REVENUE AND EXPENDITURE ACCOUNT AND BALANCE SHEET RELATING TO OPERATIONS UNDER THE 1996 BUDGET (Articles 78 and 81 of the Financial Regulation of 21 December 1977) VOLUME IV CONSOLIDATED REVENUE AND EXPENDITURE ACCOUNT AND BALANCE SHEET. EXPLANATORY NOTES (97/C 349/01)

CONTENTS

Page

Foreword

1. Structure . 3

2. Recapitulation of main accounting principles . 3

Chapter 1: Basic data on the execution of the budget of the European Union for 1996

1. 1996 budget outturn . 6

2. Consolidated summary of 1996 budget implementation

- Revenue . 7

- Utilization of appropriations available . 8

- Clearance of commitments . 11

Chapter 2: Consolidated revenue and expenditure account for 1996

1. Items contributing to the balance

- Table 1: Balance for the year . 12

- Table 2: Revenue . 13

- Table 3: Expenditure . 14

- Table 4: Appropriations for payments carried over from 1995 . 18

- Table 5: Exchange differences . 22

- Table 6: Overrun on non-differentiated appropriations carried over from 1995 to 1996 22

2. Implementation of general budget for 1996

- Table 7: Revenue . 23

- Table 8: Appropriations for commitments . 24

- Table 9: Appropriations for payments . 30

- Table 10: Commitments from differentiated appropriations outstanding at 31 December 1996, by year of commitment . 36

- Table 11: Commitments from differentiated appropriations: foreseeable schedule of payments at 31 December 1996 . 40

- Table 12: Commitments from differentiated appropriations outstanding at 31 December 1996: payments since initial commitment . 42

- Table 13: Commitments from differentiated appropriations settled in the course of 1996 . 44

- Table 14: Movements since initial commitment . 46

- Table 15: Breakdown of 1996 payments, by type . 60

- Table 16: Outturn of budget implementation of the contribution by the EFTA countries belonging to the European Economic Area . 62

Chapter 3: Consolidated balance sheet of the European Union at 31 December 1996

- Balance sheet at 31 December 1996 . 63

- Annexes to the consolidated balance sheet . 68

- Explanatory notes to the consolidated balance sheet . 72

Chapter 4: Commitments not included in the balance sheet - Potential obligations, liabilities and assets of the European Union at 31 December 1996

- Commitments made . 80

- Commitments received . 83

- Explanatory notes . 85

FOREWORD

1. STRUCTURE

1.1. The revenue and expenditure account and the balance sheet of the European Union 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, Euratom, ECSC) No 2335/95.

1.2. The accounts are set out in four volumes:

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1.3. 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, accompanied by explanatory notes. The consolidated revenue and expenditure account and balance sheet give the corresponding figures for the previous year.

2. RECAPITULATION OF MAIN ACCOUNTING PRINCIPLES

2.1. The accounts are kept in accordance with the Financial Regulation of 21 December 1977 (as last amended on 18 September 1995) and a Regulation laying down certain implementing rules.

2.2. Conversion into ecus

2.2.1. Accounts are kept in ecus. The ecu is a 'basket` of specified amounts of the 12 Community currencies, the amounts being adjusted from time to time. Since September 1989 the ecu has been defined as the sum of the following:

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2.2.2. Advances paid under the Guarantee Section of the European Agricultural Guidance and Guarantee Fund are converted at the exchanges rates applying on the 20th day of the second month preceding the month for which they are paid.

Some operations relating to staff are converted at special rates.

Other operations are converted at the monthly accounting rates in force when they are carried out.

2.2.3. The ecu conversion rates used to prepare the balance sheet were the rates applying on 31 December 1996, except for the following:

- tangible assets (furniture and equipment), which are valued at their purchase 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.

2.2.4. On 31 December 1996 the rates for converting national currencies into ecus were as follows:

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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 amounts of other revenue entered in the accounts are sums 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 is taken to mean 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 authorization 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 of the preceding year and 15 October of the current year, provided that the accounting officer is notified of the commitment and authorization by 31 January of the following year.

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 authorization,

- 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. Payments on account and accelerated payments

Payments on account for operational purposes, other than the advances paid under the common agricultural policy, are included in the year's expenditure and do not appear as assets in the balance sheet.

2.6. Receivables

Barring exceptions, there is no value correction for amounts receivable. However, where this is the case, it is specifically mentioned in the notes to the balance sheet.

2.7. EFTA involvement in the 1996 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.

A detailed breakdown of the utilization of these appropriations is given in Table 16.

2.8. 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 2.4.1).

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

- the net balance of lapsing carryovers from previous years and any overrun, due to fluctuations in the ecu rate, of payments against non-differentiated appropriations carried over from the previous year,

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

2.9. Consolidation

The consolidated accounts cover the accounts of the European Parliament, the Council, the Commission (including the Office for Official Publications 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 1 BASIC DATA ON THE EXECUTION OF THE BUDGET OF THE EUROPEAN UNION FOR 1996

1996 BUDGET OUTTURN

The 1996 budget outturn is shown under heading I.B (liabilities) of the consolidated balance sheet.

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UTILIZATION OF APPROPRIATIONS AVAILABLE

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CHAPTER 2 CONSOLIDATED REVENUE AND EXPENDITURE ACCOUNT FOR 1996

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Table 14 COMMITMENTS OUTSTANDING AT 31 DECEMBER 1996 MOVEMENTS SINCE INITIAL COMMITMENT (including commitments cleared in 1996)

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CHAPTER 3 CONSOLIDATED BALANCE SHEET OF THE EUROPEAN UNION AT 31 DECEMBER 1996

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Annexes to the consolidated balance sheet of the European Union

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CASH ACCOUNTS

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EXPLANATORY NOTES TO THE CONSOLIDATED BALANCE SHEET ASSETS

I. FIXED ASSETS

A. Tangible assets

Note

The costs of purchasing movable and immovable property are included in budget expenditure for the year of purchase. There is no subsequent depreciation. They continue to appear in the balance sheet until they are disposed of or decommissioned.

Following the inventory conducted in 1996, the Commission considers that the volume of fixed assets recorded in the balance sheet is correct, subject to assets which might be found at a later date, value adjustments and additional inventory operations to be conducted in the information offices, the delegations and the JRC. The JRC inventory exercise has started and the results should be available in early 1998.

As far as possible, the Commission has tried to explain the differences between the figures entered in the 1995 and 1996 balance sheets when these data are comparable.

1. Buildings

Land and buildings acquired after 1992 in Brussels and at sites where the Commission has offices and delegations are entered in the balance sheet at their purchase value, converted into ecus at the rate applying when they were purchased. Buildings in Brussels purchased before 1981 have been entered using the ecu conversion rate for January 1981.

Land and buildings purchased before 1992 at delegation sites have been revalued in the light of market prices. Revaluation was carried out by independent experts and the resulting figures incorporated in the balance sheet as at 31 December 1996.

The building of the delegation to the OECD is a special case. It was acquired from the ECSC free of charge in December 1994 and the figure entered in the balance sheet is the market value assessed by independent experts.

In 1984 the buildings at Ispra were revalued by 14 % and other infrastructures by 20 %. Added to these revaluations is the value of investments, which have increased the value of the buildings and/or their lifetime.

2. Advances and payments on account in respect of tangible 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 (except for the Haren, Marseilles and New York buildings) since the deeds of transfer had not been drawn up on the date for closure of the accounts.

3. Equipment and furniture

4. Vehicle fleet

These headings in the balance sheet cover movable property entered in the inventory in compliance with the rules in force (Regulation laying down detailed rules for implementing certain provisions of the Financial Regulation) at the time of their purchase.

5. Computer equipment

Since computer equipment now represents such a major item, it is presented separately from other movable property.

B. Subscriptions and participations

1. 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.

This item covers the full amount of the Commission's subscription to the EBRD's capital. This is because the shareholder is liable for the full amount of capital subscribed. Payments outstanding on non-called up capital, amounting to ECU 210 million, appear as liabilities in the balance sheet (heading I.G).

On 15 April 1996, at their annual meeting, the Bank's governors decided to double the amount of authorized capital. Under this decision, the Community is to subscribe for 30 000 additional shares with a face value of ECU 10 000 each. This operation will involve paid-in shares and callable shares in the following proportions: 22,5 % of the subscribed shares will be a full number of paid-in shares and the remainder will be callable shares. The Community had not yet adopted the decision to subscribe for these shares at 31 December 1996.

2. 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).

The value of these investments entered in the balance sheet is based on the amounts paid from the general budget.

An independent financial audit of all the centralized accounts is currently in progress. It is only after this exercise that future balance sheets will be drawn up on the basis of the assets actually disbursed.

3. Eurotech capital

4. Venture consort

The entry for Eurotech capital covers payments since 1990, in the form of advances repayable in certain circumstances when contracts run out. The Venture consort instrument covers contributions since 1985 for investments in SMEs engaging in innovatory projects.

Since both of these are risk capital operations for transnational high-technology start-up projects, it is very difficult to assess the real current value of the contributions.

In line with the principle of prudence, their full value is covered by provisions in the balance sheet and has therefore been entered as nil.

However, two summary tables showing the contributions made to these two instruments are contained in Volume II of the revenue and expenditure account.

5. European Investment Fund

Pursuant to 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 presentation in the balance sheet is the same as for the subscription to the EBRD's capital.

Payments outstanding on non-called up capital (80 %), amounting to ECU 480,00 million, appear as liabilities in the balance sheet (heading I.G).

Payments outstanding on called-up capital (20 %), amounting to ECU 30 million, appear as liabilities in the balance sheet, under short-term debts (heading II.E.6).

C. Loans granted from the budget

This item principally covers loans granted under the heading of cooperation with non-member countries, comprising loans on special terms (ECU 437,2 million) and risk capital operations (ECU 63,1 million) for Mediterranean countries. In 1991 Turkey was granted a loan of ECU 175 million as part of the effort to assist the countries most directly affected by the Gulf crisis.

Changes in volume of loans granted from the budget:

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In addition, loans and advances are granted under the ECIP programme to promote the setting-up of investment joint ventures in Asia, Latin America, the Mediterranean region and South Africa. These loans and advances, including capitalized interest, amount to ECU 115,4 million.

Loans granted under the Media programme to promote the development of the audiovisual industry in Europe are also included under this item (ECU 18,4 million).

The item also includes other, much smaller loans granted from the budget: loans for migrant workers (ECU 0,2 million) and building loans for Community officials (ECU 0,1 million).

These loans are set out in detail in tables in Volume II of the revenue and expenditure account.

D. Loans granted from borrowed funds

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.

In view of their specific purpose, loans for food aid for the former Soviet Union are entered separately from loans granted by way of medium-term financial assistance to help the countries of central and eastern Europe to modernize their economies and from loans granted by way of financial assistance to Algeria and Israel.

Changes in the volume of loans granted from borrowed funds:

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Borrowing and lending operations - yield on 1996 loans:

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The balance sheets and revenue and expenditure accounts for the loans under this heading are shown in tabular form in Volume II of the revenue and expenditure account.

E. Community budget guarantees

This heading covers payments made by the Commission under the Community performance guarantee for loans raised and granted to promote development in non-member countries.

This item should be eliminated during the consolidation of the balance sheets of financial activities in the Commission balance sheet. However, a cut-off problem at the end of 1995 meant that a payment of ECU 211,5 million charged by the Commission to 1995 but implemented by the accounting officer in the period between 1 and 15 January 1996 could not be entered in the accounts as revenue in the balance sheet of financial activities until January 1996. This amount could not therefore be eliminated from the 1995 balance sheet.

F. 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.

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 Fund is managed by the European Investment Bank (EIB) under a mandate from the Community.

The revenue and expenditure account and balance sheet of the Fund at 31 December 1996 appear later in this volume.

The first payments to the Fund from the Community budget were made in December 1994.

The entry in the assets side of the Commission's balance sheet represents the Fund's net assets at 31 December 1996.

Since the Fund may be called on to cover defaulting debtors at any time, the principle of prudence dictates that the contra entry for the Fund on the liabilities side of the balance sheet should not be included under capital. A provision for depreciation of assets equivalent to the total net assets of the Fund has therefore been created under heading I.E on the liabilities side.

G. Other fixed assets

This heading incorporates fixed assets not included under tangible assets, such as deposits and guarantees paid, permanent advances for building charges and the operating funds advanced to a transport firm.

II. STOCKS

This item covers the stocks of office supplies and consumables at 31 December, valued at the price of the last supplies received in 1996 and converted to ecu at the rate applying on 31 December, in line with the interinstitutional method for valuing stocks.

It also includes supplies of scientific and technical equipment for the Joint Research Centre. Pursuant to the principle of prudence, stocks of heavy water, fissile material and samples for industrial and scientific use are valued every year and are entered in the balance sheet at their commercial value, which is less than the real historic cost.

III. CURRENT ASSETS

A. Amounts owed by Member States

This heading covers repayments to be made in respect of EAGGF advances paid to some Member States and amounts due from the Member States in connection with the clearance of the EAGGF Guarantee accounts (ECU 792,23 million). In 1995 forward estimates were made for the amounts due in connection with the clearance of the EAGGF Guarantee accounts (ECU 758,098 million), which were therefore recorded with the commitments not included in the balance sheet.

This heading also covers the amounts due in respect of own resources outstanding and taxes paid by the Commission to be recovered from Member States.

The entitlements covered by this heading are set out in a detailed table earlier in this volume.

B. Institutions

This heading covers expenditure by Community institutions on behalf of other Community institutions which has not been regularized in the budget at the close of the financial year.

C. Expenditure on the Official Journal to be paid by the institutions

This item covers expenditure on the Official Journal of the European Communities that is incurred by the Office for Official Publications on behalf of the institutions, which then have to make appropriate budgetary adjustments.

D. Amounts owed by Community bodies

These are amounts owed to the Commission by Community bodies for certain expenditure that is paid by the Commission and then refunded.

These bodies are not included in the consolidated balance sheet.

It should be noted that the entry for the ECSC covers the ECU 11,1 million paid by the Commission in 1996 from its cash resources on behalf of the ECSC. These amounts will subsequently be repaid by the ECSC.

E. Sundry debtors

This heading covers various amounts owed to the Commission by its staff and third parties, plus the amount of recovery orders entered in the revenue accounts as established entitlements outstanding. This heading also contains outstanding 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 432 035 411.

This heading also includes all debtors owing sums resulting from loans paid from borrowed funds (see heading I.D - assets).

It also covers all amounts owed as a result of Guarantee Fund operations (III.E.4), as detailed below:

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In view of the risk of non-recovery and in accordance with the principle of prudence, a 100 % adjustment was made for all Guarantee Fund operations which had not been repaid by debtors at 31 December 1996. This was deducted from the value of these entitlements on the assets side of the balance sheet.

At 31 December 1996 total loans outstanding from defaulting beneficiaries came to ECU 422,8 million.

The 1995 situation has been presented in the same way so that the figures are comparable:

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The total assets and liabilities for 1995 thus differ from the figures in the 1995 revenue and expenditure account.

F. Miscellaneous expenditure to be booked

This heading covers expenditure which could not be definitively booked to the budget before the close of the financial year (ECU 133 753 912,27).

It includes ECU 447,7 million in rents and charges paid by the Commission in December 1996 and chargeable to the 1997 budget.

IV. CASH ACCOUNTS

This heading covers all the funds which the Commission keeps in its accounts in each Member State (Treasury or central bank), in current accounts and imprest accounts, petty cash and the proceeds of loans made from borrowed funds (heading I.D - assets) and loans granted to improve housing conditions for migrant workers (heading I.C.3 - assets).

Following the signature of the transfer agreement between the EAC and the Commission, the cash resources of the former EAC delegations at 1 January 1988 have been included in the Commission accounts at the ecu rate applying on that date.

Item IV.F (Imprests) includes the financial operations under the imprest accounts of Community delegations and information offices which had not been reconciled with the accounts at headquarters on the date for closure of the accounts. At 31 December 1995 this item was in surplus (heading III.D - liabilities).

Funds totalling ECU 949 998,43 kept in current accounts with three 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 heading IV.F (Imprest accounts - delegations) (see note I.C - liabilities).

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V. PREPAYMENTS

This heading relates to loans granted from borrowed funds (heading I.D - assets) for which the balance sheets and revenue and expenditure accounts are shown in Volume II of the revenue and expenditure account. It covers accrued interest on loans, investments and swaps, issuing costs and redemption premiums to be paid off, as well as EIB-NCI accruals.

LIABILITIES

I. FIXED CAPITAL

A. Own capital

This item is the contra entry for various assets in the balance sheet which were initially booked as budget expenditure, i.e. tangible assets, subscriptions and participations, loans granted from the budget and stocks. Like those assets, this item varies from one year to the next.

B. Balance for the year

The 1996 budget outturn was ECU 4 388 281 339,94, which breaks down as follows:

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C. Adjustment to assets

This item is the contra entry for the adjustment to the financial accounts (see notes IV - assets) since the annual balance may be affected only by the budget outturn and exchange gains or losses.

D. Surpluses of loan proceeds over borrowing costs

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

These surpluses are not available even though they have not yet been allocated. They are to be used to cover certain costs. (See the balance sheets and revenue and expenditure accounts for loan operations from borrowed funds in Volume II of the revenue and expenditure account.)

E. Provisions

The contra entry for the Guarantee Fund (see note I.F - assets) takes the form of a provision rather than own capital in view of the risks inherent in its operations.

F. Loans raised

The loans raised entered under this heading break down as follows:

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The cost of loans raised as part of borrowing and lending operations in 1996 breaks down as follows:

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These loans are presented in greater detail in the form of balance sheets and profit and loss accounts in Volume II of the revenue and expenditure account.

G. Payments outstanding on non-called up capital

These are payments outstanding on the capital of the European Investment Fund not paid up (80 % of subscribed capital) and on the capital of the European Bank for Reconstruction and Development (70 % of subscribed capital) (see notes I.B.1 and I.B.5 - assets).

H. Staff funds

This heading covers the unemployment fund for temporary staff at all the institutions (ECU 6,5 million) and the welfare fund for Commission local staff in non-member countries (ECU 2,9 million).

I. Deposits and guarantees received

These are sums deducted as guarantees for the payment of construction work and the guarantee accounts for accounting officers, delegate accounting officers and imprest administrators.

II. SHORT-TERM LIABILITIES

A. Amounts owed to Member States

This heading covers amounts owed by the Commission to Member States. In this case it is an advance by the Netherlands for joint financing of aid operations for Bangladesh.

B. Amounts owed to EFTA States

This heading comprises the 1995 balance of contributions from the EFTA States belonging to the EEA which was not regularized until January 1997.

C. Amounts owed to the institutions

This item covers payments to the institutions of the proceeds from the sale of publications by the Office for Official Publications.

D. Amounts owed to Community bodies

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

These bodies are not included in the consolidated balance sheet.

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

E. Sundry creditors

This item principally covers revenue to be transferred to various bodies or third parties and payments outstanding on the EIF shares called up (see note and I.B.5 - assets).

F. Revenue not booked

This item comprises various items of revenue (ECU 88,2 million) that could not be definitively booked to the budget before the close of the year and revenue available for re-use (ECU 86,4 million).

Revenue from fines for infringements of the competition rules (ECU 38,1 million) is now entered in suspense accounts if an appeal is made to the Court of Justice by a third party. If the Court finds in favour of the appellant, the sum in question has to be refunded at once. Until the Court has given judgment, such revenue cannot be booked to the budget immediately on receipt.

G. Revenue to be collected

This heading is the contra entry for the entitlements contained in the various current assets headings which will not be included with revenue until they are collected. At 31 December 1996 the revenue to be collected totalled ECU 2,765 billion.

H. Appropriations to be carried over

The breakdown of appropriations to be carried over, taking all the institutions together, is as follows:

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I. Ongoing payments

This item covers payments booked to the 1996 budget but only effected by the accounting officer between 1 and 15 January 1997.

III. CASH ACCOUNTS

This heading comprises those accounts showing a surplus, in terms of accounting dates but not value dates, at 31 December 1996.

IV. ACCRUED EXPENSES

This item relates to loans granted from borrowed funds for which the balance sheets and profit and loss accounts are contained in Volume II of the revenue and expenditure account.

It covers accrued interest on borrowings and swaps, swap operations, provisions and suspense accounts.

CHAPTER 4 COMMITMENTS NOT INCLUDED IN THE BALANCE SHEET POTENTIAL OBLIGATIONS, LIABILITIES AND ASSETS OF THE EUROPEAN UNION AT 31 DECEMBER 1996

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EXPLANATORY NOTES

OFF-BALANCE SHEET COMMITMENTS - POTENTIAL LIABILITIES AND CLAIMS

1. Commitments against differentiated appropriations still outstanding at 31 December 1996 totalled ECU 47 911 667 666,38, of which ECU 422 469 073,73 is covered by carryovers of payment appropriations.

2. As formulated, the guarantee legally covers the loans signed by the EIB at 31 December 1996 (ECU 10 735,4 million). This figure includes the loans granted to three non-member countries which subsequently became Member States (ECU 1 542,7 million).

However, it should be noted that these loans have not been fully paid out. At 31 December the amount paid out totalled ECU 3 898 541 974 (ECU 3 634 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 5 147,7 million paid out up to 31 December 1996, ECU 1 249,5 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 1996.

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The Community has obtained cover from third-party guarantors for approximately 63 % of the guarantees it gives on loans granted by the EIB from its own resources in non-member countries (ECU 10 735,4 million). These third-party guarantees break down approximately as follows:

- 47 % sovereign guarantees,

- 2 % guarantees by public or semi-public institutions,

- 14 % guarantees by private financial institutions.

3. 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. These liabilities will be settled when the decision is taken on the clearance of the accounts.

5. The Brussels-capital region has introduced a tax on office workers. The Commission has 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. A final ruling still has to be made. If the verdict goes against the Commission, this would cost about ECU 2 million a year. The total for 1992 to 1996 would be ECU 8 410 000 and the amount for 1996 would come to ECU 1 700 000.

6. This figure comprises the sales price for the Court St Michel 1 building for which a preliminary contract was signed in late 1996 and for which the contract of sale is subject to the inclusion of an ownership reservation.

7.1. As these amounts come from outside the accounts, the figures shown for this item are not exhaustive. This item also contained assets covered by a rental contract with a purchase option.

7.1.1. At 31 December 1996 the Commission had not subscribed to any long-term commitments with a purchase option.

7.1.2. In January 1992 Parliament concluded a framework long-term leasing contract with a purchase option for a complex in Brussels comprising three buildings for which the estimated cost of the original investment (1992 figure) came to around ECU 1 047 million (Bfrs/ECU exchange rate at 31 December 1996). Under this contract, the lease will be taken over in stages as the buildings in question are provided.

By the date on which the balance sheet was drawn up the first two buildings had been handed over to the European Parliament at a final investment cost of ECU 343 million, all of which was paid before 31 December 1996. The estimated investment cost of the third building (updated 1997 figure) comes to ECU 803 million (Bfrs/ECU exchange rate at 31 December 1996). However, in view of the commitment by the Belgian Government to cover the cost of the land occupied by this building subject to certain conditions, this estimate may be reduced to around ECU 627 million.

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 September 1996) is ECU 457 million (FF/ECU exchange rate at 31 December 1996). No fee had been paid by the time the balance sheet was drawn up.

All the estimates of investment costs are net of the long-term financing cost.

7.1.3. On 15 November 1994, the Court signed a hire-purchase contract with the Luxembourg Government for annexes A, B and C of the Palais building with a total surface area of 26 635 m², 24 505 m² and 14 809 m² 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. From 1 January 1995 onwards, the Court is obliged to pay an annual charge of Lfrs 633,5 million.

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

The latest expert report in our possession was drawn up on 23 January 1997; its conclusions are summarized below:

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If the budgetary authority had decided to pay the balance due at 31 December 1996 instead of the annual charge laid down in the contract, the payment would thus have been Lfrs 3,2 billion (ECU 79,9 million). The marked reduction in this amount compared with the situation at 31 December 1995 is due to the two early payments which the Court made in 1996 pursuant to Article 8 (2) of the Agreement with the Luxembourg State.

The Court used the ECU 50 000 000 in Chapter 10 0 (Provisional appropriations) to bring forward payment towards the purchase of the annexes to the Palais building in accordance with the option allowed in Article 8 (2) of the leasing-purchase contract.

7.2. 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 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 entered correspond to the commitments still to be paid during the term of the contract. The only exception is the Court of Justice's Palais building which is occupied under an indefinite lease; here, the amounts correspond to the annual rent.

7.2.1. 2,29 hectares of land held in Luxembourg under a 29-year lease.

7.2.2. Buildings occupied by the Commission in Brussels under leasing contracts. Of the ECU 586 430 306,40 in commitments, ECU 10 004 583,65 are met by the Régie des Bâtiments.

7.2.3. Buildings occupied by the Commission in Brussels under a long-term lease. This heading covers the amounts set out in Table 1 and the commitments for the Charlemagne building (ECU 320 930 824,10) for which no payment had been made at 31 December 1996.

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

The commitments recorded in Items 7.2.2 to 7.2.4 are estimated from the amounts actually paid in 1996.

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7.3. 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. The Community has received guarantees from third-party guarantors in respect of the 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 food aid scheme. However, these loans, totalling ECU 143 657 826,15, are guaranteed by the Guarantee Fund.

9. 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 1996. 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 of the 1996 revenue and expenditure account.

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10. The amounts recovered by the Member States as a result of irregularities reported to the Commission in accordance with Article 3 of Regulations (EEC) No 283/72 and (EEC) No 595/91 are shown in the table below.

EAGGF GUARANTEE : IRREGULARITIES

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Pursuant to Article 8 of Regulation (EEC) No 729/70, the sums recovered by the Member States are paid to the paying agencies or departments and deducted by them from the expenditure financed by the EAGGF.

The arrangements for acting against irregularities and recovering the sums lost require the Member States to inform the Commission of the state of the administrative and judicial procedures (Article 5 of Regulation (EEC) No 283/72 and Regulation (EEC) No 595/91).

The amounts recovered may not be deducted from EAGGF expenditure until the judicial procedures have been completed. In view of the uncertain duration of these procedures, it is not possible to fix a schedule for recovery. These amounts are therefore subject to constant change.

11. The amounts relating to cases of fraud and irregularities discovered in the field of structural operations are those reported by the Member States at the end of the third quarter of 1996. The Member States had not supplied the figures for the fourth quarter of 1996 when the 1996 revenue and expenditure account was drawn up.

These amounts are shown in the following tables.

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The amounts relating to cases of fraud and irregularities discovered in the field of traditional own resources are those for which recovery orders have been issued; they are therefore included under heading III.A.1 of the balance sheet (Amounts owed by Member States).

12. At 30 September 1996, with potential liabilities of ECU 4,8 million and potential gains of ECU 114,6 million, there was a net potential gain of ECU 109,8 million for the disposal of agricultural stocks.

These differences result from a number of factors:

- Some two thirds of the total potential gain is accounted for by cereals. This is due to the distinct recovery in world prices for these products after bad harvests throughout the world led to an increase in foreseeable sales value as regards both the internal market and the world market.

- The other sector for which a considerable gain is expected is olive oil. This is due to the fact that the depreciation at the end of 1993 for Italy (which accounts for half the Community's stocks of this product) proved 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 1996.

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The value of new stocks is written down from the date on which they are formed. The 1997 budget contains ECU 1 843,1 million for the depreciation of these stocks (subsection B1), broken down as follows:

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13. As 20 % of the EIF's subscribed capital has been taken up, the European Union has to pay ECU 120 million between 1994 and 1997 (ECU 30 million a year). At 31 December 1996 the European Union had already paid ECU 90 million.

At the same date the EIF had signed guarantees totalling ECU 1 423 million; as 89,3 % of EIF capital has been subscribed, this represents a maximum potential risk of ECU 478 million for the European Union. The last capital payment of ECU 30 million is to be made in July 1997, bringing the total capital paid by the European Union to ECU 120 million; in the worst scenario, the European Union would thus have to supplement its payments by around ECU 358 million (ECU 478 million - ECU 120 million).

14. Financing of Community pension commitments

1. Introduction

The Community pensions scheme is set out in Chapter 3 (Pensions) of Title V (Emoluments and social security benefits of officials) of the Staff Regulations drawn up in 1962 and in Annex VIII (Pension scheme) to those regulations.

Articles 77 to 80 describe the different types of pension covered by the scheme (retirement, invalidity, survivor's) which includes the payment of family benefits.

2. Commitments under the scheme

The commitments flow from all the pension rights of officials and other staff at all the institutions and agencies (including severance grants for persons leaving before completing 10 years of service). Payments are made from Chapter A-1 9 of the budget (Pensions and severance grants) which covers all the institutions and includes pension rights transferred from national schemes to the Community scheme (Article 11 of Annex VIII).

These commitments correspond to the actuarial value on 31 December 1996 of the benefits promised to staff still at work and the benefits now being paid to current recipients of pensions.

3. Financing of the scheme

The scheme is financed in accordance with Article 83 of the Staff Regulations:

'Benefits paid under this pension scheme shall be charged to the budget of the Communities. Member States shall jointly guarantee payment of such benefits in accordance with the scale laid down for financing such expenditure` (first subparagraph of paragraph 1).

'Officials shall contribute one third of the cost of financing this pension scheme. The contribution shall be 8,25 % of the official's basic salary` (paragraph 2).

4. Monitoring the balance of the scheme

Under Article 83 (4), 'should an actuarial assessment of the pension scheme, carried out by one of more qualified experts at the request of the Council, show the contributions of officials to be insufficient to finance one third of the benefits payable under the pension scheme, the budgetary authorities shall, acting in accordance with the budgetary procedure and after consulting the Staff Regulations Committee . . ., determine what changes are to be made to the rates of contribution or to the retirement age`.

The actuarial assessments conducted in 1986 and 1989 revealed that, if it had been a real pension fund, the scheme would have been in balance with a personal contribution of 6,75 % of the basic salary. This applies even more after the employee's contribution was raised from 6,75 % to 8,25 % on 1 January 1993.

5. Entry in the annual balance sheet

The Commission plans to conduct another actuarial study in the course of 1997. This study will include an examination and evaluation of pension commitments in the Community budget. An evaluation of this type may thus be supplied with the final closure of the 1997 balance sheet.

(1) The figure of ECU 1 981,610 million represents claims on Member States which have been quantified and duly established. Other unquantified claims have also been established and recorded as a memorandum item in the Commission's accounts. The number of memorandum items is as follows:

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