COMMISSION WORKING DOCUMENT - VENEZUELA - PROGRAMME TO SUPPORT REGIONS AFFECTED BY THE FLOODS OF DECEMBER 1999

1. Introduction

Following the disaster of December 1999 which ravaged some of the coastal regions of northern Venezuela, with a particularly high death toll, the international community took immediate action to help the victims of this disaster. The EC and its Member States provided significant levels of emergency aid, which is currently being distributed. The Council, for its part, looked into the issue of support for rehabilitation/reconstruction of the regions affected and, on 24 January 2000, asked the Commission to submit a report on this issue. This is the objective of the present document.

2. Background

During the first three weeks of December 1999 heavy rain fell on northern and north-eastern Venezuela. Several major cities, including the Caracas metropolitan area, lie within this region, which is the economic heart of the country. The Economic Commission for Latin America (ECLA) estimates that the catastrophe claimed 25 000 lives, with 6 000 people still missing; over 16 000 homes, 9 hospitals and 251 care centres were destroyed or damaged. The estimated cost of reconstruction is placed somewhere between USD 3 200 million (ECLA) and over USD 5 000 million (estimates by the Venezuelan authorities). As a consequence of this disaster the growth rate forecast for the year 2000 has been reduced from +2.2% to 2%.

Faced with this dramatic situation, the national authorities' response was twofold:

a) As an urgent response to the crisis, they needed to make arrangements for the immediate evacuation of 200 000 people and to set up reception centres capable of accommodating 70 000 people. At the same time they had to work towards restoring, as soon as possible, essential basic services (water, electricity, communications) to allow people to return to their homes and enable productive activity to restart.

b) They also needed to start work immediately on defining a medium to long -term programme for reconstruction and economic regeneration: an outline of this was presented to a meeting of donors in Madrid in February 2000. Responsibility for coordinating this task was given to the Ministry for Planning (CORDIPLAN) or, in the case of the state of Vargas, the Ministry of Science and Technology acting through a decentralised body (CORPOVARGAS). The decision was taken to use a proportion of oil revenue to provide the necessary funding: whenever the price exceeded USD 9/barrel, 40% of the extra tax revenue would be used for reconstruction, channelled through the Fondo Unico Social (FUS), the single social fund under which all public social programmes are centralised. The current trend on oil markets means that the FUS should receive approximately USD 2 000 million for 1999. In addition, the Venezuelan authorities are counting on substantial contributions to the reconstruction effort from the national and international private sectors, and appropriate incentives are currently being drafted.

The international community reacted to the catastrophe with great speed and generosity; logically, efforts centred around dealing with the most pressing needs, taking care of the homeless in particular. We should make particular mention of the actions of several Member States here (see annex). Between December 1999 and June this year the Commission, through its ECHO programme, allocated a total of EUR 7.15 million, channelled through NGOs. ECHO has no plans for further financing decisions, as it considers its task complete and is scheduled to pull out of the area by the end of this year.

As regards reconstruction/rehabilitation, certain Member States have declared themselves prepared to offer concessional loans to Venezuela amounting to an estimated total of over USD 100 million. Moreover, multilateral organisations have also stated that they will provide an estimated total of USD 1 250 million (Inter-American Development Bank: USD 337 million; World Bank: USD 588 million; Corporación Andina de Fomento: USD 325 million) intended primarily for the water sector, communications and housing. A large proportion of this, however, would be made available through the reallocation of loans granted but not yet disbursed. The actual disbursement of these funds will depend on the presentation of detailed programmes for their use.

3. Current situation

Six months after the disaster the critical period has passed, and we are moving into a somewhat more stable situation in which the main infrastructure and most services have been more or less restored, and many of the people affected have been able to return home. However, the social and economic situation is still very precarious (especially in the state of Vargas) and a considerable effort remains to be made.

On this subject, certain points give cause for concern:

- The authorities - particularly the highest levels - seem to have some difficulty fulfilling their role of administering efforts and prioritising needs. There is, for example, still no real overall reconstruction programme which includes long-term planning for all the necessary activities and efficiently combines the concepts of land management and natural risk prevention. This situation constitutes a sizeable obstacle for the donors, faced with multiple but isolated calls for assistance which are difficult to evaluate outside a global context and may lead to duplication of efforts.

- In theory, the substantial financial resources which could be available from national and international sources for reconstruction should go a long way towards meeting the country's needs. In practice, however, these amounts take some time to reach their destination because of bureaucratic difficulties, themselves linked to political upheavals affecting the country. Unless quick solutions are found, the fear is that the amounts reaching their destination may be far lower than expected.

- The issue of the division of responsibilities and decision-making between central and decentralised powers has not been clearly settled and can sometimes be a source of conflict. The serious political upheavals which the country has experienced over the past few years and the numerous elections held during recent months have helped to complicate this situation.

Moreover, serious thought should now be given to the underlying causes of this disaster and of such a heavy loss of human life. While it is true that the meteorological phenomena of December 1999 were completely exceptional and unpredictable, we cannot ignore exacerbating circumstances such as uncontrolled urbanisation, lack of respect for safety standards, the absence of effective early warning systems and, more generally, major shortcomings in the area of land management. Broadly speaking, the catastrophe of 1999 dramatically highlighted both Venezuela's high exposure to natural risks and the shortcomings of the existing risk prevention and management systems. It would therefore be appropriate, with an eye to the future, to aim at setting up an effective land and environmental management policy which, coupled with suitable control mechanisms, should prevent similar events happening again.

4. Proposed action

4.1. Need for a Community support programme

The Commission was very active in providing emergency aid for the victims of the disaster. On the basis of this experience it considers that continued support to Venezuela in its reconstruction/rehabilitation efforts is fully justified. The Commission is thus subscribing to the solidarity effort being undertaken by a number of Member States which have specifically committed themselves to providing support.

The Commission's political commitment must be accompanied by the implementation of a realistic and effective action programme. Account must be taken of the country's level of development and its own technical, administrative and financial capacities. Thus, any aid provided by the EC should complement, not replace, national input. Past levels of aid from the Commission to Venezuela, which have traditionally stood at an average of EUR 10 million/year, can serve as a point of reference here.

Another point to emphasise is the general upward trend in oil prices over the past few months. Oil, of course, generates the bulk of the country's export revenue. The trend has had a generally positive effect on the national balance of payments.

4.2. Description of the proposed programme

In financial terms, the Commission envisages allocating a total of EUR 30 million to Venezuela's reconstruction effort, from the overall budget for EU/Latin America cooperation (budget heading B7-3100) and to be committed during the 2001 and 2002 financial years. These amounts will be charged to the indicative budgetary package allocated to Venezuela for the period 2000-2006, which stands at EUR 38.5 million.

As regards the content of the programme, the Commission considers it necessary, in view of the situation described above, to take account of not only the reconstruction process proper, but also the problems of risk prevention and management. This approach is a response to two considerations:

a) the fact that significant financial resources from both the national budget and external contributions have already been allocated to the areas affected;

b) the wish to introduce a dimension of equality for citizens faced with natural disasters. Traditionally, the most underprivileged sectors of society pay the most dearly in terms of human lives when disasters strike, but the reconstruction/rehabilitation process is still not addressing this aspect of the problem sufficiently. An undertaking to act on this issue was included in the document on priorities for action signed by Heads of State in Rio de Janeiro (June 1999).

Consequently, the Commission plans to take action on two fronts:

a) a package of reconstruction aid to the state of Vargas, estimated at EUR 10 million: this, in the context of the "emergency aid, rehabilitation and development continuum" referred to in the Commission Communication to the Council and to the EP of 30 April 1996, is intended to take over from certain initiatives already launched by ECHO. Initiatives involving close collaboration with humanitarian agencies working in the country, and local government bodies, are being identified. Close contact will be established with Member States' aid programmes in order to work together on prioritising certain initiatives in line with the resources available. These will essentially be local activities with a social focus (health, drinking water, housing and education) within the scope of budget heading B7-3100, and should, as far as possible, fit into an overall reconstruction plan.

b) a prevention package, estimated at EUR 20 million, for the definition and implementation of natural risk management programmes over a large area adjacent to the region affected by the 1999 floods, encompassing the states of Falcon, Miranda and Yaracuy. These initiatives will be overseen by the local authorities and will include a detailed risk map, the implementation of early warning systems, the production of land use plans, support for the application of the necessary legislation, as well as the construction of flood-control and other risk-prevention structures. These activities will concentrate on institutional capacity building for the Venezuelan authorities and will involve substantial transfers of European risk management know-how. Emphasis will be placed on seeking as high a level as possible of co-responsibility from our Venezuelan counterparts, in both technical and financial terms, with specific undertakings from the beneficiaries as regards putting the recommendations made into practice.

4.3. Implementation methods

The action programme being considered is the result of efforts to identify the Commission's priorities in close cooperation with the Venezuelan authorities and the diplomatic representations of the Member States in Caracas. It has not yet proved possible to produce anything other than a preliminary outline of the content of each project. Consequently, it is essential that the various operations be defined as precisely as possible, taking particular account of the development of the situation on the ground, before any financing decisions are taken. Arrangements should therefore be made for close collaboration with other donors to avoid any duplication of effort.

ANNEXES

1. Evaluation of damage classified by sector.

2. Summary of damage in the worst affected states.

3. Planned participation by international donors in the reconstruction phase.

4. Planned participation by Member States in the reconstruction phase.

5. Financial statement.

ANNEX 1

EVALUATION OF DAMAGE CLASSIFIED BY SECTOR

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(*) USD million

Source: from CEPAL data

ANNEX 2

SUMMARY OF DAMAGE IN THE WORST AFFECTED STATES

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(*) USD million

ANNEX 3

PLANNED PARTICIPATION BY INTERNATIONAL DONORS IN THE RECONSTRUCTION PHASE

Institution // Planned amount

IDB (Inter-American Development Bank)

* Emergency aid (grant)

* Reallocation of funds already granted (sectors: agriculture, housing, communications, education) (*)

* Financing of urgent rehabilitation costs(*)

* Reconstruction aid in the water, sanitation and urban renewal sectors (**) //

USD 50 000

USD 167 000 000

USD 20 000 000

USD 150 000 000

World Bank

* Reallocation of funds already granted (sectors: water, urban rehabilitation and environment) (*)

* "Fast track" loan (water and infrastructure, housing, prevention) (**)

* Reconstruction and development aid (**) // USD 65 000 000

USD 130 000 000

approx USD 400 000 000

CAF (Corporación Andina de Fomento)

* Emergency aid (grant)

* Reallocation of funds already granted (sectors: water, housing, communications)(*)

* Emergency reconstruction aid (**)

* Reconstruction aid (**) //

USD 25 000

USD 150 000 000

USD 25 000 000

150 000 000

(*) The exact content of the funding programme has not yet been decided

(**) Under preliminary negotiation with the government

ANNEX 4

PARTICIPATION BY THE MEMBER STATES IN THE EMERGENCY PHASE AND IN RECONSTRUCTION

Member State // Planned total amount

Germany

* Emergency aid via the German Red Cross, ADRA and OPS (water, food, health care)

* Technical mission concerning protection against chemical contamination in the port of La Guaira (already carried out)

* Fund administered by the Embassy for rehabilitating housing in the San Bernardino district in Caracas

* Construction of 120 housing units in El Guapo (state of Miranda) //

EUR560 000

EUR100 000

EUR50 000

EUR1 250 000

Belgium

* A reconstruction aid programme is planned but it has not yet been finalised. //

between EUR500 000 and 1 000 000

Denmark

* Emergency aid //

EUR32 000

Spain

* Emergency aid via the Spanish Red Cross and the AECI (health care, drinking water)

* It is planned to allocate a USD 100m fund to reconstruction aid (taken from the USD 800m cooperation fund promised during Prime Minister Aznar's visit in 1999). A seminar is scheduled for May 2000 to decide how to use this aid.

* Technical assistance from experts to evaluate projects

* Available funds for different reconstruction projects. //

EUR2 663 000 EUR95 000 000 (loans)

EUR541 000

EUR10 826 000

France

* Aid could be channelled into the following sectors: (i) torrent check dams, (ii) rehabilitation and modernisation of the port of La Guaira and rehabilitation of the town's colonial district, and (iii) institutional support for redevelopment.

* It is planned to build 100 housing units in El Guapo (state of Miranda) // EUR300 000

n/a

Greece

* Emergency aid //

EUR47 500

Italy

* Supplies of foods and medicines

* Purchase of goods and services in Italy

* A total of 10 projects have been identified, which could be covered by a financing programme that has not yet been finalised. The projects are located in Vargas (5), Distrito Federal (1), Miranda (3) and Falcón (1), and concern water and sanitation, health, education and the environment.

EUR1 545 000

EUR7 800 000 (loan)

EUR5 200 000

Netherlands

* Emergency aid via the Red Cross

* Provision of two experts and operation of 7 aid transport flights //

EUR280 000

Portugal

* Supply of 80 t of emergency aid

EUR760 000 (estimated value)

United Kingdom

* Emergency aid //

EUR152.000

Sweden

* Emergency aid

* Decontamination of water (La Guaira) and water purification in various localities //

EUR382 000

EUR1 140 000

TOTAL //

EUR26 578 500 (grants)

EUR102 800 000 (loans)

ANNEX 5

FINANCIAL STATEMENT

1. Title of operation

Programme to support areas of Venezuela affected by flooding in December 1999

2. Budget heading involved

B7-3100 - Financial and technical cooperation with Latin American developing countries

3. Legal basis

Regulation (EEC) No 443/92 of 25 February 1992 on financial and technical assistance to, and economic cooperation with, the developing countries in Asia and Latin America

4. Description of operations

4.1 General objective

The objective of the programme is to contribute to rehabilitating and improving the social infrastructure and to reducing the most seriously affected regions' vulnerability to disasters, as well as enhancing the local authorities' land development capacity.

4.2 Period covered and arrangements for renewal or extension

The activities cover the period from 2001 to 2005.

5. Classification of expense/revenue

5.1 Non-compulsory expenditure

Yes

5.2 Differentiated appropriations

Yes

5.3 Type of revenue involved

None

6. Type of expenditure/revenue

Subsidy for joint financing with other sources in the public and/or private sector: it is planned that up to 50% of the total amount invested in the projects making up the programme will be co-financed by public bodies (central government, regional government, municipal authorities) or private bodies (NGOs, other civil society organisations).

Interest rate subsidy: none planned.

Should the operation prove an economic success, is there provision for all or part of the Community contribution to be reimbursed- No

Will the proposed operation cause any change in the level of revenue- No.

Reutilisation: none.

7. Financial impact

7.1 Method of calculating total cost of operation (relation between individual and total costs)

In view of the extent of the damage and the country's level of development, and based on the evaluation carried out by experts sent to Venezuela, the Commission is proposing an aid programme for the areas most seriously affected by the disaster, for an indicative amount of EUR 30 million.

This amount will be financed by commitments spread over a period of two years.

For the 2001 financial year, it will be proposed that the Commission approve aid of EUR 20 million using resources available under the budget line for "Financial and technical cooperation" (B7-3100); in 2002, the Commission will be asked to approve aid of EUR 10 million using resources available under the "Financial and technical cooperation" budget line (B7-3100).

7.2 Itemised breakdown of costs

The indicative annual breakdown is as follows (at current prices in EUR million)

Commitment appropriations in EUR million (at current prices)

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7.3. Operational expenditure on studies, expert meetings, etc., included in Part B of the budget

None planned

Commitment appropriations in EUR million (at current prices)

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7.4. Schedule of commitment and payment appropriations

The following table sets out the payments relating to the 2001-2006 budgets, excluding payments to be made during the same period but relating to previous financial years.

Commitment appropriations in EUR million

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8. Fraud prevention measures

Administrative monitoring of contracts and payments will be the responsibility of the Commission in Brussels.

Each of the operations in the programme will be supervised at all stages in the project cycle by the Commission in Brussels and (mainly) through the delegation. Supervision will take account of contractual obligations as well as the principles of cost/benefit analysis and sound financial management.

Moreover, the SCR and Court of Auditors may carry out on-the-spot audits and monitoring of spending authorised under the projects and the proper implementation of activities, thus complementing the fraud prevention measures. Particular attention will be paid to the nature of expenditure (eligibility of expenditure), to respect for budgets (actual expenditure) and to verifying supporting information and relevant documentation (evidence of expenditure).

9 Elements of cost-effectiveness analysis

9.1 Specific and quantified objectives; target population

- Specific objectives: links with the general objective: in order to achieve the general objective set out in paragraph 4.1, the aim is to finance operations with the following specific objectives:

* Action in the social sphere intended to ensure continuity with measures already being undertaken by ECHO (health, drinking water, housing, education);

* Promoting the design and implementation of plans for local rehabilitation and development, within a context of dialogue with and participation by citizens, giving priority to decentralising and improving services in the states of Falcón, Miranda and Yaracuy;

* Developing a detailed risk map, implementing early warning systems, defining land use plans and building flood-control systems in the states of Yaracuy, Falcón and Miranda;

* Providing support for the design and implementation of a legal framework for risk prevention to reduce the impact of similar natural disasters.

The proposed programme is the result of identification work carried out in the areas concerned by a team of experts under the responsibility of the Commission. However, the content and scope of specific projects to be carried out in the areas covered by the programme must be analysed and studied in depth by other identification missions to be carried out in close collaboration with ECHO.

Final beneficiaries:

The programme will benefit the populations of the states of Venezuela affected by the floods.

Beneficiaries may be government institutions, municipal authorities, or civil society (universities, private development organisations, local associations, etc).

9.2 Grounds for the operation

- Need for Community financial intervention

The floods and landslides caused by the torrential rain which fell on northern and north-eastern Venezuela claimed many lives and destroyed a substantial part of the economic and social infrastructure as well as greatly reducing, for the short and medium term, the affected regions' production and export capacities.

The Economic Commission for Latin America (ECLA) estimates that the catastrophe claimed over 25 000 lives, with 6 000 people still missing; over 16 000 homes, 9 hospitals and 251 care centres were destroyed or damaged. The estimated cost of reconstruction is placed somewhere between USD 3 200 million (ECLA) and over USD 5 000 million (estimates by the Venezuelan authorities) As a consequence of the disaster the growth rate forecast for the year 2000 has been reduced from + 2.2% to 2%.

Consequently, in the longer term, there will be a need to support the rehabilitation of social infrastructures, to provide priority assistance to the most seriously affected sections of the population, to work towards reducing the vulnerability of the regions affected by the catastrophe and to speed up the process of transition to a sustainable, decentralised and participative model for development.

- Ways in which aid will be implemented

Aid will be implemented according to the situation in the different sectors concerned. Precise identification of the activities to be financed, together with feasibility studies, will be carried out in the coming months.

- Principal factors of uncertainty which could affect the precise outcome of the operation: Venezuela is considered a high-risk geographical area, suffering regularly from natural disasters such as floods, landslides, hurricanes, earthquakes and forest fires. The 1999 catastrophe dramatically highlighted both Venezuela's high level of exposure to natural risks and the shortcomings of the existing risk prevention and management systems. It would therefore be appropriate, with an eye to the future, to aim at setting up an effective land and environment management policy which, coupled with suitable control mechanisms, should prevent similar events happening again. Such an operation faces the difficult task of modifying the administrative structures and the cultural models of the land management authorities to steer them towards a permanent risk management policy.

9.3 Monitoring and evaluation of the programme

Each project making up the programme will have an internal monitoring and evaluation system. The SCR will, also, organise mid-term and final monitoring and evaluation missions for each operation; these will be carried out by Community officials and independent experts.

To improve its capacity, the EC delegation in Venezuela will develop a computerised monitoring and evaluation system incorporating quantitative and qualitative indicators.

10. Administrative expenses (section III, part A of the general budget)

This section must be sent simultaneously to Personnel and Administration DG and Budget DG; Personnel and Administration DG will then forward it to Budget DG with its opinion.

The actual mobilisation of the administrative resources necessary will depend on the Commission's annual decision on resource allocation, taking particular account of the additional amounts and staff approved by the budgetary authority.

10.1 Impact on the number of jobs

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10.2 Overall financial impact on human resources

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The amounts reflect the total cost of additional posts for the entire duration of the operation if this is fixed-term, for 12 months if it is for an indefinite period.

10.3. Increase in other operating expenditure resulting from the operation

Not applicable.

In euro

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The amounts correspond to the total expenditure for the operation if it is fixed-term, for expenditure over 12 months if it is for an indefinite period.