TABLE OF CONTENTS

IMPLEMENTING AND ACCOUNTING FOR THE EDF RESOURCES. 2

PART I - EDF ANNUAL ACCOUNTS: FUNDS MANAGED BY THE EUROPEAN COMMISSION. 8

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

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

1.2........ 8TH EDF: BALANCE SHEET, ECONOMIC OUTTURN ACCOUNT AND STATEMENT OF CHANGES IN NET ASSETS 13

1.3........ 9TH EDF: BALANCE SHEET, ECONOMIC OUTTURN ACCOUNT AND STATEMENT OF CHANGES IN NET ASSETS 16

1.4........ 10TH EDF: BALANCE SHEET, ECONOMIC OUTTURN ACCOUNT AND STATEMENT OF CHANGES IN NET ASSETS 19

1.5........ NOTES TO THE FINANCIAL STATEMENTS OF THE 8TH, 9TH AND 10TH EDFs. 22

2........... REPORT ON FINANCIAL IMPLEMENTATION. 38

2.1........ ALLOCATIONS. 38

2.2........ AGGREGATED ACCOUNTS. 38

2.3........ OTHER MANAGEMENT INFORMATION. 38

PART II - EDF ANNUAL ACCOUNTS: FINANCIAL STATEMENTS OF THE INVESTMENT FACILITY. 38

3.1 ....... STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2012. 38

3.2........ STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2012. 38

3.3........ STATEMENT OF CHANGES IN CONTRIBUTORS’ RESOURCES FOR THE YEAR ENDED 31 DECEMBER 2012 38

3.4........ STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2012. 38

3.5........ NOTES TO THE FINANCIAL STATEMENTS AS AT 31 DECEMBER 2012. 38

ANNEX TO PART 1 – CHAPTER 2 (REPORT ON THE FINANCIAL IMPLEMENTATION): SITUATION BY COUNTRY AND BY INSTRUMENT. 38

CERTIFICATION OF THE ACCOUNTS

The annual accounts of the 8th, 9th and 10th European Development Funds for the year 2012 have been prepared in accordance with Title VIII of the Financial Regulation of the 10th European Development Fund and with the accounting principles, rules and methods set out in annex to the financial statements.

I acknowledge my responsibility for the preparation and presentation of the annual accounts of the 8th, 9th and 10th European Development Funds in accordance with Article 125 of the Financial Regulation of the 10th European Development Fund.

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

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

(Signed)

Manfred Kraff

Accounting Officer

IMPLEMENTING AND ACCOUNTING FOR THE EDF RESOURCES

1. BACKGROUND

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

– The European Union budget

– The European Development Fund

– The European Investment Bank

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

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

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

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

2. HOW IS THE EDF FUNDED?

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

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

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

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

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

3. HOW ARE THE EDF RESOURCES MANAGED AND SPENT?

3.1 Operational expenditure

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

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

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

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

3.2 The different financial actors

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

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

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

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

3.3 Implementing the EDF resources

The bulk of the financial resources awarded to ACP States and OCTs through the EDF are awarded through grants. At the beginning of each EDF, the European Union informs the ACP States and the OCTs about the indicative allocations which should be available to them over the period of the fund. Resources are allocated based on a country’s needs and performance criteria.

At a national level, the country strategy paper (CSP) is a document prepared by the ACP State concerned and the Commission. It is drawn from prior consultation with a wide range of actors including non-State actors, local authorities and, where relevant, ACP Parliaments. The CSP is an instrument to prioritise activities and build local ownership of cooperation programmes.

A National Indicative Programme (NIP) is then drawn up on the basis of and consistent with the development objectives and priorities expressed in the CSP. The NIP targets the sectors and fields which will receive the aid, explains how the aid will fulfil its objectives, and gives a timetable for implementation. The CSP and the NIP are subject to an annual, mid-term and end-of-the-EDF-term review and improvements and changes are made when necessary during its operational period.

3.4 Committing to spend the EDF resources

No EDF resources can be spent unless and until the Commission and the intended recipient of EDF money have entered into a written legal commitment. A written legal commitment can be a (grant, service or other) contract concluded with entities accountable under private law such as NGOs or economic operators, or may consist of administrative and/or financial arrangements concluded by the Commission with entities accountable under public international law such as states and their public entities or interational organisations, possessing a legal personality and capacity.

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

(a) budget accounts, which provide a detailed record of budget implementation; and,

(b) general accounts, used to prepare the balance sheet and economic outturn.

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

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

3.5 Making a payment

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

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

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

3.6 Recovering undue payments

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

4. YEAR-END REPORTING

4.1 Annual accounts

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

The annual accounts are presented as follows:

Part I: Funds managed by the European Commission

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

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

Part II: Funds managed by the European Investment Bank

– Financial statements of the Investment Facility

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

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

4.2 Annual Activity Report

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

5. AUDIT AND DISCHARGE

5.1 Audit

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

(1) an annual report, detailing its observations on the annual accounts and underlying transactions;

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

(3) special reports giving the findings of audits covering specific areas of management.

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

5.2 Discharge

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

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

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

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

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

AGGREGATED BALANCE SHEET OF THE 8TH, 9TH AND 10TH EDFs

|| || || || EUR millions

|| Note || 31.12.2012 || 31.12.2011

|| NON-CURRENT ASSETS || || ||

|| Pre-financing || 2.1 || 438 || 380

|| || || ||

|| CURRENT ASSETS || || ||

|| Pre-financing || 2.2 || 1 334 || 1 175

|| Receivables || 2.3 || 70 || 111

|| Cash and cash equivalents || 2.5 || 690 || 1 224

|| || || ||

|| TOTAL ASSETS || || 2 532 || 2 891

|| || || ||

|| NON-CURRENT LIABILITIES || || ||

|| Payables || 2.6 || (40) || -

|| || || ||

|| CURRENT LIABILITIES || || ||

|| Payables || 2.7 || (1 057) || (1 033)

|| || || ||

|| TOTAL LIABILITIES || || (1 097) || (1 033)

|| || || ||

|| NET ASSETS || || 1 435 || 1 858

|| || || ||

|| FUNDS & RESERVES || || ||

|| Called fund capital || 2.8 || 29 579 || 26 979

|| Other reserves || 2.9 || 2 252 || 2 252

|| Economic outturn carried forward from previous years || || (27 374) || (24 674)

|| Economic outturn of the year || || (3 023) || (2 700)

|| NET ASSETS || || 1 435 || 1 858

AGGREGATED ECONOMIC OUTTURN ACCOUNT OF THE 8TH, 9TH AND 10TH EDFs

|| || EUR millions

|| Note || 2012 || 2011

|| || ||

OPERATING REVENUE || 3.1 || 124 || 99

|| || ||

OPERATING EXPENSES || || ||

Operating expenses || 3.2 || (3 017) || (2 702)

Administrative expenses || 3.3 || (107) || (75)

|| || ||

SURPLUS (DEFICIT) FROM OPERATING ACTIVITIES || || (3 001) || (2 679)

|| || ||

Financial revenue || 3.4 || (22) || (20)

SURPLUS (DEFICIT) FROM FINANCIAL ACTIVITIES || || (22) || (21)

|| || ||

ECONOMIC OUTTURN OF THE YEAR || || (3 023) || (2 700)

AGGREGATED CASHFLOW TABLE OF THE 8TH, 9TH AND 10TH EDFs

|| || EUR millions

|| Note || 2012 || 2011

|| || ||

Economic outturn of the year || || (3 023) || (2 700)

|| || ||

OPERATING ACTIVITIES || 4.2 || ||

Ordinary contributions from Member States || || 2 606 || 3 238

Co-financing contributions || || 19 || 7

(Reversal of) impairment losses on receivables || || 4 || 6

|| || ||

(Increase)/decrease in non-current pre-financing || || (58) || (28)

(Increase)/decrease in current pre-financing || || (159) || (79)

(Increase)/decrease in current receivables[3] || || 31 || 14

Increase/(decrease) in non-current liabilities || || 40 || -

Increase/(decrease) in current liabilities[4] || || 6 || (42)

|| || ||

NET CASH FLOW || || (534) || 417

|| || ||

NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS || || (534) || 417

Cash and cash equivalents at the beginning of the year || 2.5 || 1 224 || 808

Cash and cash equivalents at the end of the year || 2.5 || 690 || 1 224

AGGREGATED STATEMENT OF CHANGES IN NET ASSETS OF THE 8TH, 9TH AND 10TH EDFs

|| || || || || || || EUR millions

|| Fund Capital (a) || Uncalled funds (b) || Called fund capital (c)=(a)-(b) || Cumulative reserves (d) || Other reserves (e) || Total Net Assets (c)+(d)+(e)

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

Capital increase – ordinary contributions || - || (3 100) || 3 100 || - || - || 3 100

Economic outturn of the year || - || - || - || (2 700) || - || (2 700)

BALANCE AS AT 31 DECEMBER 2011 || 45 691 || 18 712 || 26 979 || (27 374) || 2 252 || 1 858

Capital increase – ordinary contributions || - || (2 600) || 2 600 || - || - || 2 600

Economic outturn of the year || - || - || - || (3 023) || - || (3 023)

BALANCE AS AT 31 DECEMBER 2012 || 45 691 || 16 112 || 29 579 || (30 396) || 2 252 || 1 435

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

BALANCE SHEET OF THE 8TH EDF

|| || || || EUR millions

|| Note || 31.12.2012 || 31.12.2011

|| CURRENT ASSETS || || ||

|| Pre-financing || 2.2 || 38 || 70

|| Receivables || 2.3 || 1 || 4

|| Liaison accounts || 2.4 || 345 || 387

|| || || ||

|| TOTAL ASSETS || || 384 || 461

|| || || ||

|| CURRENT LIABILITIES || || ||

|| Payables || 2.7 || (22) || (29)

|| || || ||

|| TOTAL LIABILITIES || || (22) || (29)

|| || || ||

|| NET ASSETS || || 361 || 432

|| || || ||

|| FUNDS & RESERVES || || ||

|| Called fund capital || 2.8 || 12 840 || 12 840

|| Other reserves || 2.9 || (2 354) || (2 276)

|| Economic outturn carried forward from previous years || || (10 132) || (10 042)

|| Economic outturn of the year || || 7 || (90)

|| NET ASSETS || || 361 || 432

ECONOMIC OUTTURN ACCOUNT OF THE 8TH EDF

|| || EUR millions

|| Note || 2012 || 2011

|| || ||

OPERATING REVENUE || 3.1 || 58 || 40

|| || ||

OPERATING EXPENSES || 3.2 || (49) || (128)

|| || ||

|| || ||

SURPLUS (DEFICIT) FROM OPERATING ACTIVITIES || || 9 || (88)

|| || ||

Financial revenue || 3.4 || (2) || (1)

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

|| || ||

ECONOMIC OUTTURN OF THE YEAR || || 7 || (90)

STATEMENT OF CHANGES IN NET ASSETS OF THE 8TH EDF

|| || || || || || || EUR millions

|| Fund Capital (a) || Uncalled funds (b) || Called fund capital (c)=(a)-(b) || Cumulative reserves (d) || Other reserves (e) || Total Net Assets (c)+(d)+(e)

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

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

Transfers to/from the 10th EDF || - || - || - || - || (38) || (38)

Economic outturn of the year || - || - || - || (90) || - || (90)

BALANCE AS AT 31 DECEMBER 2011 || 12 840 || - || 12 840 || (10 132) || (2 276) || 432

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

Transfers to/from the 10th EDF || - || - || - || - || (78) || (78)

Economic outturn of the year || - || - || - || 7 || - || 7

BALANCE AS AT 31 DECEMBER 2012 || 12 840 || - || 12 840 || (10 125) || (2 354) || 361

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

BALANCE SHEET OF THE 9TH EDF

|| || || || EUR millions

|| Note || 31.12.2012 || 31.12.2011

|| NON-CURRENT ASSETS || || ||

|| Pre-financing || 2.1 || 119 || 191

|| || || ||

|| CURRENT ASSETS || || ||

|| Pre-financing || 2.2 || 447 || 569

|| Receivables || 2.3 || 58 || 87

|| Liaison accounts || 2.4 || 1 919 || 2 557

|| Cash and cash equivalents || 2.5 || - || 6

|| || || ||

|| TOTAL ASSETS || || 2 543 || 3 410

|| || || ||

|| CURRENT LIABILITIES || || ||

|| Payables || 2.7 || (375) || (315)

|| || || ||

|| TOTAL LIABILITIES || || (375) || (315)

|| || || ||

|| NET ASSETS || || 2 168 || 3 096

|| || || ||

|| FUNDS & RESERVES || || ||

|| Called fund capital || 2.8 || 11 699 || 11 699

|| Other reserves || 2.9 || 4 126 || 4 227

|| Economic outturn carried forward from previous years || || (12 830) || (11 932)

|| Economic outturn of the year || || (827) || (898)

|| NET ASSETS || || 2 168 || 3 096

ECONOMIC OUTTURN ACCOUNT OF THE 9TH EDF

|| || EUR millions

|| Note || 2012 || 2011

|| || ||

OPERATING REVENUE || 3.1 || 49 || 49

|| || ||

OPERATING EXPENSES || || ||

Operating expenses || 3.2 || (856) || (924)

Administrative expenses || 3.3 || (1) || (3)

|| || ||

|| || ||

SURPLUS (DEFICIT) FROM OPERATING ACTIVITIES || || (809) || (879)

|| || ||

Financial revenue || 3.4 || (18) || (19)

SURPLUS (DEFICIT) FROM FINANCIAL ACTIVITIES || || (18) || (19)

|| || ||

ECONOMIC OUTTURN OF THE YEAR || || (827) || (898)

STATEMENT OF CHANGES IN NET ASSETS OF THE 9TH EDF

|| || || || || || || EUR millions

|| Fund Capital (a) || Uncalled funds (b) || Called fund capital (c)=(a)-(b) || Cumulative reserves (d) || Other reserves (e) || Total Net Assets (c)+(d)+(e)

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

Capital increase – ordinary contributions || - || (660) || 660 || - || - || 660

Transfers to/from the 10th EDF || - || - || - || - || 70 || 70

Economic outturn of the year || - || - || - || (898) || - || (898)

BALANCE AS AT 31 DECEMBER 2011 || 11 699 || - || 11 699 || (12 830) || 4 227 || 3 096

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

Transfers to/from the 10th EDF || - || - || - || - || (100) || (100)

Economic outturn of the year || - || - || - || (827) || - || (827)

BALANCE AS AT 31 DECEMBER 2012 || 11 699 || - || 11 699 || (13 657) || 4 126 || 2 168

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

BALANCE SHEET OF THE 10TH EDF

|| || || || EUR millions

|| Note || 31.12.2012 || 31.12.2011

|| NON-CURRENT ASSETS || || ||

|| Pre-financing || 2.1 || 319 || 189

|| || || ||

|| CURRENT ASSETS || || ||

|| Pre-financing || 2.2 || 849 || 536

|| Receivables || 2.3 || 11 || 20

|| Cash and cash equivalents || 2.5 || 690 || 1 218

|| || || ||

|| TOTAL ASSETS || || 1 869 || 1 963

|| || || ||

|| NON-CURRENT LIABILITIES || || ||

|| Payables || 2.6 || (40) || -

|| || || ||

|| CURRENT LIABILITIES || || ||

|| Payables || 2.7 || (660) || (689)

|| Liaison accounts || 2.4 || (2 264) || (2 944)

|| || || ||

|| TOTAL LIABILITIES || || (2 963) || (3 633)

|| || || ||

|| NET ASSETS || || (1 095) || (1 670)

|| || || ||

|| FUNDS & RESERVES || || ||

|| Called fund capital || 2.8 || 5 040 || 2 440

|| Other reserves || 2.9 || 479 || 301

|| Economic outturn carried forward from previous years || || (4 411) || (2 699)

|| Economic outturn of the year || || (2 203) || (1 712)

|| NET ASSETS || || (1 095) || (1 670)

ECONOMIC OUTTURN ACCOUNT OF THE 10TH EDF

|| || EUR millions

|| Note || 2012 || 2011

|| || ||

OPERATING REVENUE || 3.1 || 18 || 10

|| || ||

OPERATING EXPENSES || || ||

Operating expenses || 3.2 || (2 112) || (1 650)

Administrative expenses || 3.3 || (106) || (72)

|| || ||

|| || ||

SURPLUS (DEFICIT) FROM OPERATING ACTIVITIES || || (2 201) || (1 712)

|| || ||

Financial revenue || 3.4 || (2) || 0

SURPLUS (DEFICIT) FROM FINANCIAL ACTIVITIES || || (2) || (1)

|| || ||

ECONOMIC OUTTURN OF THE YEAR || || (2 203) || (1 712)

STATEMENT OF CHANGES IN NET ASSETS OF THE 10TH EDF

|| || || || || || || EUR millions

|| Fund Capital (a) || Uncalled funds (b) || Called fund capital (c)=(a)-(b) || Cumulative reserves (d) || Other reserves (e) || Total Net Assets (c)+(d)+(e)

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

Capital increase – ordinary contributions || - || (2 440) || 2 440 || - || - || 2 440

Transfers from the 8th and the 9th EDF || - || - || - || - || (32) || (32)

Economic outturn of the year || - || - || - || (1 712) || - || (1 712)

BALANCE AS AT 31 DECEMBER 2011 || 21 152 || 18 712 || 2 440 || (4 411) || 301 || (1 670)

Capital increase – ordinary contributions || - || (2 600) || 2 600 || - || - || 2 600

Transfers from/to the 8th and the 9th EDF || - || - || - || - || 178 || 178

Economic outturn of the year || - || - || - || (2 203) || - || (2 203)

BALANCE AS AT 31 DECEMBER 2012 || 21 152 || 16 112 || 5 040 || (6 614) || 479 || (1 095)

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

1. SIGNIFICANT ACCOUNTING POLICIES

1.1. LEGAL PROVISIONS AND THE FINANCIAL REGULATION

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

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

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

1.2. ACCOUNTING PRINCIPLES

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

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

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

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

– going concern basis;

– prudence;

– consistent accounting methods;

– comparability of information;

– materiality;

– no netting;

– reality over appearance;

– accrual-based accounting.

1.3. BASIS OF PREPARATION

1.3.1. Functional and reporting currency

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

1.3.2. Currency and basis for conversion

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

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

Currency || 31.12.2012 || 31.12.2011 || Currency || 31.12.2012 || 31.12.2011

XOF || 655.957 || 655.957 || KES || 113.460 || 109.362

XAF || 655.957 || 655.957 || BIF || 2037.95 || 1780.23

NGN || 206.074 || 204.185 || SLL || 5709.56 || 5663.54

PGK || 2.76702 || 2.81057 || TZS || 2077.48 || 2058.31

HTG || 56.2987 || 53.2461 || UGX || 3508.51 || 3181.89

GNF || 9250.40 || 9155.86 || MGA || 2981.70 || 2870.88

MWK || 439.917 || 213.286 || SZL || 11.1727 || 10.4830

1.3.3. Use of estimates

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

1.4. BALANCE SHEET

1.4.1 Pre-financing amounts

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

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

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

1.4.2 Receivables

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

1.4.3 Cash and cash equivalents

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

1.4.4 Payables

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

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

1.4.5 Provisions

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

1.4.6 Accrued and deferred income and charges

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

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

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

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

1.5. ECONOMIC OUTTURN ACCOUNT

1.5.1 Revenue

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

Recovery of expenses

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

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

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

Interest income

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

1.5.2 Expense

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

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

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

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

Interest expense

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

1.6. CONTINGENT ASSETS AND LIABILITIES

1.6.1 Contingent assets

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

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

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

1.6.2 Contingent liabilities

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

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

2. NOTES TO THE BALANCE SHEET

NON-CURRENT ASSETS

2.1 PRE-FINANCING

|| || || || EUR millions

|| 8th EDF || 9th EDF || 10th EDF || TOTAL 31.12.2012 || TOTAL 31.12.2011

Pre-financing || - || 119 || 319 || 438 || 380

TOTAL || - || 119 || 319 || 438 || 380

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

The timing of the recoverability or utilisation of the pre-financing governs whether it is disclosed as a current or a non-current pre-financing asset. The utilisation is defined by the project's underlying agreement. Any repayments or utilisation due within twelve months of the reporting date are disclosed as current pre-financing. As many of the EDF projects are long-term in nature, it is necessary that the related advances are available for more than one year. Thus these pre-financing amounts are shown as non-current assets.

The increase in non-current pre-financing of EUR 58 million compared to 31.12.2011 is mainly explained by an increase in non-current pre-financing related to PIR[5] Projects (EUR 97 million), Intra ACP Projects (EUR 42 million) and PIN[6] grants (EUR 10 million), offset by a decrease in the pre-financing related to Intra ACP (EUR 73 million) and Administrative Expenses (EUR 29 million).

CURRENT ASSETS

2.2 PRE-FINANCING

|| || || || EUR millions

|| 8th EDF || 9th EDF || 10th EDF || TOTAL 31.12.2012 || TOTAL 31.12.2011

Pre-financing (gross) || 70 || 1 207 || 2 316 || 3 593 || 3 415

Less estimated clearing of pre-financing || (32) || (760) || (1 468) || (2 259) || (2 240)

TOTAL || 38 || 447 || 849 || 1 334 || 1 175

The increase in net current pre-financing of EUR 159 million is mainly due to an increase in pre-financing related to the aid instruments PIN grants (EUR 147 million), PIR Projects (EUR 68 million) and Intra ACP-Debt Relief (EUR 39 million). This increase was partially offset by a decrease in the net pre-financing related to Sectorial Policy (EUR 65 million) and Intra ACP - Social Sectors Projects (EUR 32 million).

2.2.1 Guarantees received in respect of pre-financing

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

At 31 December 2012 the "nominal" value of guarantees received by the EDF in respect of pre-financing amounts to EUR 566 million. The "on-going" value of those guarantees amounts to EUR 391 million. At 31 December 2011 these values were EUR 637 million and EUR 394 million respectively.

2.3 RECEIVABLES

|| || || || || EUR millions

|| Note || 8th EDF || 9th EDF || 10th EDF || TOTAL 31.12.2012 || TOTAL 31.12.2011

Receivables from customers || 2.3.1 || 1 || 6 || 2 || 10 || 13

Receivables from Member States || 2.3.2 || - || - || 3 || 3 || 9

Accrued income and deferred charges || 2.3.3 || 0 || 51 || 6 || 57 || 89

TOTAL || || 1 || 58 || 11 || 70 || 111

2.3.1 Receivables from customers

|| || || || EUR millions

|| 8th EDF || 9th EDF || 10th EDF || TOTAL 31.12.2012 || TOTAL 31.12.2011

Receivables from customers || 5 || 19 || 3 || 26 || 27

-Write-down || (3) || (12) || (1) || (16) || (13)

TOTAL || 1 || 6 || 2 || 10 || 13

These are recovery orders entered in the accounts at 31 December 2012 as established entitlements to be recovered and not already included under other headings on the assets side of the balance sheet. The closing balance for recovery orders represents the value of recovery orders issued but not yet paid at year-end.

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

|| || || || EUR millions

|| 8th EDF || 9th EDF || 10th EDF || TOTAL 2012 || TOTAL 2011

Open recovery orders at beginning of year || 6 || 19 || 1 || 25 || 18

Recovery orders issued || 12 || 64 || 63 || 139 || 130

Recovery orders closed || (13) || (64) || (61) || (138) || (123)

Cashed || (12) || (43) || (43) || (97) || (108)

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

Cancelled || 0 || (3) || 0 || (4) || (2)

Offset || (2) || (17) || (18) || (36) || (13)

Open recovery orders at end of year || 5 || 19 || 3 || 26 || 25

2.3.2 Receivables from Member States

The EUR 3 million receivable from Member States in the 10th EDF comprises cofinancing contributions from Belgium, Spain and Sweden.

2.3.3 Accrued income and deferred charges

Accrued income and deferred charges include primarily accrued interest on pre-financing amounts. Additionally, accrued interest income on late payment of contributions is included under this heading.

The decrease in accrued income and deferred charges is explained by lower accrued interest on pre-financing (see note 3.4).

2.4 LIAISON ACCOUNTS

|| || || || EUR millions

|| 8th EDF || 9th EDF || 10th EDF || TOTAL 31.12.2012 || TOTAL 31.12.2011

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

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

to/from 8th EDF || - || (3 038) || 628 || (2 410) || (2 453)

to/from 9th EDF || 3 038 || - || (2 892) || 146 || (491)

to/from 10th EDF || (628) || 2 892 || - || 2 264 || 2 944

TOTAL || 345 || 1 919 || (2 264) || 0 || 0

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

The major 2012 movements in the liaison accounts include payments made by the 10th EDF for implementation of the 8th and 9th EDFs.

2.5 CASH AND CASH EQUIVALENTS[7]

|| || || || || EUR millions

|| Note || 8th EDF || 9th EDF || 10th EDF || TOTAL 31.12.2012 || TOTAL 31.12.2011

Cash at banks || 2.5.1 || - || - || 687 || 687 || 1 211

STABEX security accounts || 2.5.2 || - || - || 2 || 2 || 5

Co-financing bank accounts || 2.5.3 || - || - || - || - || 8

Democratic Republic Congo special fund[8] || - || - || - || 1 || 1 || 1

TOTAL || || - || - || 690 || 690 || 1 224

2.5.1 Cash at banks

|| || || || EUR millions

|| 8th EDF || 9th EDF || 10th EDF || TOTAL 31.12.2012 || TOTAL 31.12.2011

Special accounts - financial institutions of Member States || - || - || 633 || 633 || 1 129

Current accounts – commercial banks || || || 54 || 54 || 80

Local Paying Agents || - || - || 0 || 0 || 2

TOTAL || - || - || 687 || 687 || 1 211

The overall decrease in cash at banks is mainly explained by the level of payments made and a higher level of budget execution than in the previous reporting period.

Local paying agent accounts represent amounts held in bank accounts within ACP States and OCTs used for making payments in local currency within the beneficiary state. These accounts are kept in euros or in a currency of a Union Member State. In order to achieve a more centralised management of payments, during 2012, 3 out of the 4 remaining local paying agent accounts were closed.

2.5.2 STABEX Security accounts

|| EUR millions

|| Balance at 31.12.2012 || Balance at 31.12.2011

Ivory Coast || 2 || 2

Malawi || - || 1

Other countries || 0 || 2

TOTAL || 2 || 5

STABEX is the acronym for a European Union compensatory finance scheme to stabilise export earnings of the ACP countries. It was first introduced in the Lomé Convention (1975) with the purpose of remedying the harmful effects of the instability of export revenue from agricultural products. The balance on the STABEX security accounts represents the total of STABEX funds available which will be transferred to the relevant beneficiary ACP State at a future date. This balance is allocated to the 10th EDF. During 2012, eight STABEX security accounts were closed following the winding up of the STABEX aid instrument.

In addition to these funds, there are other STABEX funds held by beneficiary ACP States. Once the Commission and the beneficiary (ACP) State reach agreement on how the STABEX funds are to be utilised, a transfer convention is signed by both parties. In accordance with the provisions of Article 211 of the Lomé IV Agreement[9] (as revised), the funds are transferred into an interest bearing double signature account (European Commission and Beneficiary State) opened in the name of the ACP State. The funds remain in these double signature accounts until a FMO (Framework of Mutual Obligations) justifies a transfer for a project.

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

In 2012, EUR 49 million was returned to the EDF from double signature accounts in ACP countries following Article 1.4 of the Internal Agreement of the 10th EDF[10]. These funds were transferred mainly from the Salomon Islands (EUR 12 million), Ivory Coast (EUR 11 million), Burundi (EUR 5 million), St Vincent and the Grenadines (EUR 3 million), Senegal (EUR 3 million), Malawi (EUR 3 million), Uganda (EUR 3 million) and Burkina Faso (EUR 2 million). These revenues are included in operating income (STABEX aid instrument) in the economic outturn account of the 8th EDF.

2.5.3 Co-financing bank accounts

|| || || || EUR millions

|| 8th EDF || 9th EDF || 10th EDF || TOTAL 31.12.2012 || TOTAL 31.12.2011

Co-financing bank accounts || - || - || - || - || 8

TOTAL || - || - || - || - || 8

The co-financing bank accounts were closed. These funds, except for administrative part, were returned to the Member States following instructions from the Authorising Officer.

NON-CURRENT LIABILITIES

2.6 PAYABLES

|| || || || EUR millions

|| 8th EDF || 9th EDF || 10th EDF || TOTAL 31.12.2012 || TOTAL 31.12.2011

Co-financing - payables || - || - || 40 || 40 || -

TOTAL || - || - || 40 || 40 || -

Co-financing payables at the end of 2012 relate to the 10th EDF.

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

In 2012, in order to improve the presentation of the co-financing payables the amounts were split between non-current and current liabilities. The increase in the total co-financing payables is explained in the note 2.7.1.2.

CURRENT LIABILITIES

2.7 PAYABLES

|| || || || || EUR millions

|| Note || 8th EDF || 9th EDF || 10th EDF || TOTAL 31.12.2012 || TOTAL 31.12.2011

Current payables || 2.7.1 || 4 || 67 || 138 || 209 || 399

Accrued charges || 2.7.2 || 19 || 308 || 228 || 555 || 339

Deferred fund capital contribution || 2.7.3 || - || - || 293 || 293 || 295

TOTAL || || 22 || 375 || 660 || 1 057 || 1 033

2.7.1 Current payables

|| || || || || EUR millions

|| Note || 8th EDF || 9th EDF || 10th EDF || TOTAL 31.12.2012 || TOTAL 31.12.2011

Suppliers and other || 2.7.1.1 || 4 || 67 || 81 || 152 || 308

Co-financing payables || 2.7.1.2 || - || - || 46 || 46 || 81

Sundry payables || 2.7.1.3 || 0 || 0 || 12 || 12 || 10

TOTAL || || 4 || 67 || 138 || 209 || 399

Payables include cost statements received by the EDF relating to the grant activity. They are recorded for the amount being claimed from the moment the demand is received. The same procedure applies to invoices and credit notes received under procurement activities. The cost claims concerned have been taken into account for the year-end cut-off procedures. Following the cut-off entries, estimated eligible amounts have been recognised in the economic outturn account.

2.7.1.1 Suppliers and other

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

The decrease of EUR 157 million compared to the previous reporting period relates primarly to a EUR 75 million decrease in payables to third states and a EUR 37 million decrease in payables to non-public suppliers.

2.7.1.2 Co-financing payables

In 2012, in order to improve the presentation of the co-financing payables, the amounts were split between non-current and current liabilities. The decrease in current co-financing payables is mainly due to a reclassification of EUR 40 million to the non-current payables.

The total non-current and current co-financing payables increased by EUR 5 million. In 2012, new co-financing contributions were received from Germany (EUR 2 million) and Canada (EUR 2 million). The increase of Swedish co-financing payable (EUR 8 million) was partially offset by a decrease in Spanish and co-financing payables to UK (EUR 2 million each) and the clearing of the Italian co-financing payable within the 9th EDF.

The co-financing payables were decreased by EUR 8 million to recognise revenue related to the co-financing projects (see 3.1.3 and 3.2.2).

2.7.1.3 Sundry payables

Sundry payables mainly comprise unallocated cash receipts and returned amounts.

2.7.2 Accrued charges

|| || || || EUR millions

|| 8th EDF || 9th EDF || 10th EDF || TOTAL 31.12.2012 || TOTAL 31.12.2011

Accrued charges || 19 || 308 || 228 || 555 || 339

TOTAL || 19 || 308 || 228 || 555 || 339

At year-end, an assessment is made concerning eligible expenses incurred by beneficiaries of EDF funds but not yet reported. Following these cut-off calculations, estimated eligible amounts are recorded as accrued charges.

Estimated utilisation of pre-financing amounts is presented as an estimated clearing of pre-financing (see 2.2).

2.7.3 Deferred fund capital contribution

|| || || EUR millions

|| 8th EDF || 9th EDF || 10th EDF || TOTAL 31.12.2012 || TOTAL 31.12.2011

United Kingdom || - || - || 274 || 274 || 289

Ireland || - || - || 9 || 9 || 5

Lithuania || - || - || - || - || 1

Hungary || - || - || 10 || 10 || -

TOTAL || - || - || 293 || 293 || 295

This comprises Member States' contributions paid in advance.

NET ASSETS

2.8 CALLED FUND CAPITAL

|| || EUR millions

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

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

Uncalled fund capital || - || - || (18 712) || (18 712)

Called fund capital 31.12.2011 || 12 840 || 11 699 || 2 440 || 26 979

|| || || ||

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

Uncalled fund capital || - || - || (16 112) || (16 112)

Called fund capital 31.12.2012 || 12 840 || 11 699 || 5 040 || 29 579

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

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

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

The capital of the 8th and the 9th EDF has been called up and received in its entirety.

Called and uncalled fund capital by Member State

|| || || || EUR millions

Contributions || % || uncalled 10th EDF 31.12.2011 || called up in 2012 || uncalled 10th EDF 31.12.2012

Austria || 2.41 || (451) || 63 || (388)

Belgium || 3.53 || (661) || 92 || (569)

Denmark || 2.00 || (374) || 52 || (322)

Finland || 1.47 || (275) || 38 || (237)

France || 19.55 || (3 658) || 508 || (3 150)

Germany || 20.50 || (3 836) || 533 || (3 303)

Greece || 1.47 || (275) || 38 || (237)

Ireland || 0.91 || (170) || 24 || (147)

Italy || 12.86 || (2 406) || 334 || (2 072)

Luxemburg || 0.27 || (51) || 7 || (44)

Netherlands || 4.85 || (908) || 126 || (781)

Portugal || 1.15 || (215) || 30 || (185)

Spain || 7.85 || (1 469) || 204 || (1 265)

Sweden || 2.74 || (513) || 71 || (441)

United Kingdom || 14.82 || (2 773) || 385 || (2 388)

Cyprus || 0.09 || (17) || 2 || (15)

Czech Republic || 0.51 || (95) || 13 || (82)

Estonia || 0.05 || (9) || 1 || (8)

Hungary || 0.55 || (103) || 14 || (89)

Lithuania || 0.12 || (22) || 3 || (19)

Latvia || 0.07 || (13) || 2 || (11)

Malta || 0.03 || (6) || 1 || (5)

Poland || 1.3 || (243) || 34 || (209)

Slovenia || 0.18 || (34) || 5 || (29)

Slovakia || 0.21 || (39) || 5 || (34)

Bulgaria || 0.14 || (26) || 4 || (23)

Romania || 0.37 || (69) || 10 || (60)

TOTAL || 100,00 || (18 712) || 2 600 || (16 112)

In 2012 contributions under the 10th EDF were called. The first tranche of the 2013 Member States' contributions was called in November 2012.

2.9 OTHER RESERVES

EUR millions

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

Balance at 31.12.2010 || (2 237) || 4 157 || 333 || 2 252

Transfer of decommited amounts to the 10th EDF from the 8th and 9th EDFs || (38) || (80) || 118 || 0

Transfer from the 10th to the 9th EDF to allocate funds to Southern Sudan following Council Decision 2010/406/EU || - || 150 || (150) || 0

Balance at 31.12.2011 || (2 276) || 4 227 || 301 || 2 252

Transfer of decommited amounts to the 10th EDF from the 8th and 9th EDFs || (78) || (300) || 378 || 0

Transfer from the 10th to the 9th EDF to allocate funds to Southern Sudan following Council Decision 2011/315/EU || - || 200 || (200) || 0

Balance at 31.12.2012 || (2 354) || 4 126 || 479 || 2 252

Balance at 31.12.2012 includes: || || || ||

- Funds allocated to Southern Sudan || - || 350 || - || 350

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

In 2012, EUR 78 million and EUR 300 million of decommitted funds were transferred to the performance reserve of the 10th EDF from the 8th and 9th EDFs respectively while EUR 200 million were transferred from the performance reserve of the 10th EDF to the 9th EDF in order to allocate funds to South Sudan.[11]

3. NOTES TO THE ECONOMIC OUTTURN ACCOUNT

3.1 OPERATING REVENUE

EUR millions

|| 8th EDF || 9th EDF || 10th EDF || TOTAL 2012 || TOTAL 2011

Recovery of expenses || 2 || 14 || 2 || 17 || 16

Recovery of STABEX funds || 49 || - || - || 49 || 26

Exchange gains || 7 || 35 || 8 || 51 || 54

Operating income co-financing || - || - || 8 || 8 || 2

TOTAL || 58 || 49 || 18 || 124 || 99

3.1.1 Recovery of expenses

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

Recovery of undue payments

In 2012, recovery orders for EUR 27 million were issued in respect of undue payments, compared to EUR 12 million in 2011. Of these, EUR 11 million related to the recovery of expenses and were thus recorded as operating revenue. EUR 16 million represented recoveries of pre-financing amounts paid and were credited to the pre-financing asset on the balance sheet.

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

EUR millions ||

|| Revenue || Pre-financing || TOTAL 2012 || Revenue || Pre-financing || TOTAL 2011

Error || 1 || 1 || 2 || 2 || 1 || 3

Irregularity || 9 || 15 || 25 || 6 || 3 || 8

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

TOTAL || 11 || 16 || 27 || 8 || 4 || 12

3.1.2 Recovery of STABEX funds

In 2012, EUR 49 million was returned to the EDF from double signature accounts in ACP countries following Article 1.4 of the Internal Agreement of the 10th EDF[12]. These funds were transferred mainly from the Salomon Islands (EUR 12 million), Ivory Coast (EUR 11 million), Burundi (EUR 5 million), St Vincent and the Grenadines (EUR 3 million), Senegal (EUR 3 million), Malawi (EUR 3 million), Uganda (EUR 3 million) and Burkina Faso (EUR 2 million). These revenues are included in operating income (STABEX aid instrument) in the economic outturn account of the 8th EDF.

3.1.3 Operating income co-financing

The operating income relating to co-financing represents the contributions used (see 3.2.2). As these contributions fulfil the criteria of revenues from non-exchange transactions under condition, the contribution is recognised in accordance with the implementation of the co-financing project.

3.2 OPERATING EXPENSES

EUR millions

|| 8th EDF || 9th EDF || 10th EDF || TOTAL 2012 || TOTAL 2011

Operating expenses – aid instruments || 41 || 812 || 2 085 || 2 938 || 2 633

Operating expenses co-financing || - || - || 8 || 8 || 2

Exchange losses || 8 || 39 || 20 || 66 || 61

Write-down of receivables || 0 || 6 || - || 6 || 7

TOTAL || 49 || 856 || 2 112 || 3 017 || 2 702

In 2012 the Commission refined its methodology for estimating accrued charges. Had this refinement not been made, the operating expenses would have been 2 849 million euro instead of 3 017 million euro. The impact on net assets would have been the same amount (a decrease of EUR 168 million) mainly due to an increase in the accrued charges accounts (see 2.7.2).

3.2.1 Operating expenses – aid instruments

|| || || || EUR millions

|| 8th EDF || 9th EDF || 10th EDF || TOTAL 2012 || TOTAL 2011

Programmable aid || 17 || 93 || 1 366 || 1 476 || 1 251

Macro-economic support || - || 8 || - || 8 || 51

Sectoral policy || 0 || 322 || 3 || 326 || 371

Interest rate subsidies || 5 || - || - || 5 || 0

Intra ACP projects || - || 311 || 409 || 720 || 650

Emergency aid || - || 60 || 274 || 333 || 212

Refugee aid || 6 || - || - || 6 || 0

Risk capital || 1 || - || - || 1 || 19

STABEX || 4 || - || - || 4 || 12

Sysmin || 0 || - || - || 0 || (8)

Other aid programmes related to former EDFs || - || 10 || - || 10 || 24

Institutional support || - || (1) || 33 || 32 || 8

Compensation export receipts || 7 || 10 || - || 18 || 42

Total || 41 || 812 || 2 085 || 2 938 || 2 633

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

3.2.2 Operating expenses co-financing

These are the expenses incurred on co-financing projects in 2012. As the co-financing contributions received fulfil the criteria of revenues from non-exchange transactions under condition, a corresponding amount of contributions has been recognised as operating revenue (see 3.1.3).

3.2.3 Write-down of receivables

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

3.3 ADMINISTRATIVE EXPENSES

EUR millions

|| 8th EDF || 9th EDF || 10th EDF || TOTAL 2012 || TOTAL 2011

Administrative expenses || - || 1 || 106 || 107 || 75

TOTAL || - || 1 || 106 || 107 || 75

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

3.4 FINANCIAL REVENUE

EUR millions

|| 8th EDF || 9th EDF || 10th EDF || TOTAL 2012 || TOTAL 2011

Interest income - European banks || - || 6 || 4 || 9 || 1

Interest on pre-financing || (2) || (24) || (6) || (32) || (21)

TOTAL || (2) || (18) || (2) || (22) || (20)

Interest on pre-financing is recognised in accordance with the provisions of article 7 paragraph 3 and article 8 of the 10th EDF Financial Regulation. The reversal of the 2011 accrual for interest on pre-financing resulted in a negative interest revenue in 2012.

4. NOTES TO THE CASH FLOW STATEMENT

4.1 PURPOSE AND PREPARATION OF THE CASH FLOW STATEMENT

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

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

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

4.2 OPERATING ACTIVITIES

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

5. CONTINGENT ASSETS AND LIABILITIES AND OTHER DISCLOSURES

5.1 CONTINGENT ASSETS

EUR millions

|| 8th EDF || 9th EDF || 10th EDF || TOTAL 31.12.2012 || TOTAL 31.12.2011

Performance guarantees || 13 || 171 || 120 || 304 || 325

Retention guarantees || 6 || 107 || 74 || 188 || 197

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

TOTAL || 19 || 279 || 194 || 492 || 523

5.1.1 Performance guarantees

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

The decrease of EUR 21 million in performance guarantees is the difference between the guarantees released and new guarantees received. Most of the guarantees relased were under the 9th EDF, and the new guarantees were also mainly received under the 9th EDF.

5.1.2 Retention guarantees

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

The decrease of EUR 9 million in retention guarantees is a difference between the guarantees released and new guarantees received. Most of the guarantees released were under the 9th EDF and the new guarantees were also mainly received under the 9th EDF.

5.2 OTHER DISCLOSURES

5.2.1 Budgetary commitments not yet expensed

EUR millions

|| 8th EDF || 9th EDF || 10th EDF || TOTAL 31.12.2012 || TOTAL 31.12.2011

Outstanding budgetary commitments not yet paid || 103 || 938 || 4 601 || 5 642 || 5 594

Related amounts included in the economic outturn account || (22) || (382) || (310) || (714) || (646)

TOTAL || 81 || 557 || 4 291 || 4 928 || 4 948

Outstanding budgetary commitments represent open commitments for which payments and/or decommitments have not yet been made. This is a normal consequence of the existence of multiannual programmes. At 31 December 2012 the outstanding budgetary commitments totalled EUR 5 642 million. The amount disclosed as a future commitment to be funded is this outstanding budgetary commitment less related amounts that have been included as expenses in the 2012 economic outturn account, giving a total of EUR 4 928 million.

6. FINANCIAL RISK MANAGEMENT

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

6.1 RISK MANAGEMENT POLICIES AND HEDGING ACTIVITIES

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

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

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

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

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

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

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

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

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

6.2 MARKET RISK

6.2.1 Currency risk

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

6.2.2 Interest rate risk

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

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

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

6.3 CREDIT RISK (COUNTERPARTY RISK)

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

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

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

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

6.4 LIQUIDITY RISK

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

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

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

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

7. RELATED PARTY DISCLOSURES

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

8. EVENTS AFTER THE BALANCE SHEET DATE

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

9. RECONCILIATION ECONOMIC OUTTURN - BUDGET OUTTURN

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

|| || EUR millions

|| 2012 || 2011

|| ||

ECONOMIC OUTTURN OF THE YEAR || (3 023) || (2 700)

|| ||

REVENUE || ||

Entitlements not affecting the budget outturn || (47) || (52)

Entitlements established in the current year but not yet collected || (8) || (3)

Entitlements established in previous years and collected in the current year || 14 || 10

Net effect of pre-financing || 62 || 46

Net accrued revenue || (40) || (13)

|| ||

EXPENDITURE || ||

Expenses of the current year not yet paid || 38 || 98

Expenses of previous years paid in the current year || (101) || (249)

Payment cancellations || 7 || 17

Net effect of pre-financing || (316) || (346)

Net accrued expenses || 204 || 317

|| ||

BUDGET OUTTURN OF THE YEAR || (3 209) || (2 874)

9.1 Reconciling items – Revenue

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

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

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

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

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

9.2 Reconciling items – Expenditure

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

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

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

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

2. REPORT ON FINANCIAL IMPLEMENTATION

INTRODUCTORY NOTE

Previous EDFs

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

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

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

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

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

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

· As in past years, to ensure transparency in the presentation of the accounts for 2012, the tables below set out separately for the 8th EDF the part used for Lomé Convention programming and the part used for programming under the Cotonou Agreement. Regarding the latter, entry in the accounts and the presentation of accounts is based on Article 3(2) of Annex IV to the ACP-EC Partnership Agreement, as regards countries. That Article gives the ACP countries an A envelope to cover macroeconomic support and support for programmes and projects and a B envelope to cover unforeseen needs such as emergency assistance, debt relief initiatives and support to offset the adverse effects of instability in export earnings[13]. For the regions, the accounts are set out according to the regional programming as referred to in Chapter 2 of the ACP-EC Partnership Agreement (i.e. regional indicative programmes and intra-ACP cooperation).

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

· Council Decision 2010/406/EU decided to use for the benefit of Sudan an amount of EUR150 million from the funds de-committed from projects under the 9th and previous EDF's for the purpose of addressing the needs of the most vulnerable population. This amount has been allocated during 2011.

· Council Decision 2011/315/EU decided to use for the benefit of South Sudan an amount of EUR 200 million from the funds de-committed from projects under the 9th and previous EDF's to be used to support the implementation of the Three Year Southern Sudan Development plan. This amount has been allocated during 2012.

10th EDF

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

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

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

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

· EUR 21 966 million is allocated to the ACP countries in accordance with the multiannual financial framework set out in Annex Ib to the revised Cotonou Agreement, of which EUR 20 466 million is managed by the European Commission;

· EUR 286 million is allocated to the OCTs in accordance with Annex IIAa of the revised Council Decision on the association of the OCTs with the European Community, of which 256 million is managed by the European Commission;

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

Since the date of entry into force of the 10th EDF these amounts are supplemented by decommitments from previous EDF's, interest income and unused cash balances resulting from the system to guarantee the stabilisation of export earnings from primary agricultural products (STABEX) under the Funds prior to the 9th EDF. All funds are managed in accordance with their specific rules as foreseen in the revised Cotonou Agreement and the Internal Agreement.

Of the above mentioned 10th EDF allocations, the European Commission manages the initial amount of EUR 21 152 million as follows

– EUR 15 300 million for the national indicative programmes, comprising:

· EUR 13 500 million for the A envelope, of which EUR 13 345 million have been opened. In addition, the A envelope was increased from transfer of reserves by EUR 341 million, increased by EUR 91 million from closure of stabex de-commitments and decreased by EUR 33 million following transfer to regional allocations (MTR region-PALOP). As a result the total available funds amount to EUR 13 744 million in opened allocations and EUR 155 million still to be opened.

· EUR 1 800 million for the B envelopes, fully opened. In addition the B enveloppe was increased from reserves by EUR 148 million are open, bringing the total open funds to EUR 1 948 million.

– EUR 1 783 million for the regional indicative programmes, together with a transfer of EUR 33 million from Enveloppe A and a transfer to reserves of EUR 19 million, resulting in EUR 1 797 million of open allocations;

– EUR 2 700 million in Intra-ACP allocations, all are open, and together with a transfer of EUR 195 million from reserves, a total of EUR 2 895 million of allocations are open;

– EUR 683 million as a reserve, of which EUR 664 million has been transferred leaving a balance of EUR 19 million.

– EUR 430 million for implementation costs, all open

– EUR 256 million OCT allocations of which mainly:

· A enveloppe funds for EUR 195 million, of which EUR 140 million are open

· B enveloppe funds of EUR 15 million, of which EUR 7 million are open

· Regional allocations funds of EUR 40 million, all are open

· Studies/technical assistance funds of EUR 6 million, all open

- 10th EDF non-mobilisable performance reserve

Since the 10th EDF came into force on 1 July 2008, the remaining balances and the amounts decommitted from projects under the 9th and previous EDFs are transferred to the performance reserve of the 10th EDF, with the exception of Stabex funds and 9th EDF administrative envelope. This reserve may be used under the conditions set out in Article 1(4) of the Internal Agreement on the 10th EDF.

Please find below the detail of this reserve as at 31.12.2012 (EUR million):

Total funds transferred to the 10th EDF non-mobilisable reserve: || 815

minus funds transferred to the 9th EDF in favour of Sudan, Council Decision 2010/406/EU of 12.07.2010 || -150

minus funds transferred to the 9th EDF in favour of South Sudan, Council Decision 2011/315/EU of 23.05.2011 || -200

Total available in the reserve (ACP+OCT): || 465

- 10th EDF Stabex reserve

Following the closure of Stabex accounts, unused/decommitted funds are transferred to the 10th EDF Stabex A Envelope reserve (10th EDF Internal Agreement Art. 1(4)) and then to the national indicative programmes of the countries concerned.

The situation at 31.12.2012 of the reserve is as follows (EUR million):

Country concerned || Reserve A Envelope STABEX

Ivory Coast || 11.43

Cape Verde || 0.01

Guinea Bissau || 0.30

Sierra Leone || 0.22

Senegal || 0.90

Total || 12.86

- 10th EDF Co-financings

Under the 10th EDF, transfer agreements for co-financings from Member States were signed for EUR 116 million and commitment appropriations were opened for a total amount of EUR 99 million, while payment appropriations were opened for the cashed amounts totalling EUR 93 million.

The situation of co-financing appropriations at 31.12.2012 is shown in the table below (EUR million):

|| Commitments appropriations || Payment appropriations

Co-financing - A Envelope || 84 || 78

Co-financing - Intra ACP || 12 || 12

Co-financing – Administrative expenses || 3 || 3

|| 99 || 93

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

The tables presenting the situation by country and by instrument are annexed.

2.1 ALLOCATIONS

2.2 AGGREGATED ACCOUNTS

2.3. OTHER MANAGEMENT INFORMATION

Italian co-financing (1985)

The italian co-fnancing, in force since 1985, and still open in 2011 as the '4th rehabilitation programme – Somalia' which was still in progress could finally be closed in 2012. Balances available at closure have been repaid to Italy.

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

EUROPEAN INVESTMENT BANK || CA/463/13

|| 14 March 2013

|| Document 13/072

||

||

BOARD OF DIRECTORS

Investment Facility

financial statements

as at 31 december 2012

|| ||

|| - Statement of financial position - Statement of comprehensive income - Statement of changes in contributors’ resources - Statement of cash flows - Notes to the financial statements ||

ORG.: E ||

3. FINANCIAL STATEMENTS OF THE INVESTMENT FACILITY

3.1 STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2012

(In EUR’000)

|| Notes || 31.12.2012 || 31.12.2011

|| || ||

ASSETS || || ||

Cash and cash equivalents || 5 || 466 568 || 452 279

Derivative financial instruments || 6 || 115 || 434

Loans and receivables || 7 || 1 146 280 || 1 033 160

Available-for-sale financial assets || 8 || 333 001 || 251 660

Amounts receivable from contributors || 9/15 || 87 310 || 87 310

Held-to-maturity financial assets || 10 || 99 029 || -

Other assets || 11 || 224 || 416

|| || ||

Total Assets || || 2 132 527 || 1 825 259

|| || ||

|| || ||

LIABILITIES AND CONTRIBUTORS' RESOURCES || || ||

|| || ||

LIABILITIES || || ||

Derivative financial instruments || 6 || 7 035 || 12 702

Deferred income || 12 || 37 808 || 33 003

Amounts owed to third parties || 13 || 312 086 || 329 660

Other liabilities || 14 || 1 153 || 1 113

|| || ||

Total Liabilities || || 358 082 || 376 478

|| || ||

CONTRIBUTORS' RESOURCES || || ||

Member States Contribution called || 15 || 1 561 309 || 1 281 309

Fair value reserve || || 68 434 || 41 750

Retained earnings || || 144 702 || 125 722

|| || ||

Total Contributors' resources || || 1 774 445 || 1 448 781

|| || ||

Total Liabilities and Contributors' resources || || 2 132 527 || 1 825 259

The accompanying notes form an integral part of these financial statements.

3.2 STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2012

(In EUR’000)

|| Notes || From 01.01.2012 || From 01.01.2011 ||

|| to 31.12.2012 || to 31.12.2011 ||

|| || || ||

Interest and similar income || 17 || 67 503 || 59 561 ||

Interest and similar expense || 17 || -1 114 || -940 ||

|| || || ||

Net interest and similar income || || 66 389 || 58 621 ||

|| || || ||

Fee and commission income || 18 || 1 934 || 2 149 ||

Fee and commission expenses || 18 || -292 || -144 ||

|| || || ||

Net fee and commission income || || 1 642 || 2 005 ||

|| || || ||

Fair value change of derivative financial instruments || || 5 348 || -7 534 ||

Net realised gains on available-for-sale financial assets || 19 || 1 045 || 17 228 ||

Net foreign exchange loss/gain || || -10 575 || 8 376 ||

|| || || ||

Net result on financial operations || || -4 182 || 18 070 ||

|| || || ||

Change in impairment on loans and receivables, net of reversal || 7 || 597 || 27 452 ||

Impairment on available-for-sale financial assets || 8 || -8 927 || -6 888 ||

Impairment on other assets || 20 || -337 || - ||

General administrative expenses || 21 || -36 202 || -38 006 ||

|| || || ||

Profit for the year || || 18 980 || 61 254 ||

|| || || ||

Other comprehensive income: || || || ||

Available-for-sale financial assets – Fair value reserve || || || ||

1. Net change in fair value of available-for-sale financial assets || 8 || 18 551 || 20 574 ||

2. Net amount transferred to profit or loss || 8 || 8 133 || -3 394 ||

Total available-for-sale financial assets || || 26 684 || 17 180 ||

|| || || ||

Total other comprehensive income || || 26 684 || 17 180 ||

|| || || ||

Total comprehensive income for the year || || 45 664 || 78 434 ||

The accompanying notes form an integral part of these financial statements.

3.3 STATEMENT OF CHANGES IN CONTRIBUTORS’ RESOURCES FOR THE YEAR ENDED 31 DECEMBE