PRELIMINARY DRAFT AMENDING BUDGET No 5 TO THE BUDGET FOR 2003 - 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 Council Regulation (EC, Euratom) No 1605/2002 of 25 June 2002 on the Financial Regulation applicable to the general budget of the European Communities [1], and in particular Article 37 thereof,

[1] OJ L 248, 16.09.2002, p.1.

The European Commission hereby presents to the budgetary authority the preliminary draft amending budget No 5 to the 2003 budget for the reasons set out in the explanatory memorandum.

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TABLE OF CONTENTS

EXPLANATORY MEMORANDUM

SUMMARY TABLE PER HEADING OF THE FINANCIAL PERSPECTIVE

STATEMENT OF REVENUE AND EXPENDITURE BY SECTION

EXPLANATORY MEMORANDUM

In January 2003 the national authorities of Spain and Italy presented to the Commission requests to mobilise the European Union Solidarity Fund (EUSF) [2] for the three disasters relating to the sinking of the Prestige oil tanker, an earthquake in the regions of Molise and Apulia, and the eruption of Mount Etna.

[2] Council Regulation (EC) N° 2012/2002 of 11 November 2002 establishing the European Union Solidarity Fund, OJEC L 311 of 14.11.2002

The Commission has carried out a thorough examination of the applications in accordance with the EUSF regulation and in particular with Articles 2, 3 and 4 thereof. It was found that none of the three disasters qualifies as "major disaster " within the meaning of the EUSF regulation as in no case does the estimated damage reach the threshold of EUR 3 billion (for both countries 0.6% of GNI is above EUR 3 billion so that the lower figure applies). The applications have therefore been examined under the provisions of Article 2, paragraph 2, last subparagraph of the EUSF regulation setting out the conditions for exceptionally mobilising the EUSF if certain criteria are met.

The most important elements of the assessments can be summarised as follows:

Prestige oil spill

On 13 January 2003 the Spanish authorities presented to the Commission an application to mobilise the EUSF to help finance emergency measures following the disaster caused by the sinking of the Prestige oil tanker. The information contained in this application was supplemented by additional information requested by the Commission services on 11 March and received on 13 May 2003. On 13 June the Spanish authorities submitted a further dossier. The following points are relevant:

1. The initial application was presented within the deadline of 10 weeks after the first damage was recorded on 19 November 2002.

2. The disaster is of non-natural origin and therefore falls outside the main field of application of the EUSF. The Spanish authorities have, however, demonstrated that its specific circumstances, in particular the extent and nature of damage caused, the uncertainty of when a solution to the source of the continuing pollution can be put in place, and the long-term negative effects on the stricken region, are such that the mobilisation of the EUSF appears justified.

3. Direct damage is claimed to be EUR 594 million. This figure needs to be corrected as it contains indirect damages/economic losses (EUR 140 million of compensation payments to fisheries) and costs for publicity to promote tourism (EUR 24,5 million) and loan subsidies (EUR 13,6 million) that may not be considered as damage. On the other hand the estimated cost for a permanent solution to neutralise the wreck of up to EUR 70 million should be added to direct damage. The fact that a part of this direct damage will be covered by payments from the International Oil Pollution Compensation Fund IOPCF should equally be reflected (see point 9 below). The Commission services therefore consider that direct damage should be estimated at EUR 436 million.

4. The oil spill is causing major damage to the natural environment (difficult to quantify in financial terms) and is polluting - to varying degrees - the entire coastline of the four northern autonomous regions of Spain (Galicia, Asturias, Cantabria and Basque Country) including some islands off the Atlantic coast and the estuaries of the Spanish rivers leading into the Atlantic sea. A particular circumstance of the Prestige disaster is the uncertainty of knowing when the pollution will effectively stop, as long as a permanent solution to neutralise the wreck is not in place.

5. Verifying whether the Prestige case fulfils all the criteria set out in the regulation for "extraordinary regional disasters" meets with an objective difficulty. As the pollution directly affected mostly the sea and the beaches it appears difficult to give a reasonable definition of "the affected region" as called for by Article 2.2 of the regulation and to verify whether "the major part of the population" living in that area has been affected.

6. On the other hand, serious and lasting repercussions on living conditions and the economic stability have been recorded for the area near the coast, where a large part of the population of the 4 autonomous regions are concentrated. Two major factors work together: the serious and lasting impact on the environment and the economic consequences of the incident, especially in the two single most important economic sectors of the four autonomous regions - fisheries including related industries (aquaculture, shellfish-harvesting and processing industry) and tourism. While the negative repercussions on fisheries affect a very big part of the population, particularly in the great number of small municipalities directly at the coast, tourism suffers in the four regions as a whole - not least because of loss of image - and involves not only those directly working in the sector (such as hotels, camping, rural tourism) but also numerous related sectors (such as bars, restaurants, discos, etc). These effects impact on the economy as a whole but also affect the living conditions of a great number of people.

The Spanish authorities estimate that over 330 000 people depending on the fisheries and related sectors - including family members - are estimated to be directly affected by the disaster through loss of occupation or income. In tourism the number exceeds 550 000 people. In all, the Spanish authorities expect over 885 000 people to be affected by the disaster with economic losses in both sectors taken together amounting to over EUR1.2 billion over the next two years.

It should be noted that the coastal municipalities of the four autonomous regions account for almost 2.8 million inhabitants. The population in the great number of small towns and villages outside the six bigger cities of La Coruña, Vigo, Avilés, Gijón, Santander and San Sebastian accounts for 1.5 million inhabitants which depend to a very large degree on the two sectors mentioned.

7. The affected region does not qualify as "remote or isolated". The Spanish authorities have, however, demonstrated that the specific effects and uncertainties of the Prestige disaster on the affected area are such that the mobilisation of the EUSF appears justified.

8. The cost of essential emergency operations eligible under Article 3.2 of the EUSF regulation has been estimated at EUR 416 million. This amount relates almost exclusively to the cost of cleaning-up activities and the recuperation of oil on the beaches and at sea as well as the treatment of the oil slick.

9. Other sources of Community funding under existing instruments to help make good total damage, in particular under the Structural and Cohesion Funds, have been identified and are expected to amount up to approximately EUR 400 million (ERDF up to EUR 170 million including an amount from the INTERREG initiative which has been earmarked for a permanent solution to neutralise the wreck, ESF EUR 10.1 million, Cohesion Fund EUR 91.1 million, FIFG up to EUR 140 million, and EUR 30 million of compensation to fishermen and aquaculture industries, taken from line B2-200 (conversion of vessels and fishermen dependent on the former fishing agreement with Morocco).

10. Coverage through the International Oil Pollution Compensation Fund IOPCF is expected to amount to EUR 150 million. Coverage of eligible damage referred to under point 7 above from these compensation payments is likely to be between EUR 50 and EUR 64 million. It should be noted that compensation through the International Oil Pollution Fund is currently extremely limited. A five-fold increase of the compensation currently available, to around EUR 910 million, will come into force in 2004 but will not apply to claims resulting from existing disasters.

For the reasons set out above the Commission has come to the conclusion that in this particular case the regulation should be applied in view of the extraordinary character and circumstances of the disaster and its clearly demonstrated negative consequences; the mobilisation of the Solidarity Fund is therefore justified.

Molise and Apulia Earthquake

The application to mobilise the EUSF was presented to the Commission on 13 January 2003 to help finance emergency measures following a series of earthquakes affecting parts of the regions of Molise and Apulia. The information contained in this application was supplemented by additional information requested by the Commission services on 11 March and received on 2 May 2003. Final clarifications were received at a meeting held on 19 June 2003. The following points are relevant:

1. The starting date of the disaster was on 31 October 2002. The application was presented within the deadline of 2 months after the EUSF Regulation came into force and thus within the retroactive period set out in article 13 of the Regulation.

2. The disaster is of natural origin and therefore falls within the main field of application of the EUSF.

3. Direct damage is estimated at EUR 1 558 million.

4. The region affected by the disaster has been clearly identified as 65 municipalities in the province of Campobasso/Molise and 14 municipalities in the province of Foggia/Apulia). The damage mentioned above relates exclusively to the territory defined as the affected region.

The population of the affected region thus defined is 243 000 inhabitants of which the great majority are directly affected.

5. While in general it does not appear justified to mobilise the EUSF for regional disasters affecting geographic areas or numbers of population that do not reach a significant level, this element should be assessed case by case considering also the relative size of the damage and the severity of its repercussions. In the present case the high amount of direct damage, as well as the rather isolated character of the area justify to conclude that a significant level has been reached.

6. Serious and lasting repercussions on living conditions and the economic stability of the region have been demonstrated: A study shows that through the damage to numerous public and private buildings, including farms and infrastructure, major disruption is brought to the region, bringing production and commerce to a standstill and inflicting serious and lasting harm on the region's economy. Over 20 % of buildings were declared unfit for habitation, close to 12 000 people had to be placed in provisional housing.

7. As pointed out under point 5 above the affected region - while not qualifying as "remote" - is characterised by its rather isolated location. The Italian authorities have demonstrated that the effects of the earthquake on the affected area, which before the quake was already characterised as being especially weak and socially fragmented, were of such severity that the mobilisation of the EUSF would appear justified.

8. The cost of essential emergency operations eligible under Article 3.2 of the EUSF regulation has been estimated at EUR 248 million and broken down by types of operation. The Italian authorities have confirmed that these costs relate to the affected region only.

9. Funding from the Structural Funds programme covering the affected region is generally available, particularly to revive economic activities and repair damage to public infrastructures. No specific amount has however been earmarked as yet.

10. There is no coverage of eligible damage referred to under point 8 above by insurance.

For the reasons set out above the Commission has decided to accept the application made by Italy.

Mount Etna eruption

The application to mobilise the EUSF was presented to the Commission on 13 January 2003 to help finance emergency measures following the disaster caused by the eruption of Mount Etna and subsequent earthquakes and downfall of ash over a period of several months. The information contained in this application was complemented by additional information requested by the Commission services on 11 March and received on 7 May 2003. Final clarifications were received at a meeting held on 19 June 2003. The following points are relevant:

1. The starting date of the disaster was on the 26 October 2002.The application was presented within the deadline of 2 months after the EUSF Regulation came into force and thus within the retroactive period set out in article 13 of the Regulation.

2. The disaster is of natural origin and therefore falls within the main field of application of the EUSF.

3. Direct damage is claimed to be EUR 962 million. This figure needs to be corrected as it contains indirect damages ("lost economic activity" of EUR 113 million). The Commission services therefore consider that total direct damage should be estimated at EUR 849 million.

4. The region affected by the disaster has been defined as the province of Catania. The damage mentioned above relates exclusively to the territory defined as the affected region.

5. The population of the affected region thus defined is 1,069,000, of which 920,000 (86%), i.e. the major part, are directly affected. Affectedness results from several factors: Exposure to toxic downfall of volcanic ash on the population of 45 of Catania's 55 municipalities and representing a major hazard to public health. Severe damage through earthquake tremors and lava was recorded in 14 municipalities affecting 160 000 people, rendering over 3000 habitations and a number of public buildings unsafe and causing damages of an estimated EUR 590 million to private property and public buildings and infrastructure.

6. Serious and lasting repercussions on living conditions and the economic stability of the region are due (i) to the persistence of eruptive and seismic activity over several months and (ii) to the amount of work involved in repairing damage - expected to exceed two years - and assessing the health effects of exposure to the ashes. After the Palermo province Catania occupies the second place in contributing to the Sicilian economy (21%). The expected economic fall out of EUR 3 billion will therefore have spill-over effects on the Sicilian economy as a whole. Losses in agriculture, the primary economic resource of Catania province with over 30 000 employed, are estimated at 50% of the current season. The general slow-down of the economy is of the order of 35% and tourist reservations, vital to the island's economy, are down by up to 80%. The closing or very reduced activity of Catania airport, which, with a catchment area of three million people and over 4 million passengers annually is the hub for the movement of people and goods for the whole of Eastern Sicily, is considered to be particularly harmful.

7. The Catania province is part of Sicily whose living conditions and economy are characterised by their insular and distant geographic location, limited accessibility and partly seclusion form the centres of the Italian economy as well as their interdependence with adjoining provinces and the mainland, factors which render the Sicilian economy particularly vulnerable.

8. The cost of essential emergency operations eligible under Article 3.2 of the EUSF regulation has been estimated at EUR 204 million and broken down by types of operation. The Italian authorities have confirmed that these costs relate to the affected region only.

9. Funding from the Structural Funds programme covering the affected region is generally available, particularly to revive economic activities and repair damage to public infrastructures. No specific amount has however been earmarked as yet.

10. There is no coverage of eligible damage referred to under point 4 above by insurance as there is generally no insurance against damage from volcanic activity on the market.

For the reasons set out above it is proposed to accept the application made by Italy and to propose the mobilisation of the EUSF.

Financing

The total annual budget available for exceptional regional disasters is EUR 75 million (cf. article 4.2 EUSF regulation). This means that a maximum of EUR 56.250 million can be granted before 1 October. The rate applicable for defining the allocations for exceptional regional disasters is 2.5% of total direct damage. In order to ensure an equitable treatment of applications, it is proposed to apply this rate and then to reduce the grants proportionally so as to respect the limit set out in the regulation for allocations until 1 October.

The amounts of EUSF aid proposed are the following:

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These amounts of compensation will leave 25% of the European Union Solidarity Fund available for allocation during the last quarter of the year.

The necessary payment credits will be made available by means of a transfer of appropriations from other budget lines, which the Commission will propose to the Budgetary Authority in due time.

SUMMARY TABLE PER HEADING OF THE FINANCIAL PERSPECTIVE

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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, 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.