVERY SITUATION

Provisional figures at 27 April 1999

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STRUCTURAL OPERATIONS

Cases of fraud and other irregularities reported by Member States under Regulations (EC) No 1681/94 and (EC) No 1831/94

SUM OF BALANCE

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13.1. Amounts payable to the EAGGF Guarantee Section which have been entered in the register of debtors and declared by the Member States at the end of the financial year. Since the information received is incomplete and a summary examination by the Commission departments suggests that the figures may be unreliable, these debts must be considered as not fulfilling the three criteria of being certain, liquid and due.

13.2. At 30 September 1998, with potential liabilities of ECU 10,1 million and potential gains of ECU 318 million, there was a net potential gain of ECU 307,9 million for the disposal of agricultural stocks - a far higher figure than in the previous year:

- Virtually all (ECU 300 million) the total potential gain is accounted for by cereals. At the time when the figures were adopted for the depreciation of cereal-based products, the market situation for these products was not favourable. The amounts were set at a relatively low level in view of the prospects which were then expected. However, the substantial improvement in the market situation which followed led to a considerable rise in the foreseeable value of sales and, consequently, an increase in potential gains.

- The other sector for which a considerable gain is expected (ECU 11 million) is olive oil. The book value of stocks is still affected by the depreciation at the end of 1993 for Italy, which turned out to be too high and cut the book value of all the stocks to a level far below the foreseeable sales value at the end of 1994. This excessive depreciation resulted from an over-evaluation of the book value of the stocks declared by Italy before the depreciation at the end of 1993. It is still continuing to produce a relatively substantial potential gain in 1998.

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VOLUME, BOOK VALUE AND EXPECTED SALES VALUE OF STOCKS AND POTENTIAL LOSSES/GAINS

AT 30 SEPTEMBER 1998

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(1) International Organisation of Supreme Audit Institutions (INTOSAI) Accounting Standard Framework - September 1995.

(2) In the case of the EFTA-EEA countries, the volume of appropriations carried over from year n to year n+1 is known after the accounts have been closed. As a result the calculation of the balance includes carryovers from year n-1 to year n.

(3) Document E/96/280, adopted on 22 January 1997.

(4) The Interinstitutional Inventory Regulation has not yet been adopted.

(5) The Interinstitutional Inventory Regulation has not yet been adopted.

(6) The other institutions have not had to calculate depreciation as the Interinstitutional Inventory Regulation has not yet been adopted.

(7) See the rules on the valuation of the Publications Office's stocks of publications.

(8) EAGGF Guarantee.

(9) Structural operations.