PRELIMINARY DRAFT AMENDING BUDGET N°11 TO THE GENERAL BUDGET FOR 2004 - GENERAL STATEMENT OF REVENUE - 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 11 to the 2004 budget for the reasons set out in the explanatory memorandum.

TABLE OF CONTENTS

GENERAL STATEMENT OF REVENUE

STATEMENT OF REVENUE AND EXPENDITURE BY SECTION

The general statement of revenue and the statement of revenue and expenditure by section are forwarded separately via the SEI-BUD system. A language version of the general statement of revenue and of the statement of revenue and expenditure by section is attached as a budgetary annex by way of example.

EXPLANATORY MEMORANDUM

1. Introduction

The present Preliminary Draft Amending Budget No 11 for the year 2004 covers three elements:

- an increase of payment appropriations for most of the Structural Funds budget lines in heading 2a (EUR 3.4 billion);

- a decrease of appropriations for several budget lines under heading 1a, whose payment component is requested to be redeployed to the structural Funds lines EUR 1.1 billion);

- an increase in the forecast of revenue, in particular for import duties (EUR 1.3 billion).

Thus, the supplementary call on Member States for new own resources amounts to EUR 1.0 billion.

2. Heading 2a: Increase of payment appropriations for the structural funds

2.1 The implementation of the Structural Funds 2000-2006 programmes trailed expectations in the first four years of the current programming period, which caused a significant under-execution of payment budgets. This has led to a more conservative budgeting approach by the budgetary authority. In the conclusions of the Council's second reading of the general budget of the European Communities for the financial year 2004, it is stated that "the increase rate of payment appropriations in comparison to 2003 (AB 1 to 5 included) shall not exceed 2,3 % for EU 25 at the end of the 2004 budgetary procedure in December. The European Parliament and the Council invite the Commission to propose a preliminary draft amending budget in 2004 in case of lack of payment appropriations" [2].

[2] Annex "Summary of conclusions of the conciliation meeting of 24 November 2003" (Doc Council 15231/1/03)

2.2 However, the regions, the Member States and, not least, the Commission's services spared no efforts to improve the use made of the resources of the Structural Funds for economic and social development projects. This notably included simplification measures adopted by the Commission in 2003. These efforts resulted in improved execution since the beginning of 2004. Payments have progressed quite rapidly this year, leading the Commission to anticipate already several months ago a possible need for reinforcing the payments budget.

2.3 Nonetheless, the history of significant under-executions in the Structural Funds advised for a cautious approach [3]. Moreover, the back-loaded profile of the monthly execution of payments in the Structural Funds, with a heavy concentration in the last months of the year, only makes it possible to extrapolate end-of-year needs with reasonable accuracy late in the year [4]. In 2003, payments made by 17 September amounted to no more than 51% of all the payments eventually made for the full year. The pattern was similar in 2002.

[3] In 2003, noticeable progress had been made in implementing the new programmes for the period 2000-2006. However, for the previous programming period, EUR 5 billion in unused appropriations of the 2003 budget were cut. Most of these appropriations had been carried forward from 2002 and therefore could not be carried forward again. Moreover, the under-execution since 2000 called for conservative budgeting. The Budget finally adopted by the Budgetary Authority was indeed around 1 billion lower compared to the initial Preliminary Draft Budget.

[4] Member States are required by Council Regulation 1260/1999, laying down general provisions on the Structural Funds, to present their applications for interim payments in batches three times a year, the last one being submitted no later than 31 October. The Commission should then proceed to pay all acceptable claims within two months. In practice, most payment claims tend to be submitted towards the end of the year.

2.4 Member States also send every year their own forecasts of payment claims, which can potentially be used for budgeting. However, these forecasts have typically had very sizeable forecasting errors, making them unsuitable for budgeting.

2.5 Having monitored carefully the progress in payments implementation, the Commission comes to the conclusion that there is a high probability that the requests from Member States for reimbursement of expenditure will exceed the budgetised appropriations for heading 2.

2.6 By 30 September 2004, payments from the Structural Funds budget lines amounted to EUR 21 billion, or 75 % of the authorised appropriations, compared with EUR 14.3 billion by the same date last year. In the last two years, the Commission had paid by this time of the year no more than 50-60% of the whole year payments. This strongly suggests that payment claims will exceed the available appropriations by several billion EUR by the end of the year.

2.7 However, as indicated above, the profile of the monthly pattern of payments is significantly back-loaded. This poses the risk that extrapolating end-of-year needs on the basis of execution in the first 7 or 8 months of the year, may lead to over-estimations. This would happen if strong execution in the first 7 or 8 months slows down in the last months.

2.8 The Commissioners directly concerned wrote to Finance Ministers in September 2004 drawing attention to this situation and asking them to examine the likely claims to be submitted before the end of October, and to inform the Commission of the amounts foreseen by 8 October.

2.9 While evaluating further information from Member States, and with a view to avoiding under-execution, the Commission has settled for a conservative assessment of end-of-year payments. This should severely reduce any risk of under-execution and translates into additional needs of EUR 3.4 billion in payment appropriations for the Structural Funds. The table below gives, for all the lines concerned, available appropriations, the implementation of payments as of 30 September 2004 and at the same date of 2003, the estimated year-end needs and the required additional appropriations. This requirement may be revised during the course of the procedure in the light of new information, as indicated below in point 2.12.

ADDITIONAL NEED OF PAYMENT APPROPRIATIONS IN THE STRUCTURAL FUNDS IN 2004

In million EUR

>TABLE POSITION>

2.10 Responsible management of the budget requires the Commission to fund any shortfall in payment appropriations from the existing budget whenever possible, before proposing any net reinforcement of the budget to the budgetary authority. The global transfer provides every year a clearing house mechanism to balance excess supply and demand of payment appropriations in headings 2, 3, 4 and 7, and the Commission first explored this avenue. However, across-the-board strong implementation this year leaves no margin in other headings to fund the additional needs of the Structural Funds. This PDAB proposes the transfer of all the excess appropriations identified in the context of the global transfer procedure in heading 2 lines, to the lines with a foreseeable deficit, but this transfer only covers EUR 8 million out of the EUR 3.4 billion needed, as indicated in the table below.

2.11 It was possible to find within the existing budget, under heading 1A, a significant surplus of appropriations (EUR 1.1 billion), for which this PDAB proposes to annul the commitments and redeploy the corresponding payment appropriations to the Structural Funds (the surplus under the EAGGF-Guarantee is explained in detail in point 3 below). This reduces appreciably the request to the budgetary authority for additional appropriations. Thus, as summarised in the following table, the increase in appropriations for the Structural Funds, EUR 3.4 billion, is to be met partly with a reduction of the excess appropriations in heading 1A (EUR 1.1 billion) and partly with additional appropriations (EUR 2.3 billion).

NET NEED OF ADDITIONAL PAYMENT APPROPRIATIONS

FOR BUDGET 2004

In Eur

>TABLE POSITION>

2.12 In parallel to the adoption of this PDAB, the Commission has asked the Member States to update their payment forecasts for the current year. This update, together with a final analysis of the payment claims actually received by 31 October, may lead the Commission to revise its request for additional appropriations for the 2004 budget in the course of the procedure concerning this PDAB in the budgetary authority.

2.13 Due to the clearly exceptional circumstances mentioned above, this PDAB is submitted to the Council after 1 September. The Commission pleads for a swift procedure to avert any risk of an interruption in payments from the Structural Funds in 2004 and also to avoid that the additional resources be made available too late, which would make it impossible to complete payment procedures by the end of the year.

3. Heading 1a: decrease of appropriations for the eaggf-guarantee

The PDAB proposes decreases in the appropriations for the EAGGF-Guarantee where there is an important under-utilisation of the budget due to generally favourable developments on agricultural markets in 2003/2004. These favourable developments concern in particular the following key sectors:

- Markets measures for cereals, where the consequences of the poor harvest of 2003, both internally and externally, have been reflected in higher world prices compared to the budget and therefore in lower rates of export refund, especially for maize-based products and in the production refund for starch;

- Sugar, for which an important under-utilisation of appropriations arises for export refunds and is the result of substantially lower export quantities than were foreseen in the budget;

- Textile plants, where an under-utilisation arises as a result of a lower quantity subject to the aid for cotton compared to the quantity used in the budget;

- The wine sector, where, contrary to the budgetary assumptions, no crisis distillations were necessary in 2003/2004;

- In the milk and milk products sector, a substantial under-utilisation of the appropriations results from the application of the milk super-levy for 2003/2004 to a total excess quantity of more than 1 million tonnes compared with the budget forecast of 0.25 million tonnes. Moreover, favourable market prices in this sector, both internally and externally, have permitted the fixing of rates of export refunds and of certain internal aids for skimmed milk and butter at levels lower than those used in the budget;

- Beef, where the under-utilisation is above all the result of the earlier than anticipated payment (in 2003 instead of 2004) of outstanding amounts to be reimbursed to Member States for the financing of the special beef purchase scheme of 2001 and of lower quantities subject to export refunds compared to the quantities used in the budget;

- Sheepmeat and goatmeat, for which lower numbers subject to the premium and favourable exchange rate developments lead to an under-utilisation of the budget appropriations.

At this stage, the overall under-utilisation is estimated at around EUR 1.6 billion. However, the cancellation of appropriations for the EAGGF-Guarantee should not exceed EUR 1.1 billion, given the limits laid down by Article 150 (3) of Council Regulation (EC) No 1605/2002. In effect, the expenditures to be committed in December 2004 in advance on the 2005 budget (expenditures by Member States in the period 16 0ctober - 30 November 2004) are estimated at around EUR 22.8 billion. The anticipated commitment of this amount in December 2004, in accordance with the provisions of Articles 150 (3) of Council Regulation (EC) No 1605/2002, means that the appropriations for the EAGGF Guarantee for 2004 should not be reduced to less than about EUR 45.7 billion. i.e. EUR 1.1 billion below the level of the appropriations in the initial budget.

4. Revision of the forecasts of import duties

According to Article 16 of Council Regulation (EC, Euratom) No 1150/2000 of 22 May 2000, the Commission proposes to revise the forecasts of traditional own resources on the basis of the actual outturn by an increase of EUR 1.2 billion.

The Amending Budget No 8/2004 had estimated the total of traditional own resources at EUR 11.206,9 million net. During the first nine months the provisional outturn amounts to EUR 8.890,9 million. Thus, taking into account the progression of the cashed amounts in the last months and the payments of the balances of sugar production levies in December the new total can be estimated at EUR 12.406,9 million.

The following table shows the execution and the estimated recoveries per month as far as the traditional own resources are concerned:

Year 2004 // Cashed amount/forecast in EUR million

January // 883,6

February // 894,9

March // 902,1

April // 892,1

May // 972,0

June // 1.199,9

July // 993,7

August // 1.062,6

September // 1.090,0

October // 1.072,6

November // 1.087,8

December // 1.355,6

TOTAL // 12.406,9

(1) Other revenue

(a) Fines, periodic penalty payments and other penalties

Article 710 is foreseen for registering the recovery of fines. No amount was introduced in the 2004 budget, as it is very difficult to forecast these recoveries. The entities that are subjected to a fine can file an appeal against the Commission Decision imposing fines. However for some EUR 80 million the Commission can consider its recovery as definitive. Therefore an amount of EUR 80 million is being budgeted.

(b) Interest on late payments

Article 700 is foreseen for registering interest on late payments. In the 2004 Budget a (p.m.) was entered in the same way as for fines. It is very difficult to forecast when the payments will take place or whether the interest amounts will be contested. Notwithstanding this fact, an amount of EUR 20 millions can be entered on the line at this stage of the year, given the amounts recovered or that will most likely be recovered before the end of the year.

The use of updated forecasts on the revenue side improves the accuracy of the payments that Member States are asked to make available during the budgetary year. This proposed revision increases the traditional own resources forecasts and other revenue by EUR 1.3 billion. The global increase in payment appropriations needed being EUR 2.3 billion, the additional call on member states GNI contributions is thus limited to EUR 1 billion.

SUMMARY TABLE BY HEADING OF THE FINANCIAL PERSPECTIVE

>TABLE POSITION>

Increase of revenue

Additional need for own ressources // +1 300 000 000

+1 000 000 000