COMMUNICATION FROM THE COMMISSION TO THE COUNCIL - Financial Information on the European Development Funds

TABLE OF CONTENTS

Introduction

Summary

1. Implementation of the European Development Funds at 31.12.2002

1.1. Summary by Fund and by instrument (at 31.12.2002)

1.2. Implementation of the EDFs in 2002

2. Financial implementation forecasts for 2003 and 2004

2.1. Entry into force of the Cotonou Agreement

2.2. Overall outlook for implementation of the EDF

2.3. Decisions

2.3.1. 2003

2.3.2. 2004

2.4. Payments

2.4.1. 2003

2.4.2. 2004

2.5. Calls for contributions scheduled for 2003 and 2004

2.6. The contributions to be paid by the Member States in July 2003

Introduction

This document is to be annexed to the draft budget for 2004, in accordance with the 1979 agreements on budgetary procedure.

Article 8(3) of the Financial Regulation of 27 March 2003 applicable to the 9th European Development Fund [1] requires the Commission to make this document available to the Council by 15 June, stipulating that this information serves as a basis for an interim estimate of commitments and disbursements.

[1] OJ L 83, 1.4.2003, p. 1.

In accordance with Article 38 of the Financial Regulation, this communication is accompanied by a proposal for a Council Decision on the instalment of the contributions to be paid by the Member States in July 2003.

As in previous years, this document shows:

- EDF implementation at 31.12.2002;

- financial implementation forecasts for the current year (2003);

- expenditure forecasts for 2004.

Further details on implementation of the European Development Funds (EDFs) at 31.12.2002 will be given in the Commission communication to the Court of Auditors, the European Parliament and the Council containing the balance sheets and accounts of the 6th, 7th and 8th EDFs for 2002.

Summary

1. Decisions

After slowing down somewhat in 2001, the rate of decisions picked up again in 2002 (EUR2 114.5 million in new decisions), thanks primarily to the provision by the Council of new funding as a transitional measure pending the entry into force of the ACP-EU Partnership Agreement signed in Cotonou. [2] These measures enabled the Commission to commit a considerable sum (EUR793 million) and so offset some of the shortfall in resources for the countries performing best. In short, decisions slightly exceeded the target (EUR2 000 million) fixed in the communications of June [3] and November 2002. [4] After deducting decommitments amounting to EUR346.1 million, the net figure is EUR1 768.4 million.

[2] Decision No 1/2000 of the ACP-EC Council of Ministers of 27 July 2000.

[3] COM(2002) 372 final of 9.7.2002.

[4] COM(2002) 673 final of 28.11.2002.

For 2003 and 2004, in order to get more reliable forecasts the Commission went over each individual (project) dossier carefully with the delegations. Taking into account the figures supplied by the EIB for its own instruments (risk capital, investment facility and interest rate subsidies) we arrive at EUR2 500 million of new decisions for 2003 (EUR200 million up on the figure in the November 2002 Communication) and confirmation of the estimated on EUR3 275 million for 2004. The sharp rise in the forecast for 2003 can be attributed to the Commission's efforts to improve the EDF's performance.

2. Payments

With payments amounting to EUR1 902.5 million in 2002, the rate of implementation of the EDF was slightly lower than that recorded in 2001 (EUR2 142.49 million). However, the figures recorded for 2002 are still above the average for 1989-2001 (about EUR1 600 million). It was not possible to achieve the target figure of EUR2 000 million set by the Commission in June 2002. This is largely due to the fact that there was no need to pay the final instalment of EUR149 million to the HIPC (debt relief) initiative because a number of ACP countries notched up delays in achieving the objectives that would have entitled them to such aid. The Commission had warned of this development in its communication of November 2002. With recoveries and repayments amounting to EUR49.8 million, the net total of disbursements was EUR1 852.7 million.

A new payment estimate has been drawn up for 2003 and 2004 covering both current projects and those in the pipeline. Taking the EIB's estimates into account we get a figure of EUR2 100 millions for 2003, not counting forecast transfers under Stabex (EUR191 million for Sudan) or the HIPC instrument (approximately EUR210 million, including the EUR149 millions from the third tranche not used in 2002). The Court of Auditors has ruled that these transfers should not be entered in the accounts as payments. The estimate of EUR2 100 million is on the cautious side. The Commission will be doing its utmost to speed up the rate of disbursement in order to meet a more ambitious target by the year end, and will re-assess the situation in its Communication in October 2003.

The total estimated for 2004 is EUR2 600 million, confirming last year's forecast orders of magnitude.

3. Calls for contributions from the Member States

As the Stabex money is already available in a special account, EUR2 250 million should cover requirements. The first two calls for contribution totalled EUR950 million, so EUR1 300 million still needs to be paid by the end of this year. The Commission is proposing that the Member States should pay EUR850 million as the July 2003 tranche, making it possible to transfer the final EUR149 million HIPC instalment to the EIB. The current estimate for the last 2003 call for contributions is EUR450 million.

In view of the projected start-of-year and end-of-year balances, the Member States' contributions for 2004 are reckoned at EUR2 550 million.

As for snubsequent years, the Commission will be able to honour its commitments and mobilise the funds made available under the Cotonou Agreement, including the balances remaining from previous EDFs (the 6th, 7th and 8th), over a period of five years.

1. Implementation of the European Development Funds at 31.12.2002

1.1. Summary by Fund and by instrument (at 31.12.2002)

6th, 7th and 8th EDFs ACP and OCT

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1.2. Implementation of the EDFs in 2002

New decisions in 2002 totalled EUR2 114 million, slightly more than targeted (EUR2 000 million). A relatively large sum was cleared (EUR346 million), taking "net" decisions to EUR1 768 million. Payments amounted to EUR1 902 million. Taking account of recoveries of EUR49 million, "net" payments stood at EUR1 853 million. As already pointed out in November's communication, the Commission had to revise its initial target of EUR2000 million downwards (to EUR1 850 million) to take account of the fact that the EIB did not need a EUR150 million HIPC(debt-relief) instalment to be paid before the end of 2002.

The following chart shows the trend in new decisions (before decommitment) and payments (before recovery). Since 1989, decisions have averaged EUR2 033 million and payments EUR1 594 million.

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For information purposes, the following table breaks down new decisions and payments by instrument for the years 2001 and 2002.

EUR million

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Despite the delays in the entry into force of the Cotonou Agreement, the volume of decisions adopted in 2002 substantially exceeded that of 2001. This was made possible by the interim measures adopted by the Council in 2000, pending the Agreement's entry into force. The Commission committed EUR793 million (38% of commitments) in 2002. Decisions on the 6th, 7th and 8th EDFs were down on 2001. This is due to the fact that the sums available for commitment are steadily shrinking. At 31.12.2002 EUR32 840 million had been allocated to the ACP countries and OCT. Of this amount, EUR29 920 million had been committed, leaving an available balance of about EUR2 900 million, a relatively large proportion of which had been allocated, notably to countries in crisis, and was therefore no longer available for projects in new sectors.

For payments, it was not possible to achieve the level recorded in 2001. This was because an economic downturn and other problems in certain ACP countries caused the EIB to defer to 2003 the payment of EUR149 million to the HIPC initiative. The payment is due to be made this summer.

The table below gives the start-of-year and end-of-year balances, the Member States' contributions to the EDF and payments (disbursements). It shows that large sums were transferred from Stabex to current operations, both in 2001 and 2002 (EUR748.1 million for the two years together). This reduced considerably the call for new financial resources from the Member States. The transfers were performed by the Commission in accordance with the decision taken by the Committee of Ambassadors in August 2000. Under the decision, the Commission is required to transfer the balance remaining in the Stabex account, less suspended payments, to the current-expenditure account.

EUR million

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The amount of cash available for all accounts at the end of 2002 was EUR529 million, including EUR319 million under current expenditure and EUR210 million for Stabex. These amounts can be considered normal.

The EUR319 million includes EUR88 million paid in advance (towards the end of December 2002) by certain Member States for the calls for 2003. Without these payments, the balance would have been EUR230 million. For Stabex, just over EUR200 million had to be kept available for two suspended payments, one for Sudan and the other for Togo. These are the last two payments to be made by the Stabex instrument.

2. Financial implementation forecasts for 2003 and 2004

2.1. Entry into force of the Cotonou Agreement

The entry into force of the 9th EDF Financial Regulation in April 2003 has considerably altered the procedure whereby contributions are called for and paid. Now Member States have to pay contributions for 9th EDF operations managed by the EIB (the investment facility and interest-rate subsidies) directly to the Bank. However, contributions for projects committed under previous EDFs (risk capital and interest-rate subsidies) will continue to be paid to the Commission. The Commission will henceforth present the EIB's estimates for its new 9th EDF instruments separately from the figures for other measures (all instruments of previous EDFs and those 9th EDF instruments managed by the Commission).

2.2. Overall outlook for implementation of the EDF

The Commission, in close cooperation with the delegations, drew up a forecast of decisions and payments for 2003 and 2004 for each ACP country. Each commitment was subjected to risk analysis. The plan is to update that analysis regularly in the future.

The Commission believes that it will be able to commit the funds made available by the Cotonou Agreement (including the balances remaining from the 6th, 7th and 8th EDFs to be transferred to the 9th EDF) within a period of five years. The rate of commitments should increase significantly from 2003. Payments are expected to remain relatively modest in 2003 but to rise from 2004.

2.3. Decisions

2.3.1. 2003

The Commission expects new decisions in 2003 to total EUR2 500 million, breaking down as follows:

* EUR345 million for the EIB from the 9th EDF;

* EUR2 155 million for the instruments managed by the Commission (including former EIB instruments).

The amount of EUR2 500 million is considerably higher than the estimate presented in November 2002 (EUR2 300 million). It reflects the Commission's intention to improve its capacity to manage the EDF. The new forecast is some EUR400 million higher than the amount implemented in 2002 (EUR2 114 million).

The forecasts for 2003 received by the Commission from the EIB are EUR152 million for instruments financed by the 8th EDF (EUR24 million for interest-rate subsidies) and EUR345 million for the 9th EDF ("investment facility", excluding the interest-rate subsidies currently provided for).

2.3.2. 2004

The Commission reckons it will be possible to accelerate decisions further in 2004. In 2004 the third and final phase of the devolution of the Commission's departments should be complete and producing gains. Note that this third phase concerns most ACP countries. On the basis of the projects in the pipeline, the Commission believes that it will be able to achieve the targets for 2004 announced in November 2002, namely EUR3 275 million, EUR400 million of it for 9th EDF instruments managed by the EIB.

2.4. Payments

2.4.1. 2003

Particular attention has been given to updating payment estimates. Each delegation drew up estimates for each of its projects. The resulting total was about EUR2 100 million (including the EIB's needs). The estimate of EUR2 100 million is on the cautious side. The Commission will be doing its utmost to speed up the rate of disbursement in order to meet a more ambitious target by the year end, and will re-assess the situation in its Communication in October.

The payments estimates does not include transfers under Stabex (EUR191 million for Sudan) or the HIPC instrument (approximately EUR210 million, including the EUR149 millions from the third tranche not used in 2002). The Court of Auditors has ruled that these transfers should not be entered in the accounts as payments.

The sum of EUR2 100 million is broken down as follows:

* EUR60 million for the EIB from the 9th EDF;

* EUR2 040 million for the instruments managed by the Commission (including EIB instruments committed under the 8th EDF).

At 30 April the payments stood at EUR543 million, including sums in the process of being validated. This represents 26% of the new forecast (EUR2 100 million) and is consistent with the rate observed in the past at the same period (between 19% and 27% over the past three years).

2.4.2. 2004

For 2004 the forecast total is EUR2 600 million (including the EIB's needs). The EUR2 600 million comprises:

* EUR225 million for the EIB from the 9th EDF, EUR25 million of it for interest-rate subsidies;

* EUR2 375 million for the instruments managed by the Commission (including EIB instruments committed under the 8th EDF).

This sum is considerably higher than in the past and reflects the Commission's goal of improving and accelerating implementation of the EDF. The estimate is based on the assessment of the probable implementation of each project and takes account, in so far as is possible, of all known factors likely to slow down or speed up disbursements. Account is also taken of the implications of the devolution of Commission departments. However, even more than for 2003, since it is even further away in time, the figures must be treated with caution.

2.5. Calls for contributions scheduled for 2003 and 2004

The Member States' contributions will have to cover the estimated EUR2 100 needed for payments plus the approximately EUR200 million transfer for the HIPC instrument. The EUR191 million likely to be transferred to Sudan under Stabex, on the other hand, does not require any further financial contribution from the Member States as the money is already in the Commission's special Stabex account.

The following table sets out the financial forecasts for 2003 and 2004.

EUR million

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Allowing EUR50 million for recoveries/repayments it now looks as though EUR2 250 million should be sufficient to meet requirements. On the basis of the information currently available, the Commission and the EIB should end 2003 with balances of EUR225 million and EUR40 million respectively on their "current operations" accounts. This sum should enable the Commission and the EIB to bridge the gap between the end of 2003 and the payment of the first call for contributions for 2004, which is scheduled for 15 January 2004.

Given that the first two calls were for a total of EUR950 million, the latter two should together amount to EUR1 300 million. As already noted, the figures are on the cautious side. The Commission plans to update its estimates in October and might at that time propose an adjustment to the final tranche.

The estimated amount of contributions for 2004 is EUR2 550 million.

2.6. The contributions to be paid by the Member States in July 2003

The third instalment for 2003 (the second under the new procedure laid down in Article 38 of the 9th EDF Financial Regulation) should cover a period from about mid-July to about mid-November. In the case of the instruments managed by the Commission, about 80% of payments were, in the past, made between 1 January and 21 November (new deadline for payments). Taking account of the EIB's forecasts (EUR50 million from the 9th EDF and EUR100 million from previous EDFs) and the transfer of the final instalment for the HIPC initiative (EUR149 million), the sum to be paid to the Commission is EUR800 million and that to the EIB EUR50 million.

The annexed table gives the scale for contributions to the 8th EDF, which is the basis on which funds are currently called, and the amounts that the Commission proposes each Member State should pay for the July and (indicative) November instalments.

ANNEX

CONTRIBUTIONS TO THE EDF FOR 2003

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(1) According to the provisions of the 8th EDF Financial Regulation.

(2) According to the provisions of the 9th EDF Financial Regulation.