REPORT FROM THE COMMISSION - Financial statements of the European Coal and Steel Community at 23 July 2002 and E C S C Financial Report at 23 July 2002

REPORT FROM THE COMMISSION

E C S C FINANCIAL REPORT at 23 July 2002

Contents // Activity report

// Expiry of the ECSC Treaty

// Management of ECSC loans and guarantees

// Management of ECSC borrowings

// Other ECSC activities

// Out-turn of the ECSC operating budget

//

// Report by the Court of Auditors of the European Communities on the financial statements of the European Coal and Steel Community at 23 July 2002

//

// ECSC financial statements

// Balance sheet at 23 July 2002

// Profit-and-loss account for the period ending 23 July 2002

// Allocation of the surplus for the period ending 23 July 2002

// Notes to the financial statements at 23 July 2002

//

// Annexes

// Main characteristics of borrowings outstanding at 23 July 2002

// Operations under the ECSC operating budget

ECSC

// The European Coal and Steel Community was established under the Treaty signed in Paris on 18 April 1951 by Belgium, the Federal Republic of Germany, France, Italy, Luxembourg and the Netherlands. The Treaty entered into force in 1952 for a period of fifty years and was to expire on 23 July 2002. Denmark, Ireland and the United Kingdom became members of the ECSC on 1 January 1973, Greece on 1 January 1981, Spain and Portugal on 1 January 1986, and Austria, Finland and Sweden on 1 January 1995. The fifteen member countries are referred to hereinafter as the "Member States".

Commission // The European Commission exercises the powers and responsibilities devolving upon the former High Authority in accordance with the rules laid down by the ECSC Treaty.

//

// At 23 July 2002, the members of the Commission were:

//

// Mr Romano Prodi President

// Mr Neil Kinnock Vice-President

// Ms Loyola de Palacio Vice-President

// Mario Monti Member

// Franz Fischler Member

// Erkki Liikanen Member

// Frits Bolkestein Member

// Philippe Busquin Member

// Pedro Solbes Mira Member

// Poul Nielson Member

// Günter Verheugen Member

// Chris Patten Member

// Pascal Lamy Member

// David Byrne Member

// Michel Barnier Member

// Viviane Reding Member

// Michaele Schreyer Member

// Margot Wallström Member

// Antonio Vitorino Member

// Anna Diamantopoulou Member

//

// The lending/borrowing and ECSC investments sectors are the responsibility of Mr Pedro Solbes Mira.

Directorate-

General for

Economic and

Financial Affairs // The ECFIN Directorate-General - Financial Operations Service (FOS) conducts the ECSC's main financial operations under the authority, at 23 July 2002, of Mr Klaus Regling, Director-General of DG ECFIN, and Mr Paul Goldschmidt, Director of Directorate L.

//

Address // European Commission

// Directorate-General ECFIN - L

// Centre Wagner

// Rue Alcide De Gasperi

// L - 2920 LUXEMBOURG

// Tel. (352) 4301-1

// Fax (352) 43 63 22

// Internet : registry@cec.eu.int

//

Euro // Article 121 of the Treaty establishing the European Community laid down 1 January 1999 as the starting date for the third phase of economic and monetary union. On 3 May 1998 a Council meeting of the Heads of State or Government confirmed that Belgium, Germany, Spain, France, Ireland, Italy, Luxembourg, the Netherlands, Austria, Portugal and Finland met the conditions required for adopting the single currency, the euro, from 1 January 1999. Greece joined this group of countries on 1 January 2001. On 31 December 1998 [1] (19 June 2000 for the Greek drachma [2]), the Council fixed irrevocably the conversion rates between the euro and the currencies of the Member States which were to adopt it:

[1] Council Regulation (EC) N° 2866/98, OJ L 359, 31.12.1998

[2] Council Regulation (EC) N° 1478/00, OJ L 167, 07.07.2000

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The euro exchange rates for the currencies of the other EU countries and some non-member countries are given on page ...

Activity report

Expiry of the ECSC Treaty

The ECSC Treaty expired on 23 July 2002, and the ownership of ECSC funds reverted to the Member States on 24 July 2002.

The final objective laid down by the Member States is the transfer of ECSC funds to the European Community (EC) and the creation of a Joint Research Fund in sectors related to the coal and steel industries. This objective was already present in the resolution of the European Council meeting in Amsterdam on 16 June 1997 and in the resolutions adopted by the Council and the Representatives of the Governments of the Member States on 20 July 1998 and 21 June 1999.

The Nice European Council decided to annex to the Treaty of Nice a Protocol on the financial consequences of the expiry of the ECSC Treaty and on the Research Fund for Coal and Steel. It was decided that, on the expiry of the Treaty, all assets and liabilities of the ECSC would be transferred to the European Community on 24 July 2002. The net worth of these assets and liabilities is to be considered as assets intended for research in the sectors related to the coal and steel industries. The revenue from these assets is to be used exclusively for research in these sectors.

Since the Nice Treaty was not ratified before the expiry of the ECSC Treaty, the Member States have temporarily entrusted the European Commission [3] with the task of managing the assets of the ECSC in liquidation by applying the same principles as provided for in the Protocol to the Nice Treaty.

[3] Decision No 2002/234/ECSC of the Representatives of the Governments of the Member States, meeting within the Council, of 27 February 2002 (OJ L 79, 22.03.2002, p. 42).

Management of ECSC loans and guarantees

General trends in 2002

In view of the expiry of the ECSC Treaty on 23 July 2002, the Commission did not engage in any lending operations in 2002. Its activity was confined to the management of existing loans.

Since the start of its financial activity, the ECSC has disbursed loans amounting to EUR24.46 billion, of which EUR23.82 billion from borrowed funds and EUR643 million from own funds (Special Reserve and former Pension Fund).

With the guarantees granted during the same period (EUR77.9 million), the total of ECSC financial activity is EUR24.5 billion.

Breakdown by Member State of loans disbursed since the inception of the ECSC

(EUR million)

Rate at 23.07.2002

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(1) Loans for financing industrial investment

(2) Conversion loans

Amounts outstanding on ECSC loans

Loans from borrowed funds

(EUR million)

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(1) Loans for financing industrial investment.

(2) Conversion loans.

(3) Loans for financing the construction of workers' housing.

Loans from own funds

(EUR million)

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(1) Loans for financing industrial investment.

(2) Conversion loans.

(3) Loans for financing the construction of workers' housing.

Analysis of loans outstanding by guarantee received

Loans from borrowed funds

Breakdown by country and by guarantee received

Amounts outstanding at 23 July 2002

(EUR million)

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(1) Mainly loans granted to financial institutions for on-lending to final recipients.

Loans from own funds

Breakdown by country and by guarantee received

Amounts outstanding at 23 July 2002

(EUR million)

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(1) Mainly loans granted to financial institutions for on-lending to final recipients.

Management of ECSC borrowings

In 2002, the ECSC did not engage in any borrowing activity owing to the forthcoming expiry of the ECSC Treaty.

Its activity was confined to managing existing borrowings, which on 23 July 2002 amounted to EUR742.5 million (see table below).

Total amount of ECSC borrowings outstanding at 23 July 2002

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Statement of consolidated debt at 23 July 2002

(EUR million)

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Other ECSC activities

Redeployment aid

[Article 56(1)(c)

and (2)(b) of the ECSC Treaty]

Traditional and supplementary aid

Redeployment aid is an essential social complement to the European Union's industrial policy in the ECSC sectors. When permanent closures, cutbacks or changes in activity or, in the case of the coal industry, the introduction of new technologies or production processes, lead to job losses, the European Union endeavours to mitigate the social repercussions for the workers, mainly through redeployment measures. It thus helps to finance aid to limit income losses for the workers affected.

The aid is granted under arrangements set out in bilateral agreements and takes account of the recipients' circumstances (early retirement, unemployment, transfer, or retraining).

The average maximum amount granted per worker is EUR 3 000. However, all ECSC payments are conditional on payment by the Member State concerned of at least an equivalent contribution.

In addition to this "traditional" system of aid under Article 56(1)(c) and (2)(b) of the Treaty, the ECSC has stepped up its operations in the coal sector.

In application of its Decision of 6 September 2000 to launch a programme of supplementary social measures to accompany the restructuring of the coal industry for the period from 1 January 2001 to 23 July 2002 (social measures for coal), the Commission stepped up Community co-financing of schemes to help miners who lose their jobs as a result of restructuring: payments for early retirement, unemployment (including redundancy payments and severance grants) or redeployment (allowances for loss of earnings, mobility allowances etc.). The supplementary aid thus granted amounts to an average of more than EUR 4 000 per worker taking early retirement and EUR 2 000 for those who become unemployed or are redeployed.

The tables in the annex show the breakdown of recipients by Member State and amounts granted in 2002 in the form of "traditional" aid or aid under the supplementary "coal" programme and the cumulative situation as at 31 December 2001 and 23 July 2002. Since the ECSC Treaty expired on 23 July 2002, the commitment appropriations for 2002 are the last.

Aid for steel industry research

(Article 55 of the ECSC Treaty)

1. RESEARCH AND TECHNOLOGICAL DEVELOPMENT

In 2002 the ECSC RTD programme for steel was granted EUR52 million for the funding of research and pilot/demonstration projects under Article 55 of the ECSC Treaty (aid for steel research).

The Commission selected and financed 62 research projects from the 130 proposals received and 9 pilot and demonstration projects from the 20 proposals received which were seeking financial support.

Funding for the research projects totalled EUR44.47 million and for the pilot and demonstration projects EUR7.47 million.

Financial aid for the research projects breaks down by domain as follows:

- reduction of iron ores: 11 %

- steelmaking: 16 %

- rolling: 31 %

- measurement and analysis: 7%

- properties and performance: 35 %

Financial aid for the pilot and demonstration projects breaks down by domain as follows:

- iron- and steelmaking: 44 %

- continuous casting: 21%

- rolling and product treatment: 23 %

- on-line control: 12 %

The main aims of these projects are to reduce production costs, improve the quality and performance of products, promote the use of steel, extend the areas of application of steel, adapt production conditions to environmental requirements, develop new processes and test innovative applications.

2. ACCOMPANYING AND SUPPORT MEASURES

These measures for supplementing or coordinating research activities are intended to increase the effectiveness of the programme.

The Commission also subsidised international events: one in France on the latest advances in steel-making technology and the other in Germany on steel in the environment.

3. NEW STEEL RESEARCH PROGRAMME

The Representatives of the Governments of the Member States, meeting within the Council on 27 February 2002, adopted the Decision on the financial consequences of the expiry of the ECSC Treaty and on the research fund for coal and steel (2002/234/ECSC). This programme is intended to replace the ECSC research programme and is to be set up by the Commission during the second half of 2002. It will enable ECSC research to be continued after July 2002 and was the subject of a special issue of the information bulletin "Steel RTD Newsletter", which is published twice annually.

Information on this new programme is available on the following Internet site: (http://www.cordis.lu/coal-steel-rtd/home.html).

Aid for coal industry research (Article 55 of the ECSC Treaty)

In the field of technical coal research, 14 projects were granted financial support under Article 55 of the ECSC Treaty for a total of EUR 19 899 750, plus EUR 100 250 for the dissemination of the research results and associated costs.

The main aims of the projects were effective protection of the environment, raising public awareness of coal as an energy source, improving the competitive position of coal, and the rational use of Community resources. Of the total of EUR 19 899 750 of approved aid, EUR 11 103 420 (55.8%) was earmarked for research projects having a specific environmental impact and EUR 4 367 190 (21.9%) for projects relating to health and safety in mines.

The financial aid breaks down by field of research as follows:

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Out-turn of the ECSC operating budget

The breakdown of resources and expenditure in the 2002 budget, which covers the period from 1 January to 23 July 2002, when the ECSC Treaty expired, is shown below.

Revenue

The High Authority (the Commission) is empowered to raise the funds needed to carry out its mandate by setting a levy on the production of coal and steel.

However, the Commission decided to set the rate of the levy at 0% in 2002, since the provisions entered in the ECSC balance sheet at 31 December 2001 were deemed sufficient to maintain the ECSC's budgetary activity at the appropriate level until the expiry of the Treaty.

The resources used to finance the ECSC budget in 2002 came from:

1. the "net balance" of financial operations, particularly interest from the investment of the cash, reserves and other provisions entered in the ECSC balance sheet;

2. the cancellation of commitments which were not implemented;

3. withdrawal from the provision for financing the ECSC operating budget;

4. miscellaneous resources.

For 2002 these types of revenue were EUR31 million, EUR15 million, EUR79 million and EUR5 million respectively.

In 2002 the revenue of the ECSC operating budget therefore totalled EUR131 million.

Expenditure

The revenue of the operating budget is intended to cover the various types of expenditure provided for by the ECSC Treaty.

Administrative expenditure

The ECSC's contribution to administrative expenses is provided for in Article 50 of the ECSC Treaty and specified in Article 20 of the Merger Treaty. The Council Decision of 21 November 1997, adopted under this legislation, reduced expenditure to a flat rate of EUR5 million per year.

Pro rata temporis, administrative expenditure for 2002 is therefore EUR2.8 million.

Social aid

Under Article 56(1)(c) and (2)(b) of the ECSC Treaty, EUR56 million was committed in 2002 to social redeployment aid for ECSC workers (traditional redeployment measures and "steel" and "coal" social measures).

Under the terms of Article 56, when permanent closures, cutbacks or changes of activity lead to job losses, the European Union endeavours, particularly through redeployment measures, to mitigate the social repercussions for the workers concerned. It also helps to finance aid to provide income support for the workers affected.

The granting of social aid is contingent upon payment by the Member State concerned of a special contribution of at least an equivalent amount.

Social aid is granted under arrangements set out in the bilateral agreements concluded with the Member States (early retirement, unemployment, transfer, retraining and vocational training).

Aid for research

Under Article 55 of the ECSC Treaty, EUR72 million was committed in 2002 to aid for technical research in the steel and coal sectors.

The main aims of aid for "steel" research (EUR52 million) are to reduce production costs, improve the quality and performance of products, promote the use of steel and develop new fields of application, and bring production conditions into line with environmental requirements.

In the field of "coal" research (EUR20 million), the main aims are to reduce production costs, increase underground and surface productivity, improve safety and working conditions, maintain new markets and, above all, improve the utilisation of coal with a view to better protecting the environment.

Out-turn of the 2002 ECSC operating budget

(EUR million)

>TABLE POSITION>

Report by the European Court of Auditors

ECSC financial statements

The ECSC's balance sheet, profit-and-loss account and statement of the allocation of profit for the period ending 23 July 2002 were submitted to the Commission for approval under written procedure N° E/.../2002 of ../../2002 and are shown in this financial report as approved by the Commission. Balance sheet at 23 July 2002

(Amounts in EUR) - Before allocation of result

Assets

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Balance sheet at 23 July 2002

(Amounts in EUR) - Before allocation of result

Liabilities

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Profit-and-loss account for the period

ending 23 July 2002

(Amounts in EUR)

Charges

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Profit-and-loss account for the period

ending 23 July 2002

(Amounts in EUR)

Income

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Allocation of the surplus for the period

ending 23 July 2002

(Amounts in EUR)

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NOTES TO THE FINANCIAL STATEMENTS AT 23 JULY 2002

(Amounts in EUR)

A. The ECSC

The European Coal and Steel Community (ECSC) was established by the Treaty of 18 April 1951. According to the Treaty, the task of the ECSC was to contribute to the economic expansion of the Member States through the establishment of a common market for coal and steel.

The ECSC Treaty expired on 23 July 2002. The Nice European Council decided to annex to the Nice Treaty of 26 February 2001 [4] a protocol on the financial consequences of the expiry of the ECSC Treaty and on the creation and management of the Coal and Steel Research Fund. It was decided that all ECSC assets at the time of the expiry of the Treaty will be transferred to the European Community with effect from 24 July 2002. The net value of these assets is considered to be earmarked for research in the sectors associated with the coal and steel industry. The income generated by these assets will be allocated exclusively to research in these sectors.

[4] OJ C 80, 10.03.2001.

Since the Nice Treaty was not ratified before the expiry of the ECSC Treaty, the Member States have temporarily entrusted to the European Commission the task of managing the assets of the ECSC in liquidation by applying the same principles [5], as provided for in the Protocol to the Nice Treaty. In a referendum, Ireland agreed to the ratification of the Nice Treaty.

[5] Decision of the Representatives of the Governments of the ECSC Member States, meeting within the Council, of 27 February 2002 (OJ L 79, 22.03.2002).

In view of the expiry of the ECSC Treaty, the rate of the ECSC levy was reduced to zero in 1998, and the ECSC's lending activity has been discontinued since July 1997 (Commission Decision of 22 June 1994). Thus most of the ECSC's funds have come since from the return on its cash holdings.

B. Accounting principles and methods

1. Presentation of the financial statements

The financial statements are drawn up in accordance with generally recognised accounting principles.

The accounting principles and evaluation methods used for the items in the financial statements take account of the constraints imposed on and resolutions applicable to the ECSC under the Treaties and other ECSC-related decisions adopted by the institutions of the European Communities.

The accounting methods used also take account of the absence of continuity after 23 July 2002, when the ECSC Treaty expired.

They are presented in accordance with Council Directives 78/660/EEC and 86/635/EEC [6] on the annual accounts and consolidated accounts of banks and other financial institutions wherever these are applicable and subject to the above-mentioned necessary adjustments. Directive 2001/65/EC [7] amending the above-mentioned Directives concerning the valuation rules and in particular fair value is not yet applicable to the ECSC financial statements. This Directive must be applied by 31 December 2003.

[6] OJ L 222, 14.08.1978 and OJ L 372, 31.12.1986.

[7] OJ L 283, 27.10.2001.

2. Conversion of items expressed in foreign currency

The currency used by the ECSC for its annual accounts is the euro ("EUR" or "EUR")

All foreign-currency transactions carried out by the ECSC are converted into euros at the monthly rate communicated by the European Central Bank.

The value of non-financial assets/liabilities is converted into euros at the monthly rate applicable on the date on which they were acquired or on which their value was last adjusted.

On the balance-sheet date, financial assets/liabilities are converted into euros at the monthly rate applicable on that date. Negative differences are entered under "charges" in the profit-and-loss account, while positive differences are deferred and entered under "accruals and deferred income" on the liabilities side.

2.1 Conversion rates

The following rates have been used for converting year-end balance-sheet amounts expressed in national currency into euros:

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2.2 At 23 July 2002, the various currencies listed above, together with the euro, made up the ECSC's balance sheet as follows (EUR):

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3. Treasury investment and valuation of bonds and other securities

The ECSC's internal prudential rules stipulate that portfolio investments are to be confined to securities issued by first-ranking entities. However in 1998, under an agreement to restructure the debt of a defaulting debtor, the ECSC exceptionally acquired shares and other variable-income securities from a private-sector company.

Bonds and other fixed-income securities and shares and other variable-income securities are valued at the average purchase price or the market value obtaining at the end of the financial year, whichever is the lower.

This principle is not applied in the case of securities considered as financial fixed assets, which are valued at the average purchase price or the redemption value, whichever is the lower.

4. Special features of the ECSC financial statements

a) ECSC operating budget

Part of the ECSC's funds are made available to the ECSC operating budget, which is adopted annually by the Commission after informing the Council and consulting the European Parliament. The last budget was drawn up for the period from 1 January to 23 July 2002.

The commitments entered into by the operating budget vis-à-vis third parties and still outstanding at 23 July 2002 are shown under the heading "Outstanding commitments under the operating budget" (see Note C12).

EUR79 million of the provisions for financing the 2002 ECSC operating budget (EUR 149 794 520 at 31 December 2001) were used, and the balance at 23 July 2002 was withdrawn (see Notes C12, C16.1 and C16.2)

b) Budget for financing coal and steel research

The Member States of the European Union have decided that the income from the management of ECSC assets after 23 July 2002 should be allocated to the general budget of the European Communities [8]. This income is earmarked for a research programme relating to the coal and steel industries, as stated in Note A to this report.

[8] Decision of the Representatives of the Governments of the ECSC Member States, meeting within the Council, of 27 February 2002 (OJ L 79, 22.03.2002)

The ECSC has already constituted provisions in order to prepare the ground for this mechanism for financing coal and steel research. These provisions are entered under the heading "Budget for financing coal and steel research" (see Note C.14).

5. Change in accounting methods

Until the 2001 financial year, fines and interest subsidies were not regarded as ECSC resources until they had actually been received. Fines imposed but not yet paid and interest subsidies whose repayment had been requested were transferred to the financing provisions (see Note C13.2a). With the end of the ECSC operating budget, the financing provisions were withdrawn and, as a precautionary measure, transferred to the value adjustment for bad debts.

C. Explanatory notes to the headings in the balance sheet and the profit-and-loss accounts

1. Balances with central banks

This item represents the ECSC's balances with the central banks of certain Member States.

2. Loans and advances to credit institutions

2.1. With agreed maturity dates or periods of notice

The breakdown of the remaining time to maturity of these operations is as follows:

(EUR)

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2.2. Loans

The breakdown of the remaining time to maturity of these operations is as follows:

(EUR)

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3. Loans and advances to customers

3.1. Loans

The loans granted to credit institutions are shown under "Loans and advances to credit institutions" (see Note C2).

The other loans break down as follows:

(EUR)

>TABLE POSITION>

N.B. Loans are generally guaranteed by Member States, banks or businesses or by mortgages.

Loans granted to a defaulting debtor were ceded to a third party on 5 August 2002. At 31 December 2001, a value adjustment of EUR 29 190 879 was applied to the loans, which totalled EUR 50 463 192. This value adjustment was adjusted at 23 July 2002 to reflect the price paid for the loans, namely EUR 27 064 451, which was fixed prior to 23 July.

3.2. Levy

The levy rate for 1998-2002 was 0%, so the claims at 23 July 2002 relate to previous years.

This item breaks down as follows:

(EUR)

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3.3. Fines

This item contains the Commission's claims on companies fined in accordance with the rules set out in the Treaty. The recording method has been changed in view of the end of the ECSC operating budgets (see Note B5).

This item breaks down as follows:

(EUR)

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3.4. Interest subsidies to be recovered

This item comprises claims on companies in receipt of subsidised loans which the Commission has been obliged to ask to reimburse all or part of the interest subsidy already paid.

(EUR)

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4. Bonds and other fixed-income securities

4.1. Composition

Bonds and other fixed-income securities break down as follows:

(EUR)

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The net movement of value adjustments of EUR 55 990 109 breaks down as follows:

- allocation to value adjustments: 63.570.916

- withdrawal from value adjustments: -7.580.807

55.990.109

4.2. Maturities at 23 July 2003

Securities in the portfolio reaching final maturity by 23 July 2003 represent the following amounts (EUR):

- Issued by public bodies: // 235 576 417

- Issued by other borrowers: // 139 964 420

//

Total: // 375 540 837

4.3. Financial fixed assets (see Note B.3)

Financial fixed assets are defined as securities that will remain in the portfolio until their final maturity. They comprise long-term paper for servicing ECSC borrowings.

At 23 July 2002, financial fixed assets totalled EUR 161 922 895 in nominal terms, which was less than the average acquisition price. A value adjustment of EUR 62 397 971 was therefore entered in the result of the period ending 23 July 2002.

4.4. Return on investment

Treasury investments take account of the maturity dates and liquidity requirements applicable to ECSC financial operations. They are subject to strict criteria with regard to the financial standing of the counterparty.

The return on investment, including the variation in the market value of bonds (calculated by the Modified Dietz Method) was 4.51% for the period ending 23 July 2002.

5. Shares and other variable-income securities

Shares and other variable-income securities break down as follows:

(EUR)

>TABLE POSITION>

These shares and other variable-income securities were received by the ECSC as part of the restructuring plan of a defaulting debtor (see Note B.3).

The net movement of EUR 42 960 314 corresponds to the use of value adjustments in relation to shares sold during the period ending 23 July 2002 to the value of EUR 44 365 901 and an additional allocation of EUR 1 405 587

6. Other assets

Other assets break down as follows:

(EUR)

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7. Prepayments and accrued income

Prepayments and accrued income break down as follows:

(EUR)

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8. Amounts owed to credit institutions

The remaining time to maturity on these operations is as follows:

(EUR)

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9. Debts evidenced by certificates

This item comprises loan securities issued by the ECSC.

An amount of EUR 228 673 526 is accounted for by borrowings with less than one year to maturity (EUR 104 115 280 at 31 December 2001).

10. Other liabilities

Other liabilities break down as follows:

(EUR)

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11. Accruals and deferred income

Accruals and deferred income break down as follows:

(EUR)

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12. Outstanding commitments under the ECSC operating budget

This item comprises commitments under the ECSC operating budgets which were still outstanding on 23 July 2002 (see Note B4a).

During the period from 1 January to 23 July 2002, commitments for the ECSC operating budget were as follows:

(EUR)

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The provision for financing the 2002 operating budget and the provision for budgetary contingencies have been withdrawn (see also Note C16.2)

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(1) Commission Decision N° 2537/2001/ECSC of 21 December 2001 (2002 ECSC operating budget)

13. Provision for liabilities and charges

13.1. Guarantee Fund

The Guarantee Fund is intended to cover lending and borrowing operations. After a withdrawal of EUR51 million, the Guarantee Fund totalled EUR529 million at 23 July 2002.

On 11 September 1996 the Commission confirmed its intention of maintaining reserves to cover 100% of those loans outstanding after 23 July 2002 which are not guaranteed by the government of a Member State. At 23 July 2002, this coverage was 100%. However, since some of the loans are denominated in GBP, the 100% coverage may change as a result of fluctuations in the GBP/EUR exchange rate.

The Guarantee Fund decreased as follows:

(EUR)

>TABLE POSITION>

13.2. Other provisions

This item comprises provisions for fines and repayable interest subsidies (EUR 42 385 781 at 31 December 2001) and other provisions totalling EUR 57 012 724 (EUR 108 313 490 at 31 December 2001).

a) Provisions for fines and repayable interest subsidies (see Note B.5):

(EUR)

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b) Other provisions:

(EUR)

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(1) Following the default of one borrower, long-term securities issued by the ECSC (i.e. with a maturity date after 2002) are no longer paired with asset items bearing an equivalent interest rate. Under the principle of caution and in view of the expiry of the ECSC Treaty in 2002, a provision had been constituted to fully cover interest-rate risks. In 2002 the ECSC acquired a dedicated portfolio which bears exactly the same interest as the interest to be paid. The provision was therefore withdrawn.

(2) This provision was created to cover any legal costs and other unforeseen expenditure. The risk in question is primarily in the legal field because the ECSC has less recourse, for its operations, to national agents who bear all expenditure relating to loan operations.

(3) This provision was created from the fines paid and the interest accrued since these payments under Decision 94/215/ECSC of 16 February 1994 to cover the possible reimbursement of the amounts received should the Court of Justice rule in favour of the companies which have appealed against the judgement of the Court of First Instance of 11 March 1999 (Note C3.3).

(4) This provision was created from the fines paid and accrued since these payments under Decision 98/247/ECSC of 21 January 1998 to cover the possible reimbursement of the amounts received should the Court of First Instance rule in favour of the companies which have appealed against the judgment of the Court of First Instance of 13 December 2001 (Note C3.3).

14. Budget for financing coal and steel research

This item breaks down as follows:

(EUR)

>TABLE POSITION>

In view of the expiry of the ECSC Treaty on 23 July 2002 and the winding-up of the ECSC, it has been decided that all ECSC assets at the time of the expiry of the Treaty will be transferred to the European Community with effect from 24 July 2002 [9]. The net value of these assets is considered to be earmarked for research in the sectors associated with the coal and steel industries. The income generated by these assets will be allocated exclusively to research in these sectors.

[9] Decision of the Representatives of the Governments of the ECSC Member States, meeting within the Council, of 27 February 2002 (OJ L 79, 22.03.2002)

In practice, the net profit from the management of the assets (invested mainly in the portfolio of securities and term deposits) in year n will be transferred to the general budget of the European Community and will be used for research in year n+2. On the basis of simulations of the net profit from the management of the assets, it was decided to set the initial funding at EUR60 million.

In order to reduce fluctuations in research funding resulting from movements on the financial markets, a smoothing formula will be applied in accordance with the procedures approved by the Member States. This smoothing formula will be applied for the first time to the results for the 2003 financial year and will be used to determine the allocation for research in 2005. In order to launch this mechanism, the ECSC constituted a provision for smoothing.

15. Reserves and surpluses

(EUR)

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The Special Reserve is used to grant loans from ECSC own funds to finance subsidised housing. At 23 July 2002, the amount outstanding corresponding to the loans granted totalled approximately EUR112.3 million. Consequently, it proved possible to release EUR5.7 million, which was transferred to free reserves.

The former Pension Fund originally represented the ECSC's total pension obligations prior to 5 March 1968. Since that date, the Member States have assumed responsibility, via the general budget, for the payment of staff pensions. This fund is used to finance housing loans for officials of the European Communities. At 23 July 2002, the amount outstanding corresponding to the loans granted totalled approximately EUR36 million. Consequently, it proved possible to release EUR4 million, which was transferred to the free reserves.

The "Assets of the Coal and Steel Research Fund" reserve, constituted in the context of the winding-up of the ECSC (see Note 14), comprises the free reserves.

16. Analysis of the result for the period from 1 January to 23 July 2002

Overall ECSC performance is influenced by both the result of non-budgetary operations (lending/borrowing - treasury investment - exchange-rate variations) and the out-turn of the ECSC operating budget.

16.1. Non-budgetary operations

(EUR)

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(1) In accordance with the change of accounting method on 31 December 1992, income received during the 2002 financial year has been allocated to financing the 2002 operating budget (net balance as in Note C16.2).

16.2. Out-turn of the ECSC operating budget

(EUR)

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17. Interest and similar charges

(EUR)

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18. Administrative overheads

The ECSC paid a lump sum of EUR 2 794 520 (EUR5 million in 2001) to the general budget of the Commission of the European Communities to cover its administrative expenditure.

19. Other operating charges

(EUR)

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The loss on loans and advances is offset by a withdrawal from the corresponding value adjustment.

20. Interest received and other income

(EUR)

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21. Other operating income

(EUR)

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22. Income relating to the operating budget

(EUR)

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(1) The ECSC is authorised under the Treaty to impose a levy on coal and steel produced by undertakings in the Community. The levy is calculated on the basis of the average values in the Community of the various products concerned. The European Commission decided to set the levy rate for the years 1998-2002 at 0%.

(2) This item comprises the revenue from fines imposed by the Commission in accordance with Articles 58 and 65 of the ECSC Treaty, together with surcharges for late payment.

23. Off-balance-sheet commitments

23.1. Commitments received

(EUR)

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23.2. Commitments entered into

(EUR)

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(1) According to Decision N° 2002/234/ECSC of 27 February 2002 (Annex 1, point 6) of the Representatives of the Governments of the Member States, meeting within the Council (see Note A), the administrative expenditure of the ECSC in liquidation is to be assumed by the Commission. The ECSC is to transfer EUR3.3 million to the European Union budget. The amount corresponding to administrative overheads for the period from 24 July 2002 to 31 December 2002, i.e. EUR 1 455 616, is entered as a commitment entered into.

After the entry into force of the Nice Treaty, all ECSC assets will be transferred to the European Community, and the obligation to pay a lump sum to the European Union budget will be replaced by the rules to be applied under the Protocol.

(2) The ECSC has always been keen to meet the commitments it has entered into and therefore has traditionally honoured coupons even after they have lapsed. The winding-up of the ECSC will see the end of this practice.

24. Financial situation for the period ending 23 July 2002

(EUR million)

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Annexes

Main characteristics of borrowings outstanding

(euro value at 23 July 2002) Instrument: ECSC

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Contracts in EUR

1990 9.16 15 2 700 000 DEM/EUR 552 195 552 195

1990 9.0 15 24 400 000 DEM/EUR 184 065 184 065

1992 3.5 15 11 900 000 DEM/EUR 3 042 187 3 042 187

1992 3.745 10 45 950 000 000 ITL/EUR 4 423 453 4 423 453

1992 3.6325 10 70 900 000 DEM/EUR 6 953 570 6 953 570

1992 3.0 15 9 000 000 000 ITL/EUR 2 324 056 2 324 056

1992 3.039 20 300 000 000 FRF/EUR 45 734 705 45 734 705

1992 9.7 10 23 600 000 FRF/EUR 719 559 719 559

1992 12.9 10 350 000 000 ESP/EUR 262 943 262 943

1992 3.6725 15 11 000 000 DEM/EUR 3 374 526 3 374 526

1992 2.875 10 18 500 000 000 ITL/EUR 1 781 776 1 781 776

1992 8.34 15 2 300 000 DEM/EUR 587 986 587 986

1993 3.67875 10 20 000 000 DEM/EUR 2 045 168 2 045 168

1993 7.08 15 1 750 000 DEM/EUR 626 333 626 333

1993 6.39 15 1 355 000 DEM/EUR 484 960 484 960

1993 6.64 15 1 185 000 DEM/EUR 424 117 424 117

1993 3.888 10 15 600 000 000 ITL/EUR 1 611 346 1 611 346

1993 6.75 15 1 000 000 DEM/EUR 306 775 306 775

1993 3.6475 10 57 300 000 DEM/EUR 2 240 379 2 240 379

1993 3.7975 10 52 600 000 000 ITL/EUR 1 258 089 1 258 089

1993 7 10 1 500 000 000 FRF/EUR 228 673 526 228 673 526

1993 3.50875 10 18 200 000 DEM/EUR 1 861 102 1 861 102

1993 3.75375 10 19 700 000 000 ITL/EUR 1 137 496 1 137 496

Total per currency 310 610 312 310 610 312

Contracts in GBP

1990 11.875 19 60 000 000 GBP 60 000 000 94 801 706

1992 9.875 25 50 000 000 GBP 17 220 000 27 208 090

1992 9.875 25 30 000 000 GBP 30 000 000 47 400 853

1993 9.875 24 20 000 000 GBP 20 000 000 31 600 569

1994 6.875 25 50 000 000 GBP 35 261 000 55 713 383

1994 8.9375 25 47 000 000 GBP 47 000 000 74 261 337

Total per currency 209 481 000 330 985 938

Contracts in USD

1993 6.375 15 100 000 000 USD 100 000 000 100 908 174

Total per currency 100 000 000 100 908 174

Grand total in EUR 742 504 424

Activities under the ECSC operating budget

Traditional redeployment aid (Article 56(1)(c) and 2(b) of the ECSC Treaty)

(Amounts covered by provisions)

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Traditional redeployment aid (Article 56(1)(c) and (2)(b) of the ECSC Treaty)

(New allocations and number of workers receiving aid in 2002)

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Redeployment aid - RECHAR Programme and social measures (coal)

(Amounts covered by provisions)

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Redeployment aid - Social measures (coal)

(New allocations and number of workers receiving aid in 2002)

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