PRELIMINARY DRAFT SUPPLEMENTARY AND AMENDING BUDGET No 5 TO THE BUDGET FOR 2002 - STATEMENT OF REVENUE AND EXPENDITURE BY SECTION - Section III - Commission

(presented by the Commission)

Having regard to:

- The Treaty establishing the European Community, and in particular Article 272 thereof,

- The Treaty establishing the European Atomic Energy Community, and in particular Article 177 thereof,

- The Financial Regulation of 21 December 1977 applicable to the general budget of the European Communities [1] as last amended by Regulation No 762/2001 [2] of 9 April 2001, and in particular Article 15 thereof,

[1] OJ L 356, 31.12.1977, p.1.

[2] OJ L 111, 20.04.2001, p.1.

The European Commission hereby presents to the budgetary authority the draft supplementary and amending budget No 5 to the 2002 budget for the reasons set out in the explanatory memorandum.

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EXPLANATORY MEMORANDUM

After the floods that hit central Europe during August 2002 it was decided to set up a new financial instrument enabling the Community to grant emergency aid in the event of major disasters to Member States and countries involved in accession negotiations. The Commission proposed a Council Regulation establishing the European Union Solidarity Fund (EUSF) [3] and an Inter-institutional Agreement [4], describing how this new instrument was to be financed through a new flexibility mechanism, which would allow up to EUR1 billion per annum to be made available over and above the appropriate headings of the financial perspective. Political agreement on the two proposals was reached between the European Parliament and the Council at the conciliation of 22 October 2002. The Interinstitutional Agreement was adopted on 7 November and the legal base on 11 November 2002, and should come into force the day following its publication in the Official Journal of the European Communities.

[3] COM(2002) 514 final, on 18 September 2002

[4] SEC(2002) 960, on 11 September 2002

The EUSF regulation contains a specific provision whereby the Fund may retroactively be mobilised for disasters since August of this year. Member States, Parliament and the Commission have declared on several occasions that financial aid from the EUSF should be made available to the countries concerned as a matter of urgency.

The Commission has thus decided to propose to the Budgetary Authority this Preliminary Draft Supplementary and Amending Budget on the basis of applications by Germany, Austria and the Czech Republic and France, states that were partly devastated by floods in August and September 2002.

Germany: The first damage caused by the floods was registered on 10 August 2002. More than 337 000 people and over 10 000 companies were directly affected, over 100 000 people had to be evacuated. The regions hardest hit were Saxony and Sachsen-Anhalt. Estimated total damage amounts to EUR9 151 million, of which approximately EUR5 000 million is public. The German authorities claim not to be in a position at this stage to give an indication of insurance coverage. Damages to public infrastructure amount to over EUR3 300 million. The cost of operations referred to in Article 3 of the regulation is estimated at approximately EUR1 500 million.

Austria: The first damage caused by the floods occurred on 6 August 2002. The regions most affected were Lower Austria, Upper Austria and Salzburg. More than 200 000 people and over 2 400 companies were affected. Estimated total damage amounts to EUR2 939million, of which approximately EUR1 448 million is public. The Austrian request contains no information on insurance coverage. Damages to public infrastructure amount to nearly EUR 600 million.

The Czech Republic: The first damage caused by the floods occurred on 5 August 2002. Estimated total damage amounts to EUR2 341 million, of which approximately EUR770 million is public. EUR800-1000 million are estimated to be covered by insurance. Other Community sources expected to help cover the damage amount to EUR51 million (PHARE, ISPA, SAPARD). An EIB loan of up to 400 million is also expected.

France: Torrential floods occurred in the Languedoc-Roussillon region on 8 and 9 September 2002. By far most hardly hit was the département du Gard to which the French application is limited. In this département the first damage caused by the floods was registered on 8 September 2002. 295 municipalities (out of 353) were affected representing 94% of the population of the Gard. 8000 households found themselves without shelter. Estimated total damage amounts to EUR834.5 million, of which approximately EUR275 million is public. The French authorities state not to be in a position at this stage to give an indication of insurance coverage (some 50 000 damage claims from individuals or companies have been registered). Damages to public infrastructure amount to over EUR200 million. The cost of operations referred to in Article 3 of the regulation is estimated at approximately EUR225 million the bulk of which relates to infrastructures.

As concerns the application relating to the August floods in Austria, Germany and the Czech Republic, the Commission considers that all three applications meet the requirements of the regulation to mobilise the Fund. Total damage exceed by far the quantitative threshold of 0.6% of GNI (Austria, Czech Republic) or EUR3 billion (Germany). The serious repercussions of the floods on living conditions, the natural environment or the economy are clearly demonstrated. The estimated costs of operations referred to in Article 3 of the regulation make up a considerable share of total damage exceeding in any event the maximum possible grant from the Fund .

As concerns the French application, the quantitative criterion is clearly not met as the damage remains below the EUR3 billion threshold. The Commission has therefore rigorously examined whether the criteria set in the last paragraph of Article 2.2 of the EUSF regulation are satisfied. The Commission has come to the conclusion that the sudden damage to the département du Gard can be considered as an extraordinary disaster within the terms of the regulation. In reaching this conclusion, the Commission took account of the extensive scale of the damage in terms of the large amount of territory affected (covering 253 communes), the proportion of the population affected in the Gard (94%), the long-term nature of the damage (for example, permanent damage to the quality of agricultural land, the delocalisation of enterprises). Account was also taken of the potential effects on the stability of the economy which, with an unemployment rate of 13.8%, is already in a relatively weak position. It is estimated that making good the physical and financial damage will take at least five years.

A number of elements contained in article 4 of the regulation must be considered to determine the amounts of aid to be granted to each of the four countries concerned. These are primarily the (limited) size of the Fund, the volume of expenditure considered eligible under article 3 of the regulation, which constitutes the theoretical maximum of aid that could be granted to a country, and the need to treat equitably present and future cases. As solidarity was the central justification for the creation of the Fund, the Commission takes the view that aid from the Fund should be progressive. That means that the portion of the damage exceeding 0,6 % of GNI or EUR 3 billion should give rise to higher aid intensity than damage up to these thresholds.

The Commission's proposed allocation under the Fund is based on the information made available by the applicants. Countries eligible under the criteria regarding major disasters are allocated 2.5% of the damage incurred up to 0.6% of the GNI or 3 billion Euro, 6% for the damage above. For extraordinary regional disasters, a rate of 2.5% is applied.

The Commission therefore proposes to grant the following amounts:

Austria // EUR134 million

Czech Republic // EUR129 million

France // EUR21 million

Germany // EUR444 million

Total 2002 // EUR728 million

As a consequence, the Commission requests the budgetary authority to allocate EUR599 million to budget line B2-400 (under heading 3 of the financial perspective) and EUR129 million to line B7-090 (under heading 7).

As shown by the following table, the totals of expenditure under headings 3 and 7 exceed the ceilings of the financial perspective. The mobilisation of the flexibility mechanism is proposed in parallel to this PDSAB in order to allow this.

The necessary payment appropriations will be allocated within budget 2002 through transfers, using unused payment appropriations, in particular in the field of Structural actions. As soon as the availabilities of payments by budget line are confirmed, the Commission will propose a transfer to the budgetary authority in due time to allow for payment operations in 2002.

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STATEMENT OF REVENUE AND EXPENDITURE BY SECTION

Section III - Commission

PARTB

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SUBSECTION B2 - STRUCTURAL OPERATIONS, STRUCTURAL AND COHESION EXPENDITURE, FINANCIAL MECHANISM, OTHER AGRICULTURAL AND REGIONAL OPERATIONS, TRANSPORT AND FISHERIES

TITLEB2-4--EUROPEAN UNION SOLIDARITY FUND - MEMBER STATES

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CHAPTERB2-4 0--European Union Solidarity Fund - Member States

ArticleB2-4 0 0--European Union Solidarity Fund - Member States

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This article is intended to accommodate the appropriations resulting from the mobilisation of the European Union Solidarity Fund.

Legal basis

Council Regulation establishing the European Union Solidarity Fund, adopted on 11 November 2002 (OJ .., ...2002, p. ).

Interinstitutional Agreement between the European Parliament, the Council and the Commission on the financing of the European Union Solidarity Fund and the conditions governing the resort to it, adopted on 7 November 2002 (OJ .., ...2002, p. ).

SUBSECTION B7--EXTERNAL ACTIONS

TITLEB7-0--PRE-ACCESSION STRATEGY

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CHAPTER B7-0 9--European Union Solidarity Fund - countries negotiating for accession

ArticleB7-0 9 0--European Union Solidarity Fund - countries negotiating for accession

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This article is intended to accommodate appropriations resulting from the mobilisation of the European Union Solidarity Fund.

Legal basis

Council Regulation, adopted on 11 November 2002, establishing the European Union Solidarity Fund (OJ .., ...2002, p. ).

Interinstitutional Agreement between the European Parliament, the Council and the Commission on the financing of the European Union Solidarity Fund and the conditions governing the resort to it, adopted on 7 November 2002 (OJ .., ...2002, p. ).