TABLE OF CONTENTS

IMPLEMENTING AND ACCOUNTING FOR THE EDF RESOURCES. 3

PART I - EDF ANNUAL ACCOUNTS: FUNDS MANAGED BY THE COMMISSION. 6

1........... FINANCIAL STATEMENTS OF THE 8TH, 9TH AND 10TH EDFs. 7

1.1........ 8TH, 9TH AND 10TH EDFs: AGGREGATED BALANCE SHEET, ECONOMIC OUTTURN ACCOUNT, CASH FLOW TABLE AND STATEMENT OF CHANGES IN NET ASSETS. 7

1.2........ 8TH EDF: BALANCE SHEET, ECONOMIC OUTTURN ACCOUNT AND STATEMENT OF CHANGES IN NET ASSETS 11

1.3........ 9TH EDF: BALANCE SHEET, ECONOMIC OUTTURN ACCOUNT AND STATEMENT OF CHANGES IN NET ASSETS 14

1.4........ 10TH EDF: BALANCE SHEET, ECONOMIC OUTTURN ACCOUNT AND STATEMENT OF CHANGES IN NET ASSETS 17

1.5........ NOTES TO THE FINANCIAL STATEMENTS OF THE 8TH, 9TH AND 10TH EDFs. 20

2........... REPORT ON FINANCIAL IMPLEMENTATION. 39

2.1........ ALLOCATIONS. 42

2.2........ AGGREGATED ACCOUNTS. 45

PART II - EDF ANNUAL ACCOUNTS: FINANCIAL STATEMENTS OF THE INVESTMENT FACILITY. 50

3........... FINANCIAL STATEMENTS OF THE INVESTMENT FACILITY. 52

3.1........ STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2013. 52

3.2........ STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2013. 53

3.3........ STATEMENT OF CHANGES IN CONTRIBUTORS’ RESOURCES FOR THE YEAR ENDED 31 DECEMBER 2013 54

3.4........ STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2013. 55

3.5........ NOTES TO THE FINANCIAL STATEMENTS AS AT 31 DECEMBER 2013. 56

ANNEX TO PART 1 – CHAPTER 2 (REPORT ON THE FINANCIAL IMPLEMENTATION): SITUATION BY COUNTRY AND BY INSTRUMENT. 93

CERTIFICATION OF THE ACCOUNTS

The annual accounts of the 8th, 9th and 10th European Development Funds for the year 2013 have been prepared in accordance with Title VIII of the Financial Regulation of the 10th European Development Fund and with the accounting principles, rules and methods set out in annex to the financial statements.

I acknowledge my responsibility for the preparation and presentation of the annual accounts of the 8th, 9th and 10th European Development Funds in accordance with Article 125 of the Financial Regulation of the 10th European Development Fund.

I have obtained from the authorising officer and from the EIB, who guarantee its reliability, all the information necessary for the production of the accounts that show the European Development Funds' assets and liabilities and the budgetary implementation.

I hereby certify that based on this information, and on such checks as I deemed necessary to sign off the accounts, I have a reasonable assurance that the accounts present a true and fair view of the financial position of the European Development Funds in all material aspects.

(Signed)

Manfred Kraff

Accounting Officer

IMPLEMENTING AND ACCOUNTING FOR THE EDF RESOURCES

1. BACKGROUND

The European Union (EU) has cooperative development relations with a large number of developing countries. The main objective is to promote economic, social and environmental development, with the primary aim of reducing and eradicating poverty in the long-term, by providing beneficiary countries with development aid and technical assistance. To achieve this, the EU draws up, jointly with the partner countries, cooperation strategies and mobilises the financial resources to implement them. These EU resources allocated to development cooperation come from three sources:

– The EU budget;

– The European Development Fund;

– The European Investment Bank.

The European Development Fund (EDF) is the main instrument for providing EU aid for development cooperation to the African, Caribbean and Pacific (ACP) States and Overseas Countries and Territories (OCTs).

The EDF is not funded by the EU budget. It is established by an internal agreement of the Representatives of the Member States, sitting within the Council, and managed by a specific committee. The European Commission (hereafter referred to as "Commission") is responsible for the financial implementation of the operations carried out with EDF resources and the European Investment Bank (EIB) manages the Investment Facility.

During the period 2008-2013, the geographic aid granted to ACP States and OCTs continued to be mainly funded by the EDF. Each EDF is usually concluded for a period of around five years. Each EDF is governed by its own Financial Regulation which imposes the preparation of financial statements for each individual EDF. Accordingly, financial statements are prepared separately for each EDF in respect of the part that is managed by the Commission. These financial statements are also presented in an aggregated way so as to provide a global view of the financial situation of the resources for which the Commission is responsible.

Within the framework of the ACP-EU Partnership Agreement, the Investment Facility was established. This Investment Facility is managed by the EIB and is used to support private sector development in the ACP States by financing essentially – but not exclusively – private investments. The Facility is designed as a renewable fund, so that loan repayments can be reinvested in other operations, thus resulting in a self-renewing and financially independent Facility. As the Investment Facility is not managed by the Commission, it is not consolidated in the first part of the annual accounts – the financial statements of the 8th, 9th and 10th EDFs and the related report on financial implementation. The financial statements of the Investment Facility are included as a separate part of the annual accounts (part II) to provide a full picture of the development aid of the EDF. The 10th EDF covers the period from 2008 to 2013 and has an overall budget of EUR 22 682 million[1].

2. HOW IS THE EDF FUNDED?

The European Council of 15-16 December 2005 adopted the financial perspectives for 2007-2013. In this context it was decided that geographical cooperation with the ACP States would not be integrated into the EU budget (budgetised), but would continue to be funded through the existing inter-governmental EDF for the period 2008-2013.

The EU budget is annual and according to the budgetary principle of annuality, expenditure and revenue are planned and authorised for one year. Unlike the EU, the EDF is a fund operating on the basis of multiannuality. Each EDF establishes an overall fund to implement development cooperation during a period of usually five years. As resources are allocated on a multiannual basis, the allocated funds may be used over the period of the EDF. The lack of budget annuality is highlighted in the budgetary reporting, where the budgetary implementation of the EDFs is measured against the total funds.

The EDF resources are “ad hoc” contributions from the EU Member States. Approximately every five years, Member State representatives meet at intergovernmental level to decide on an overall amount that will be allocated to the fund and to oversee its implementation. The Commission then manages the fund in accordance with the Union policy in development cooperation. Since Member States have their own development and aid policies in parallell to the Union policy, the Member States must coordinate their policies with the EU to ensure they are complementary.

In addition to the above mentioned contributions, it is also possible for Member States to enter into co-financing arrangements or to make voluntary financial contributions to the EDF.

3. YEAR-END REPORTING

3.1 Annual accounts

It is the Accounting Officer's responsibility to prepare the annual accounts and ensure that they present a true and fair view of the financial position of the EDF.

The annual accounts are presented as follows:

Part I: Funds managed by the Commission

– Financial statements of the 8th, 9th and 10th EDFs

– Report on financial implementation of the 8th, 9th and 10th EDFs

Part II: Funds managed by the EIB

– Financial statements of the Investment Facility

The financial statements of the Investment Facility are included as a separate part of the annual accounts so as to provide a full picture of the development aid of the EDF.

Following audit by the European Court of Auditors (ECA), the annual accounts are adopted by the Commission by 31 July of the subsequent year and presented to the European Parliament and to the Council for discharge.

4. AUDIT AND DISCHARGE

4.1 Audit

The EDF annual accounts and resource management are overseen by its external auditor, the ECA, which draws up an annual report for the European Parliament and the Council.

4.2 Discharge

The final control is the discharge of the financial implementation of the EDF resources for a given financial year. The European Parliament is the discharge authority of the EDF. This means that following the audit and finalisation of the annual accounts it falls to the Council to recommend and then to the Parliament to decide whether to grant discharge to the Commission for the financial implementation of the EDF resources for the preceding financial year. This decision is based on a review of the accounts and the annual report of the ECA (which includes an official statement of assurance) and replies of the Commission, and also following questions and further information requests to the Commission.

PART I - EDF ANNUAL ACCOUNTS: FUNDS MANAGED BY THE COMMISSION[2]

1. FINANCIAL STATEMENTS OF THE 8TH, 9TH AND 10TH EDFs

1.1 8TH, 9TH AND 10TH EDFs: AGGREGATED BALANCE SHEET, ECONOMIC OUTTURN ACCOUNT, CASH FLOW TABLE AND STATEMENT OF CHANGES IN NET ASSETS

AGGREGATED BALANCE SHEET OF THE 8TH, 9TH AND 10TH EDFs

|| || || || EUR millions

|| Note || 31.12.2013 || 31.12.2012

|| NON-CURRENT ASSETS || || ||

|| Pre-financing || 2.1 || 424 || 438

|| || || ||

|| CURRENT ASSETS || || ||

|| Pre-financing || 2.2 || 1 286 || 1 334

|| Receivables || 2.3 || 84 || 70

|| Cash and cash equivalents || 2.5 || 759 || 690

|| || || ||

|| TOTAL ASSETS || || 2 553 || 2 532

|| || || ||

|| NON-CURRENT LIABILITIES || || ||

|| Payables || 2.6 || (25) || (40)

|| || || ||

|| CURRENT LIABILITIES || || ||

|| Payables || 2.7 || (1 214) || (1 057)

|| || || ||

|| TOTAL LIABILITIES || || (1 239) || (1 097)

|| || || ||

|| NET ASSETS || || 1 313 || 1 435

|| || || ||

|| FUNDS & RESERVES || || ||

|| Called fund capital || 2.8 || 32 529 || 29 579

|| Other reserves || 2.9 || 2 252 || 2 252

|| Economic outturn carried forward from previous years || || (30 396) || (27 374)

|| Economic outturn of the year || || (3 072) || (3 023)

|| NET ASSETS || || 1 313 || 1 435

AGGREGATED ECONOMIC OUTTURN ACCOUNT OF THE 8TH, 9TH AND 10TH EDFs

|| || EUR millions

|| Note || 2013 || 2012

|| || ||

OPERATING REVENUE || 3.1 || 123 || 124

|| || ||

OPERATING EXPENSES || || ||

Operating expenses || 3.2 || (3 027) || (3 017)

Administrative expenses || 3.3 || (167) || (107)

|| || ||

DEFICIT FROM OPERATING ACTIVITIES || || (3 072) || (3 001)

|| || ||

Financial revenue || 3.4 || 0 || (22)

SURPLUS/(DEFICIT) FROM FINANCIAL ACTIVITIES || || 0 || (22)

|| || ||

ECONOMIC OUTTURN OF THE YEAR || || (3 072) || (3 023)

AGGREGATED CASHFLOW TABLE OF THE 8TH, 9TH AND 10TH EDFs

|| || EUR millions

|| Note || 2013 || 2012

|| || ||

Economic outturn of the year || || (3 072) || (3 023)

|| || ||

OPERATING ACTIVITIES || 4.2 || ||

Ordinary contributions from Member States || || 2 961 || 2 606

Co-financing contributions || || 18 || 19

(Reversal of) impairment losses on receivables || || (2) || 4

|| || ||

(Increase)/decrease in non-current pre-financing || || 14 || (58)

(Increase)/decrease in current pre-financing || || 48 || (159)

(Increase)/decrease in current receivables[3] || || (7) || 31

Increase/(decrease) in non-current liabilities || || (15) || 40

Increase/(decrease) in current liabilities[4] || || 123 || 6

|| || ||

NET CASH FLOW || || 69 || (534)

|| || ||

NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS || || 69 || (534)

Cash and cash equivalents at the beginning of the year || 2.5 || 690 || 1 224

Cash and cash equivalents at the end of the year || 2.5 || 759 || 690

AGGREGATED STATEMENT OF CHANGES IN NET ASSETS OF THE 8TH, 9TH AND 10TH EDFs

|| || || || || || || EUR millions

|| Fund Capital (a) || Uncalled funds (b) || Called fund capital (c)=(a)-(b) || Cumulative reserves (d) || Other reserves (e) || Total Net Assets (c)+(d)+(e)

BALANCE AS AT 31 DECEMBER 2011 || 45 691 || 18 712 || 26 979 || (27 374) || 2 252 || 1 858

Capital increase – ordinary contributions || - || (2 600) || 2 600 || - || - || 2 600

Economic outturn of the year || - || - || - || (3 023) || - || (3 023)

BALANCE AS AT 31 DECEMBER 2012 || 45 691 || 16 112 || 29 579 || (30 396) || 2 252 || 1 435

Capital increase – ordinary contributions || - || (2 950) || 2 950 || - || - || 2 950

Economic outturn of the year || - || - || - || (3 072) || - || (3 072)

BALANCE AS AT 31 DECEMBER 2013 || 45 691 || 13 162 || 32 529 || (33 468) || 2 252 || 1 313

1.2 8TH EDF: BALANCE SHEET, ECONOMIC OUTTURN ACCOUNT AND STATEMENT OF CHANGES IN NET ASSETS

BALANCE SHEET OF THE 8TH EDF

|| || || || EUR millions

|| Note || 31.12.2013 || 31.12.2012

|| CURRENT ASSETS || || ||

|| Pre-financing || 2.2 || 5 || 38

|| Receivables || 2.3 || 2 || 1

|| Liaison accounts || 2.4 || 290 || 345

|| || || ||

|| TOTAL ASSETS || || 297 || 384

|| || || ||

|| CURRENT LIABILITIES || || ||

|| Payables || 2.7 || (28) || (22)

|| || || ||

|| TOTAL LIABILITIES || || (28) || (22)

|| || || ||

|| NET ASSETS || || 270 || 361

|| || || ||

|| FUNDS & RESERVES || || ||

|| Called fund capital || 2.8 || 12 840 || 12 840

|| Other reserves || 2.9 || (2 456) || (2 354)

|| Economic outturn carried forward from previous years || || (10 125) || (10 132)

|| Economic outturn of the year || || 10 || 7

|| NET ASSETS || || 270 || 361

ECONOMIC OUTTURN ACCOUNT OF THE 8TH EDF

|| || EUR millions

|| Note || 2013 || 2012

|| || ||

OPERATING REVENUE || 3.1 || 64 || 58

|| || ||

OPERATING EXPENSES || 3.2 || (53) || (49)

|| || ||

|| || ||

SURPLUS/(DEFICIT) FROM OPERATING ACTIVITIES || || 11 || 9

|| || ||

Financial revenue || 3.4 || 0 || (2)

SURPLUS/(DEFICIT) FROM FINANCIAL ACTIVITIES || || 0 || (2)

|| || ||

ECONOMIC OUTTURN OF THE YEAR || || 10 || 7

STATEMENT OF CHANGES IN NET ASSETS OF THE 8TH EDF

|| || || || || || || EUR millions

|| Fund Capital (a) || Uncalled funds (b) || Called fund capital (c)=(a)-(b) || Cumulative reserves (d) || Other reserves (e) || Total Net Assets (c)+(d)+(e)

BALANCE AS AT 31 DECEMBER 2011 || 12 840 || - || 12 840 || (10 132) || (2 276) || 432

Capital increase – ordinary contributions || - || - || - || - || - || -

Transfers to/from the 10th EDF || - || - || - || - || (78) || (78)

Economic outturn of the year || - || - || - || 7 || - || 7

BALANCE AS AT 31 DECEMBER 2012 || 12 840 || - || 12 840 || (10 125) || (2 354) || 361

Capital increase – ordinary contributions || - || - || - || - || - || -

Transfers to/from the 10th EDF || - || - || - || - || (102) || (102)

Economic outturn of the year || - || - || - || 10 || - || 10

BALANCE AS AT 31 DECEMBER 2013 || 12 840 || || 12 840 || (10 114) || (2 456) || 270

1.3 9TH EDF: BALANCE SHEET, ECONOMIC OUTTURN ACCOUNT AND STATEMENT OF CHANGES IN NET ASSETS

BALANCE SHEET OF THE 9TH EDF

|| || || || EUR millions

|| Note || 31.12.2013 || 31.12.2012

|| NON-CURRENT ASSETS || || ||

|| Pre-financing || 2.1 || 90 || 119

|| || || ||

|| CURRENT ASSETS || || ||

|| Pre-financing || 2.2 || 259 || 447

|| Receivables || 2.3 || 58 || 58

|| Liaison accounts || 2.4 || 1 323 || 1 919

|| Cash and cash equivalents || 2.5 || - || -

|| || || ||

|| TOTAL ASSETS || || 1 730 || 2 543

|| || || ||

|| CURRENT LIABILITIES || || ||

|| Payables || 2.7 || (263) || (375)

|| || || ||

|| TOTAL LIABILITIES || || (263) || (375)

|| || || ||

|| NET ASSETS || || 1 467 || 2 168

|| || || ||

|| FUNDS & RESERVES || || ||

|| Called fund capital || 2.8 || 11 699 || 11 699

|| Other reserves || 2.9 || 3 756 || 4 126

|| Economic outturn carried forward from previous years || || (13 658) || (12 830)

|| Economic outturn of the year || || (331) || (827)

|| NET ASSETS || || 1 467 || 2 168

ECONOMIC OUTTURN ACCOUNT OF THE 9TH EDF

|| || EUR millions

|| Note || 2013 || 2012

|| || ||

OPERATING REVENUE || 3.1 || 34 || 49

|| || ||

OPERATING EXPENSES || || ||

Operating expenses || 3.2 || (362) || (856)

Administrative expenses || 3.3 || 0 || (1)

|| || ||

|| || ||

DEFICIT FROM OPERATING ACTIVITIES || || (328) || (809)

|| || ||

Financial revenue || 3.4 || (3) || (18)

DEFICIT FROM FINANCIAL ACTIVITIES || || (3) || (18)

|| || ||

ECONOMIC OUTTURN OF THE YEAR || || (331) || (827)

STATEMENT OF CHANGES IN NET ASSETS OF THE 9TH EDF

|| || || || || || || EUR millions

|| Fund Capital (a) || Uncalled funds (b) || Called fund capital (c)=(a)-(b) || Cumulative reserves (d) || Other reserves (e) || Total Net Assets (c)+(d)+(e)

BALANCE AS AT 31 DECEMBER 2011 || 11 699 || - || 11 699 || (12 830) || 4 227 || 3 096

Capital increase – ordinary contributions || - || - || - || - || - || -

Transfers to/from the 10th EDF || - || - || - || - || (100) || (100)

Economic outturn of the year || - || - || - || (827) || - || (827)

BALANCE AS AT 31 DECEMBER 2012 || 11 699 || - || 11 699 || (13 657) || 4 126 || 2 168

Capital increase – ordinary contributions || - || - || - || - || - || -

Transfers to/from the 10th EDF || - || - || - || - || (371) || (371)

Economic outturn of the year || - || - || - || (331) || - || (331)

BALANCE AS AT 31 DECEMBER 2013 || 11 699 || - || 11 699 || (13 988) || 3 756 || 1 467

1.4 10TH EDF: BALANCE SHEET, ECONOMIC OUTTURN ACCOUNT AND STATEMENT OF CHANGES IN NET ASSETS

BALANCE SHEET OF THE 10TH EDF

|| || || || EUR millions

|| Note || 31.12.2013 || 31.12.2012

|| NON-CURRENT ASSETS || || ||

|| Pre-financing || 2.1 || 334 || 319

|| || || ||

|| CURRENT ASSETS || || ||

|| Pre-financing || 2.2 || 1 021 || 849

|| Receivables || 2.3 || 24 || 11

|| Cash and cash equivalents || 2.5 || 759 || 690

|| || || ||

|| TOTAL ASSETS || || 2 138 || 1 869

|| || || ||

|| NON-CURRENT LIABILITIES || || ||

|| Payables || 2.6 || (25) || (40)

|| || || ||

|| CURRENT LIABILITIES || || ||

|| Payables || 2.7 || (923) || (660)

|| Liaison accounts || 2.4 || (1 613) || (2 264)

|| || || ||

|| TOTAL LIABILITIES || || (2 561) || (2 963)

|| || || ||

|| NET ASSETS || || (423) || (1 095)

|| || || ||

|| FUNDS & RESERVES || || ||

|| Called fund capital || 2.8 || 7 990 || 5 040

|| Other reserves || 2.9 || 952 || 479

|| Economic outturn carried forward from previous years || || (6 614) || (4 411)

|| Economic outturn of the year || || (2 751) || (2 203)

|| NET ASSETS || || (423) || (1 095)

ECONOMIC OUTTURN ACCOUNT OF THE 10TH EDF

|| || EUR millions

|| Note || 2013 || 2012

|| || ||

OPERATING REVENUE || 3.1 || 25 || 18

|| || ||

OPERATING EXPENSES || || ||

Operating expenses || 3.2 || (2 612) || (2 112)

Administrative expenses || 3.3 || (167) || (106)

|| || ||

|| || ||

DEFICIT FROM OPERATING ACTIVITIES || || (2 754) || (2 201)

|| || ||

Financial revenue || 3.4 || 3 || (2)

SURPLUS/(DEFICIT) FROM FINANCIAL ACTIVITIES || || 3 || (2)

|| || ||

ECONOMIC OUTTURN OF THE YEAR || || (2 751) || (2 203)

STATEMENT OF CHANGES IN NET ASSETS OF THE 10TH EDF

|| || || || || || || EUR millions

|| Fund Capital (a) || Uncalled funds (b) || Called fund capital (c)=(a)-(b) || Cumulative reserves (d) || Other reserves (e) || Total Net Assets (c)+(d)+(e)

BALANCE AS AT 31 DECEMBER 2011 || 21 152 || 18 712 || 2 440 || (4 411) || 301 || (1 670)

Capital increase – ordinary contributions || - || (2 600) || 2 600 || - || - || 2 600

Transfers from the 8th and the 9th EDF || - || - || - || - || 178 || 178

Economic outturn of the year || - || - || - || (2 203) || - || (2 203)

BALANCE AS AT 31 DECEMBER 2012 || 21 152 || 16 112 || 5 040 || (6 614) || 479 || (1 095)

Capital increase – ordinary contributions || - || (2 950) || 2 950 || - || - || 2 950

Transfers from/to the 8th and the 9th EDF || - || - || - || - || 473 || 473

Economic outturn of the year || - || - || - || (2 751) || - || (2 751)

BALANCE AS AT 31 DECEMBER 2013 || 21 152 || 13 162 || 7 990 || (9 365) || 952 || (423)

1.5 NOTES TO THE FINANCIAL STATEMENTS OF THE 8TH, 9TH AND 10TH EDFs

1. SIGNIFICANT ACCOUNTING POLICIES

1.1. LEGAL PROVISIONS AND THE FINANCIAL REGULATION

The financial statements are drawn up in accordance with the Financial Regulation applicable to the 10th EDF (“EDF FR”)[5]. In accordance with the provisions of its Article 121, the financial statements are prepared respecting the principles of accrual accounting.

These financial statements have been drafted in conformity with the accounting rules and methods of the EDF, themselves drawn up on the basis of International Public Sector Accounting Standards (IPSAS) as issued by the International Public Sector Accounting Standard Board (IPSASB). The accounting rules adopted by the Accounting Officer of the EDF have been applied in respect of the part of the EDF resources for which the Commission is responsible for financial management.

The EDF Accounting Officer must submit the provisional accounts to the ECA for audit by 31 March of the following year. The ECA shall in turn make its observations on the accounts known to the Commission by 15 June (Article 125). On the basis of these observations, the Commission approves the annual accounts by 31 July and sends them to the European Parliament, the Council and the ECA. The accounts are then published in the Official Journal by 15 November, together with the statement of assurance given by the ECA in respect of the part of the EDF resources for which the Commission is responsible for the financial management.

1.2. ACCOUNTING PRINCIPLES

The objective of the financial statements is to provide information about the financial position, performance and cash flows of an entity that is useful to a wide range of users. For a public sector entity such as the EDF, the objectives are more specifically to provide information useful for decision making, and to demonstrate the accountability of the entity for the resources entrusted to it.

If they are to present a true and fair view, financial statements must not only supply relevant information to describe the nature and range of an organisation’s activities, explain how it is financed and supply definitive information on its operations, but do so in a clear and comprehensible manner which allows comparisons between financial years. It is with these goals in mind that the present document has been drawn up.

The accounting system of the EDF comprises general accounts and budget accounts. The budget accounts give a detailed picture of the implementation of the budget. They are based on the cash accounting principle. The general accounts allow for the preparation of the financial statements as they show all expenses and income for the financial year based on accrual accounting rules and are designed to establish the financial position in the form of a balance sheet at 31 December.

Article 120 of the 10th EDF FR sets out the accounting principles to be applied in drawing up the financial statements:

– going concern basis;

– prudence;

– consistent accounting methods;

– comparability of information;

– materiality;

– no netting;

– reality over appearance;

– accrual-based accounting.

1.3. BASIS OF PREPARATION

1.3.1. Functional and reporting currency

The financial statements are presented in millions of euros, the euro being the functional and reporting currency of the EDF.

1.3.2. Currency and basis for conversion

Foreign currency transactions are translated into euros using the exchange rates prevailing on the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of foreign currency transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the economic outturn account.

Year-end balances of monetary assets and liabilities denominated in foreign currencies are converted into euros on the basis of the below exchange rates applying on 31 December:

Currency || 31.12.2013 || 31.12.2012 || Currency || 31.12.2013 || 31.12.2012

XOF || 655.957 || 655.957 || KES || 117.270 || 113.460

XAF || 655.957 || 655.957 || BIF || 2107.95 || 2037.95

NGN || 212.376 || 206.074 || SLL || 6013.08 || 5709.56

PGK || 3.38524 || 2.76702 || TZS || 2166.71 || 2077.48

HTG || 60.7227 || 56.2987 || UGX || 3423.24 || 3508.51

GNF || 9616.41 || 9250.40 || MGA || 3092.68 || 2981.70

MWK || 595.810 || 439.917 || SZL || 14.5660 || 11.1727

1.3.3. Use of estimates

In accordance with IPSAS and generally accepted accounting principles, the financial statements necessarily include amounts based on estimates and assumptions by management based on the most reliable information available. Significant estimates include, but are not limited to, amounts for provisions, impairment losses on accounts receivable and accrued charges. Actual results could differ from those estimates. Changes in estimates are reflected in the period in which they become known.

1.4. BALANCE SHEET

1.4.1 Pre-financing amounts

Pre-financing is a payment intended to provide the beneficiary with a cash advance, i.e. a float. It may be split into a number of payments over a period defined in the particular pre-financing agreement. The float or advance is repaid or used for the purpose for which it was provided during the period defined in the agreement. If the beneficiary does not incur eligible expenditures, he/she has to return the pre-financing advance to the EDF. The amount of the pre-financing is reduced (wholly or partially) by the acceptance of eligible costs and amounts returned.

At year-end, outstanding pre-financing amounts are valued at the original amount(s) paid less: amounts returned, eligible amounts cleared, estimated eligible amounts not yet cleared at year-end and value reductions.

Interest on pre-financing is recognised as it is earned in accordance with the provisions of the relevant agreement. An estimate of the accrued interest revenue, based on the most reliable information, is made at year-end.

1.4.2 Receivables

Receivables are carried at original amount less write-down for impairment. A write-down for impairment of receivables is established when there is objective evidence that the full amount due cannot be collected according to the original terms of the receivable. The amount of the write-down is the difference between the asset’s carrying amount and the recoverable amount, being the present value of expected future cash flows, discounted at the market rate of interest for similar borrowers. Also recognised is a general write-down for outstanding recovery orders not already subject to a specific write-down. This general write-down is based on the historical loss rates. The amount of the write-down is recognised in the economic outturn account.

1.4.3 Cash and cash equivalents

Cash and cash equivalents are financial instruments and are defined as current assets. They include cash at hand, deposits held at call with banks and other current highly liquid investments with original maturities of three months or less.

1.4.4 Payables

A significant amount of the payables of the EDF are not related to the purchase of goods or services – instead they are unpaid cost claims from beneficiaries of grants or other funding. They are recorded as payables for the requested amount when the cost claim is received and, after verification, accepted as eligible by the relevant financial agents. At this stage they are valued at the accepted and eligible amount.

Payables arising from the purchase of goods and services are recognised at invoice reception for the original amount and corresponding expenses are entered in the accounts when the supplies or services are delivered and accepted.

1.4.5 Provisions

Provisions are recognised when the EDF has a present legal or constructive obligation towards third parties as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation, and the amount can be reliably estimated. The amount of the provision is the best estimate of the expenditures expected to be required to settle the present obligation at the reporting date.

1.4.6 Accrued and deferred income and charges

A critical element in accrual accounting is the exercise of ensuring that transactions are recorded in the accounting year to which they relate. This exercise is referred to as the cut-off exercise. In particular, an assessment has to be made concerning eligible expenses incurred by beneficiaries of EDF funds but not yet reported to the EDF (accrued charges). Conversely, some payments made in the current year relate to subsequent periods (deferred charges) and these have to be identified and included in the subsequent period(s).

According to the EDF accounting rules, transactions and events are recognised in the financial statements in the period to which they relate. At the end of the accounting period, accrued expenses are recognised based on an estimated amount of the transfer obligation of the period. The calculation of the accrued expenses is made in accordance with detailed operational and practical guidelines issued by the Commission which aim at ensuring that the financial statements reflect a true and fair view.

Revenue is also accounted for in the period to which it relates. At year-end, if an invoice is not yet issued but the service has been rendered, the supplies have been delivered by the EDF or a contractual agreement exists (i.e. by reference to a treaty), an accrued income will be recognised in the financial statements.

In addition, at year-end, if an invoice is issued but the services have not yet been rendered or the goods supplied have not yet been delivered, the revenue will be deferred and recognised in the subsequent accounting period.

1.5. ECONOMIC OUTTURN ACCOUNT

1.5.1 Revenue

There is no revenue budgeted for the EDF. The ordinary contributions from Member States are treated as fund capital. Revenue comprises recovery of expenses and interest income.

Recovery of expenses

For operations giving rise to reimbursement of expenditures previously paid by the EDF to a final beneficiary or third country, recovery orders and deductions from subsequent payments are established and accounted for as follows:

– Recovery of expenses: the recovery order issued results in a receivable with the corresponding entry being income in the economic outturn account for that year; or,

– Recovery of pre-financing amounts: in this case the amount is included under the pre-financing heading on the balance sheet.

Interest income

Interest income is recognised in the economic outturn account using the effective interest method. The interest income comprises interest received or receivable on cash balances and demandable deposits held with commercial banks and on late payment of entitlements to the EDF. Interest income is recognised as it accrues.

1.5.2 Expense

Exchange expenses arising from the purchase of goods and services are recognised when the supplies are delivered and accepted. They are valued at original invoice cost.

Non-exchange expenses account for the majority of the EDF's expenditure. They relate to transfers to beneficiaries and can be of three types: entitlements, transfers under agreement and discretionary grants, or contributions and donations.

Transfers are recognised as expenses in the period during which the events giving rise to the transfer occurred, as long as the nature of the transfer is allowed by regulation (Financial Regulation or other) or a contract has been signed authorising the transfer; any eligibility criteria have been met by the beneficiary; and a reasonable estimate of the amount can be made.

When any request for payment or cost claim is received and meets the recognition criteria, it is recognised as an expense for the eligible amount. At year-end, incurred eligible expenses already due to the beneficiaries but not yet reported are estimated and recorded as accrued expenses.

Interest expense

Interest expense is recognised in the economic outturn account using the effective interest method. The interest expense comprises interest paid or payable and is recognised as it accrues.

1.6. CONTINGENT ASSETS AND LIABILITIES

1.6.1 Contingent assets

A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the EDF. A contingent asset is disclosed when an inflow of economic benefits or service potential is probable.

Contingent assets are assessed at each balance sheet date to ensure that developments are appropriately reflected in the financial statements. If it has become virtually certain that an inflow of economic benefits or service potential will arise and the asset’s value can be measured reliably, the asset and the related revenue are recognised in the financial statements of the period in which the change occurs.

Guarantees are possible assets that arise from past events and whose existence will be confirmed by the occurrence or non-occurrence of the object of the guarantee. Guarantees can thus qualify as contingent assets. A guarantee is settled when the object of the guarantee no longer exists. It is crystallised when the conditions are fulfilled for calling for a payment from the guarantor.

1.6.2 Contingent liabilities

A contingent liability is a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the EDF; or a present obligation that arises from past events but is not recognised because: it is not probable that an outflow of resources embodying economic benefits or service potential will be required to settle the obligation or, in the rare circumstances where the amount of the obligation cannot be measured with sufficient reliability. A contingent liability is disclosed unless the possibility of an outflow of resources embodying economic benefits or service potential is remote.

Contingent liabilities are assessed at each balance sheet date to determine whether an outflow of resources embodying economic benefits or service potential has become probable. If it becomes probable that an outflow of resources embodying economic benefits or service potential will be required for an item dealt with as contingent liability, a provision is recognised in the financial statements of the period in which the change of probability occurs.

2. NOTES TO THE BALANCE SHEET

NON-CURRENT ASSETS

2.1 PRE-FINANCING

|| || || || EUR millions

|| 8th EDF || 9th EDF || 10th EDF || TOTAL 31.12.2013 || TOTAL 31.12.2012

Pre-financing || - || 90 || 334 || 424 || 438

TOTAL || - || 90 || 334 || 424 || 438

Many contracts provide for payments of advances before the commencement of works, deliveries of supplies or the provision of services. Sometimes the payment schedules of contracts foresee payments on the basis of progress reports. Pre-financing is normally paid in the currency of the country or territory where the project is executed.

The timing of the recoverability or utilisation of the pre-financing governs whether it is disclosed as a current or a non-current pre-financing asset. The utilisation is defined by the project's underlying agreement. Any repayments or utilisation due within twelve months of the reporting date are disclosed as current pre-financing. As many of the EDF projects are long-term in nature, it is necessary that the related advances are available for more than one year. Thus these pre-financing amounts are shown as non-current assets.

CURRENT ASSETS

2.2 PRE-FINANCING

|| || || || EUR millions

|| 8th EDF || 9th EDF || 10th EDF || TOTAL 31.12.2013 || TOTAL 31.12.2012

Pre-financing (gross) || 39 || 832 || 3 059 || 3 931 || 3 593

Less estimated clearing of pre-financing || (34) || (573) || (2 038) || (2 645) || (2 259)

TOTAL || 5 || 259 || 1 021 || 1 286 || 1 334

2.2.1 Guarantees received in respect of pre-financing

Guarantees are held to secure pre-financing and are released when the final claim under a project is paid. A guarantee has two different values referred to as the “nominal” and the “on-going” values. For the “nominal” value, the generating event is linked to the existence of the guarantee. For the “on-going” value, the guarantee’s generating event is the pre-financing payment and/or subsequent clearings.

At 31 December 2013 the "nominal" value of guarantees received by the EDF in respect of pre-financing amounts to EUR 303 million. The "on-going" value of those guarantees amounts to EUR 151 million.

In 2013 an in-depth review of the guarantees has been performed. Following this review, guarantees with a “nominal” value of EUR 333 million have been written-off as not belonging to the EDF. Had the 2012 comparatives been updated, the “nominal” value would have decreased from EUR 566 million to EUR 349 million and the “on-going” value would have decreased from EUR 391 million to EUR 185 million.

2.3 RECEIVABLES

|| || || || || EUR millions

|| Note || 8th EDF || 9th EDF || 10th EDF || TOTAL 31.12.2013 || TOTAL 31.12.2012

Receivables from customers, public bodies and third states || 2.3.1 || 2 || 9 || 12 || 24 || 10

Receivables from Member States || 2.3.2 || - || - || 3 || 3 || 3

Accrued income and deferred charges || 2.3.3 || - || 48 || 9 || 57 || 57

TOTAL || || 2 || 58 || 24 || 84 || 70

2.3.1 Receivables from customers, public bodies and third states

|| || || || EUR millions

|| 8th EDF || 9th EDF || 10th EDF || TOTAL 31.12.2013 || TOTAL 31.12.2012

Receivables from customers, public bodies and third states || 6 || 19 || 13 || 38 || 26

-Write-down || (3) || (10) || (1) || (14) || (16)

TOTAL || 2 || 9 || 12 || 24 || 10

The movements in open recovery orders during the period are detailed below:

|| || || || EUR millions

|| 8th EDF || 9th EDF || 10th EDF || TOTAL 2013 || TOTAL 2012

Open recovery orders at beginning of year || 5 || 19 || 3 || 26 || 25

Recovery orders issued || 3 || 40 || 133 || 176 || 139

Recovery orders closed || (2) || (40) || (123) || (165) || (138)

Cashed || (1) || (27) || (103) || (131) || (97)

Waived || (0) || (1) || (0) || (1) || (1)

Cancelled || (0) || (6) || (0) || (6) || (4)

Offset || (1) || (7) || (19) || (27) || (36)

Open recovery orders at end of year || 6 || 19 || 13 || 38 || 26

2.3.2 Receivables from Member States

The EUR 3 million receivable from Member States in the 10th EDF comprises cofinancing contributions from United Kingdom, Denmark and Sweden.

2.3.3 Accrued income and deferred charges

Accrued income and deferred charges include primarily accrued interest on pre-financing amounts. Additionally, accrued interest income on late payment of contributions is included under this heading.

2.4 LIAISON ACCOUNTS

|| || || || EUR millions ||

|| 8th EDF || 9th EDF || 10th EDF || TOTAL 31.12.2013

Liaison accounts || 290 || 1 323 || (1 613) || 0

TOTAL || 290 || 1 323 || (1 613) || 0

For reasons of efficiency, the single treasury covering all the EDFs is allocated to the 10th EDF; this leads to operations between the various EDFs, which are balanced out in the liaison accounts between the various EDF balance sheets.

2.5 CASH AND CASH EQUIVALENTS[6]

|| || || || || EUR millions

|| Note || 8th EDF || 9th EDF || 10th EDF || TOTAL 31.12.2013 || TOTAL 31.12.2012

Special accounts - financial institutions of Member States || - || - || - || 719 || 719 || 633

Current accounts – commercial banks || - || - || - || 39 || 39 || 54

STABEX security accounts || 2.5.1 || - || - || - || - || 2

Democratic Republic Congo special fund[7] || - || - || - || 1 || 1 || 1

TOTAL || || - || - || 759 || 759 || 690

2.5.1 STABEX Security accounts

|| EUR millions

|| Balance at 31.12.2013 || Balance at 31.12.2012

Ivory Coast || - || 2

Other countries || - || 0

TOTAL || - || 2

STABEX is the acronym for a EU compensatory finance scheme to stabilise export earnings of the ACP countries.

In addition to these funds, there are other STABEX funds held by beneficiary ACP States. Once the Commission and the beneficiary (ACP) State reach agreement on how the STABEX funds are to be utilised, a transfer convention is signed by both parties. In accordance with the provisions of Article 211 of the Lomé IV Agreement[8] (as revised), the funds are transferred into an interest bearing double signature account (Commission and Beneficiary State) opened in the name of the ACP State. The funds remain in these double signature accounts until a Framework of Mutual Obligations (FMO) justifies a transfer for a project. During 2013, the remaining STABEX security accounts were closed following the winding up of the STABEX aid instruments.

The Commission's Authorising Officer retains the power of signature over the account in order to ensure that the funds are disbursed as intended. The funds in the double signature accounts are the property of the ACP State and are consequently not recorded as assets in the EDF accounts. The transfers to these accounts are recorded as STABEX payments. See also note 3.1.2 for more information.

NON-CURRENT LIABILITIES

2.6 PAYABLES

|| || || || EUR millions

|| 8th EDF || 9th EDF || 10th EDF || TOTAL 31.12.2013 || TOTAL 31.12.2012

Co-financing - payables || - || - || 25 || 25 || 40

TOTAL || - || - || 25 || 25 || 40

Co-financing payables at the end of 2013 relate to the 10th EDF.

Co-financing contributions received are presented as payables to Member States and non-Member States as they fulfill the criteria of revenues from non-exchange transactions under condition. The EDF is required to use the contributions to deliver services to third parties or is otherwise required to return the assets (the contributions received) to the Member States. The outstanding payable for co-financing agreements represents the co-financing contribution received less the expenses incurred related to the project. The effect on net assets is nil.

The increase in the total co-financing payables is explained in the note 2.7.1.2.

CURRENT LIABILITIES

2.7 PAYABLES

|| || || || || EUR millions

|| Note || 8th EDF || 9th EDF || 10th EDF || TOTAL 31.12.2013 || TOTAL 31.12.2012

Current payables || 2.7.1 || 1 || 61 || 260 || 322 || 209

Accrued charges || 2.7.2 || 26 || 202 || 359 || 588 || 555

Deferred fund capital contribution || 2.7.3 || - || - || 304 || 304 || 293

TOTAL || || 28 || 263 || 923 || 1 214 || 1 057

2.7.1 Current payables

|| || || || || EUR millions

|| Note || 8th EDF || 9th EDF || 10th EDF || TOTAL 31.12.2013 || TOTAL 31.12.2012

Suppliers and other || 2.7.1.1 || 1 || 61 || 182 || 244 || 152

Co-financing payables || 2.7.1.2 || - || 0 || 75 || 75 || 46

Sundry payables || 2.7.1.3 || 0 || 0 || 3 || 3 || 12

TOTAL || || 1 || 61 || 260 || 322 || 209

Payables include cost statements received by the EDF relating to the grant activity. They are recorded for the amount being claimed from the moment the demand is received. The same procedure applies to invoices and credit notes received under procurement activities. The cost claims concerned have been taken into account for the year-end cut-off procedures. Following the cut-off entries, estimated eligible amounts have been recognised in the economic outturn account.

2.7.1.1 Suppliers and other

Included under this heading are amounts owed to suppliers as well as amounts payable to public bodies and third states.

The increase of EUR 93 million compared to the previous reporting period relates primarly to a EUR 74 million increase in payables to third states. The highest third states payable balances are represented by Ghana (EUR 64 million) and Zambia (EUR 33 million).

2.7.1.2 Co-financing payables

The total non-current and current co-financing payables increased by EUR 14 million. In 2013, new co-financing contributions were received from Sweden (EUR 9 million), France (EUR 5 million), Australia (EUR 2 million), UK (EUR 2 million) and other countries.

The co-financing payables were decreased by EUR 8 million to recognise revenue related to the co-financing projects (see 3.1.3 and 3.2.2).

2.7.1.3 Sundry payables

Sundry payables mainly comprise unallocated cash receipts and returned amounts.

2.7.2 Accrued charges

|| || || || EUR millions

|| 8th EDF || 9th EDF || 10th EDF || TOTAL 31.12.2013 || TOTAL 31.12.2012

Accrued charges || 26 || 202 || 359 || 588 || 555

TOTAL || 26 || 202 || 359 || 588 || 555

At year-end, an assessment is made concerning eligible expenses incurred by beneficiaries of EDF funds but not yet reported. Following these cut-off calculations, estimated eligible amounts are recorded as accrued charges.

Estimated utilisation of pre-financing amounts is presented as an estimated clearing of pre-financing (see 2.2).

2.7.3 Deferred fund capital contribution

|| || || EUR millions

|| 8th EDF || 9th EDF || 10th EDF || TOTAL 31.12.2013 || TOTAL 31.12.2012

United Kingdom || - || - || 296 || 296 || 274

Ireland || - || - || 5 || 5 || 9

Lithuania || - || - || 2 || 2 || -

Hungary || - || - || - || - || 10

TOTAL || - || - || 304 || 304 || 293

This comprises Member States' contributions paid in advance at year-end.

NET ASSETS

2.8 CALLED FUND CAPITAL

|| || EUR millions

|| 8th EDF || 9th EDF || 10th EDF || TOTAL

Fund Capital || 12 840 || 11 699 || 21 152 || 45 691

Uncalled fund capital || - || - || (16 112) || (16 112)

Called fund capital 31.12.2012 || 12 840 || 11 699 || 5 040 || 29 579

|| || || ||

Fund Capital || 12 840 || 11 699 || 21 152 || 45 691

Uncalled fund capital || - || - || (13 162) || (13 162)

Called fund capital 31.12.2013 || 12 840 || 11 699 || 7 990 || 32 529

The fund capital represents the total amount of contributions from Member States for the relevant EDF fund as laid down in each of the Internal Agreements.

The uncalled funds represent the initial allocation not yet called up from Member States.

The called fund capital represents the amount of the initial allocations which has been called up for transfer to the treasury accounts by the Member States in accordance with the procedure laid down in Article 16 of the 10th EDF FR.

The capital of the 8th and the 9th EDF has been called up and received in its entirety.

Called and uncalled fund capital by Member State

|| || || || EUR millions

Contributions || % || uncalled 10th EDF 31.12.2012 || called up in 2013 || uncalled 10th EDF 31.12.2013

Austria || 2.41 || (388) || 71 || (317)

Belgium || 3.53 || (569) || 104 || (465)

Bulgaria || 0.14 || (23) || 4 || (18)

Cyprus || 0.09 || (15) || 3 || (12)

Czech Republic || 0.51 || (82) || 15 || (67)

Denmark || 2.00 || (322) || 59 || (263)

Estonia || 0.05 || (8) || 1 || (7)

Finland || 1.47 || (237) || 43 || (193)

France || 19.55 || (3 150) || 577 || (2 573)

Germany || 20.50 || (3 303) || 605 || (2 698)

Greece || 1.47 || (237) || 43 || (193)

Hungary || 0.55 || (89) || 16 || (72)

Ireland || 0.91 || (147) || 27 || (120)

Italy || 12.86 || (2 072) || 379 || (1 693)

Latvia || 0.07 || (11) || 2 || (9)

Lithuania || 0.12 || (19) || 4 || (16)

Luxemburg || 0.27 || (44) || 8 || (36)

Malta || 0.03 || (5) || 1 || (4)

Netherlands || 4.85 || (781) || 143 || (638)

Poland || 1.30 || (209) || 38 || (171)

Portugal || 1.15 || (185) || 34 || (151)

Romania || 0.37 || (60) || 11 || (49)

Slovakia || 0.21 || (34) || 6 || (28)

Slovenia || 0.18 || (29) || 5 || (24)

Spain || 7.85 || (1 265) || 232 || (1 033)

Sweden || 2.74 || (441) || 81 || (361)

United Kingdom || 14.82 || (2 388) || 437 || (1 951)

TOTAL || 100,00 || (16 112) || 2 950 || (13 162)

2.9 OTHER RESERVES

EUR millions

|| 8th EDF || 9th EDF || 10th EDF || TOTAL

Balance at 31.12.2011 || (2 276) || 4 227 || 301 || 2 252

Transfer of decommitted amounts to the 10th EDF from the 8th and 9th EDFs || (78) || (300) || 378 || 0

Transfer from the 10th to the 9th EDF to allocate funds to Southern Sudan following Council Decision 2010/406/EU || - || 200 || (200) || 0

Balance at 31.12.2012 || (2 354) || 4 126 || 479 || 2 252

Transfer of decommitted amounts to the 10th EDF from the 8th and 9th EDFs || (102) || (371) || 473 || 0

Balance at 31.12.2013 || (2 456) || 3 756 || 952 || 2 252

The balance at 31.12.2013 includes: || || || ||

- Funds allocated to Southern Sudan || - || 350 || - || 350

Since the entry into force of the 10th EDF in 2008, all decommitted funds of previous EDFs are transferred to the reserve of the 10th EDF. This reserve may be committed only under the conditions set out in Article 1(4) of the Internal Agreement of the 10th EDF.

In 2013, EUR 102 million and EUR 371 million of decommitted funds from the 8th and 9th EDFs respectively were transferred to the performance reserve of the 10th EDF.

3. NOTES TO THE ECONOMIC OUTTURN ACCOUNT

3.1 OPERATING REVENUE

EUR millions

|| 8th EDF || 9th EDF || 10th EDF || TOTAL 2013 || TOTAL 2012

Recovery of expenses || 1 || 11 || 1 || 13 || 17

Recovery of STABEX funds || 61 || - || - || 61 || 49

Exchange gains || 2 || 23 || 16 || 41 || 51

Operating income co-financing || - || - || 8 || 8 || 8

TOTAL || 64 || 34 || 25 || 123 || 124

3.1.1 Recovery of expenses

This heading represents the recovery orders issued by the EDF and the deduction from subsequent payments recorded in the EDF accounting system, to recover expenditures previously paid out, based on controls, audits or eligibility analysis. It should be noted that recovery of pre-financing amounts is not included as revenue, but credited to the pre-financing heading on the balance sheet.

Recovery of undue payments

In 2013, recovery orders for EUR 23 million were issued in respect of undue payments, compared to EUR 27 million in 2012. Of these, EUR 6 million related to the recovery of expenses and were thus recorded as operating revenue. EUR 17 million represented recoveries of pre-financing amounts paid and were credited to the pre-financing asset on the balance sheet.

The nature of the recovery of undue payments can be summarised as follows:

EUR millions ||

|| Revenue || Pre-financing || TOTAL 2013 || Revenue || Pre-financing || TOTAL 2012

Error || 2 || 4 || 6 || 1 || 1 || 2

Irregularity || 4 || 12 || 16 || 9 || 15 || 25

OLAF Notified || - || 1 || 1 || 1 || - || 1

TOTAL || 6 || 17 || 23 || 11 || 16 || 27

3.1.2 Recovery of STABEX funds

In 2013, EUR 61 million was returned to the EDF from double signature accounts in ACP countries. These funds were transferred mainly from Soudan (EUR 36 million), Ivory Coast (EUR 7 million), the Salomon Islands (EUR 5 million), Papua New Guinea (EUR 3 million), Sierra Leone (EUR 2 million), Zimbabwe (EUR 2 million) and Mauritania (EUR 2 million). These revenues are included in operating income (recovery of STABEX funds) in the economic outturn account of the 8th EDF.

3.1.3 Operating income co-financing

The operating income relating to co-financing represents the contributions used (see 3.2.2). As these contributions fulfil the criteria of revenues from non-exchange transactions under condition, the contribution is recognised in accordance with the implementation of the co-financing project.

3.2 OPERATING EXPENSES

|| EUR millions

|| Note || 8th EDF || 9th EDF || 10th EDF || TOTAL 2013 || TOTAL 2012

Operating expenses – aid instruments || 3.2.1 || 49 || 330 || 2 578 || 2 957 || 2 938

Operating expenses co-financing || 3.2.2 || - || - || 8 || 8 || 8

Foreign exchange losses || - || 4 || 31 || 25 || 60 || 66

Write-down of receivables || - || 0 || 1 || 1 || 1 || 6

TOTAL || || 53 || 362 || 2 612 || 3 027 || 3 017

3.2.1 Operating expenses – aid instruments

|| || || || EUR millions

|| 8th EDF || 9th EDF || 10th EDF || TOTAL 2013 || TOTAL 2012

Programmable aid || 42 || (2) || 1 678 || 1 719 || 1 476

Macro-economic support || - || 21 || - || 21 || 8

Sectoral policy || 0 || 225 || (2) || 222 || 326

Interest rate subsidies || 0 || - || - || 0 || 5

Intra ACP projects || - || 57 || 588 || 645 || 720

Emergency aid || - || 17 || 253 || 270 || 333

Refugee aid || 1 || - || - || 1 || 6

Risk capital || 0 || - || - || 0 || 1

STABEX || (1) || - || - || (1) || 4

Other aid programmes related to former EDFs || - || 5 || - || 5 || 10

Institutional support || - || 1 || 61 || 62 || 32

Compensation export receipts || 7 || 6 || - || 13 || 18

Total || 49 || 330 || 2 578 || 2 957 || 2 938

The EDF operating expenditure covers the various aid instruments and takes different forms, depending on how the money is paid out and managed.

3.2.2 Operating expenses co-financing

These are the expenses incurred on co-financing projects in 2013. As the co-financing contributions received fulfil the criteria of revenues from non-exchange transactions under condition, a corresponding amount of contributions has been recognised as operating revenue (see 3.1.3).

3.3 ADMINISTRATIVE EXPENSES

EUR millions

|| 8th EDF || 9th EDF || 10th EDF || TOTAL 2013 || TOTAL 2012

Administrative expenses || - || 0 || 167 || 167 || 107

TOTAL || - || 0 || 167 || 167 || 107

This heading includes support expenditure, i.e. the administrative costs related to the programming and implementation of the EDFs. This includes expenses for preparation, follow-up, monitoring, and evaluation of projects as well as expenses for computer networks, technical assistance etc.

3.4 FINANCIAL REVENUE

EUR millions

|| 8th EDF || 9th EDF || 10th EDF || TOTAL 2013 || TOTAL 2012

Interest income - European banks || - || 0 || 0 || 0 || 9

Interest on pre-financing || 0 || (3) || 3 || 0 || (32)

TOTAL || 0 || (3) || 3 || 0 || (22)

The higher amount of interest income in 2012 is explained by income on EIB bank accounts.

Interest on pre-financing is recognised in accordance with the provisions of Article 7(3) and Article 8 of the 10th EDF FR. The negative interest revenue in 2012 was caused by the reversal of the previous year accrual for interest on pre-financing. The negative interest revenue in 2013 in the 9th EDF is mainly caused by fluctuations in the foreign currency exchange rate USD/EUR.

4. NOTES TO THE CASH FLOW STATEMENT

4.1 PURPOSE AND PREPARATION OF THE CASH FLOW STATEMENT

Cash flow information is used to provide a basis for assessing the ability of the EDF to generate cash and cash equivalents, and its needs to utilise those cash flows.

The cash flow statement is prepared using the indirect method. This means that the net surplus or deficit for the financial year is adjusted for the effects of transactions of a non-cash nature and any deferrals or accruals of past or future operating cash receipts or payments.

Cash flows arising from transactions in a foreign currency are recorded in the EDF's reporting currency (euro), by applying to the foreign currency amount the exchange rate between the euro and the foreign currency at the date of the cash flow.

4.2 OPERATING ACTIVITIES

The EDF cash flow statement only shows cash flows from operating activities as the EDF does not have investment or financing activities. The objective of the operating activities is to participate in the achievement of policy targeted outcomes.

5. CONTINGENT ASSETS AND LIABILITIES AND OTHER DISCLOSURES

5.1 CONTINGENT ASSETS

EUR millions

|| 8th EDF || 9th EDF || 10th EDF || TOTAL 31.12.2013 || TOTAL 31.12.2012

Performance guarantees || 4 || 63 || 49 || 116 || 304

Retention guarantees || 2 || 40 || 14 || 56 || 188

TOTAL || 6 || 103 || 62 || 171 || 492

5.1.1 Performance guarantees

Performance guarantees are sometimes requested to ensure that beneficiaries of EDF funding meet the obligations of their contracts with the EDF.

In 2013 an in-depth review of the guarantees has been performed. Following this review, guarantees with a value of EUR 188 million have been written-off as not belonging to the EDF. Had the 2012 comparatives been updated, the value would have decreased from EUR 304 million to EUR 177 million.

5.1.2 Retention guarantees

Retention guarantees concern only works contracts. Typically, 10 % of the interim payments to beneficiaries are withheld to ensure that the contractor fulfils his/her obligations. These withheld amounts are reflected as amounts payable. Subject to the approval of the contracting authority, the contractor may instead submit a retention guarantee which replaces the amounts withheld on interim payments. These received guarantees are disclosed as contingent assets.

In 2013 an in-depth review of the guarantees has been performed. Following this review, guarantees with a value of EUR 105 million have been written-off as not belonging to the EDF. Had the 2012 comparatives been updated, the value would have decreased from EUR 188 million to EUR 98 million.

5.1.3 Guarantees owned by entities other than the Commission

Guarantees owned by entities other than the Commission comprise guarantees endorsed by the National Authorising Officer (the contracting authority of the third country) in order to protect EU assets. These guarantees are kept in EU delegations and are not contingent assets of the EDF, they are disclosed only for information purposes.

EUR millions

|| 8th EDF || 9th EDF || 10th EDF || TOTAL 31.12.2013

Pre-financing guarantees Performance guarantees || 2 2 || 54 44 || 278 142 || 333 188

Retention guarantees || 1 || 34 || 70 || 105

TOTAL || 4 || 131 || 491 || 626

5.2 OTHER DISCLOSURES

5.2.1 Budgetary commitments not yet expensed

EUR millions

|| 8th EDF || 9th EDF || 10th EDF || TOTAL 31.12.2013 || TOTAL 31.12.2012

Outstanding budgetary commitments not yet paid || 74 || 611 || 5 340 || 6 025 || 5 642

Related amounts included in the economic outturn account || (28) || (215) || (540) || (782) || (714)

TOTAL || 47 || 396 || 4 800 || 5 243 || 4 928

Outstanding budgetary commitments represent open commitments for which payments and/or decommitments have not yet been made. This is a normal consequence of the existence of multiannual programmes. At 31 December 2013 the outstanding budgetary commitments totalled EUR 6 025 million. The amount disclosed as a future commitment to be funded is this outstanding budgetary commitment less related amounts that have been included as expenses in the 2013 economic outturn account, giving a total of EUR 5 243 million.

6. FINANCIAL RISK MANAGEMENT

The following disclosures with regard to the financial risk management of the EDF relate to the treasury operations carried out by the Commission on behalf of the EDF in order to implement its resources.

6.1 RISK MANAGEMENT POLICIES AND HEDGING ACTIVITIES

The rules and principles for the management of the treasury operations are laid down in the 10th EDF FR and in the Internal Agreement.

As a result of the above regulation, the following main principles apply:

– The EDF contributions are paid by Member States in special accounts opened with the bank of issue of each Member State or the financial institution designated by it. The amounts of the contributions shall remain in those special accounts until the payments of EDF need to be made.

– EDF contributions are paid by Member States in EUR, while the EDF's payments are denominated in EUR and in other currencies, including less well-known ones.

– Bank accounts opened by the Commission on behalf of the EDF may not be overdrawn.

In addition to the special accounts, other bank accounts are opened by the Commission in the name of the EDF, with financial institutions (central banks and commercial banks), for the purpose of executing payments and receiving receipts other than the Member State contributions to the budget.

Treasury and payment operations are highly automated and rely on modern information systems. Specific procedures are applied to guarantee system security and to ensure segregation of duties in line with the Financial Regulation, the Commission’s internal control standards, and audit principles.

A written set of guidelines and procedures regulate the management of the treasury and payment operations with the objective of limiting operational and financial risk and ensuring an adequate level of control. They cover the different areas of operation, and compliance with the guidelines and procedures is checked regularly.

6.2 MARKET RISK

6.2.1 Currency risk

All contributions are held in EUR, and other currencies are purchased only when they are needed for the execution of payments. As a result the EDF's treasury operations are not exposed to currency risk.

6.2.2 Interest rate risk

The EDF does not borrow monies and as a consequence it is not exposed to interest rate risk.

It however earns interest on balances it holds on its different banks accounts. The Commission, on behalf of the EDF, has therefore put in place measures to ensure that interest earned regularly reflect market interest rates as well as their possible fluctuation.

Overnight balances held on commercial bank accounts are remunerated on a daily basis. The remuneration of balances on such accounts is based on variable market rates to which a contractual margin (positive or negative) is applied. For most of the accounts the interest calculation is linked to the EONIA (Euro Over Night Index Average), and is adjusted to reflect any fluctuations of this rate. For some other accounts the interest calculation is linked to the ECB rate (the one used for the ECB refinancing operations). As a result no risk is taken by the EDF that its balances be remunerated at rates lower than market rates.

6.3 CREDIT RISK (COUNTERPARTY RISK)

Most of the EDF's treasury resources are kept, in accordance with the 10th EDF FR, in the "special accounts" opened by Member States for the payment of their contributions. The majority of such accounts are held with Member States' treasuries or national central banks. These institutions carry the lowest counterparty risk for the EDF (exposure is with its Member States).

For the part of the EDF's treasury resources kept with commercial banks in order to cover the execution of payments, replenishment of these accounts is executed on a just-in-time basis and is automatically managed by the Commission treasury's cash management system. Minimum cash levels, proportional to the average amount of daily payments made from it, are kept on each account. As a consequence the amounts kept overnight on these accounts remain constantly at low levels which ensure the EDF's risk exposure is limited.

In addition, specific guidelines are applied for the selection of commercial banks in order to further minimise counterparty risk to which the EDF is exposed.

All commercial banks are selected by call for tenders. The minimum short-term credit rating required for admission to the tendering procedures is Moody's P-1 or equivalent (S&P A-1 or Fitch F1). A lower level may be required in specific and duly justified circumstances.

6.4 LIQUIDITY RISK

Budget principles applied to the EDF ensure that overall cash resources for the budgetary period are always sufficient for the execution of all related payments. Indeed the total Member States' contributions equal the overall amount of payment appropriations for the relevant budgetary period.

Member States contributions to EDF, however, are paid in three instalments per year, while payments are subject to certain seasonality.

In order to ensure that treasury resources are always sufficient to cover the payments to be executed in any given month, information on the treasury situation is regularly exchanged between the Commission' treasury and the relevant spending departments in order to ensure that payments executed in any given period do not exceed the available treasury resources.

In addition to the above, in the context of the EDF's daily treasury operations, automated cash management tools ensure that sufficient liquidity is available on each of the EDF's bank accounts, on a daily basis.

7. RELATED PARTY DISCLOSURES

No related party transactions requiring separate disclosure under this heading have been identified.

8. EVENTS AFTER THE BALANCE SHEET DATE

At the date of transmission of these accounts, no material issues had come to the attention of the Accounting Officer of the EDF or were reported to him that would require separate disclosure under this section. The annual accounts and related notes were prepared using the most recently available information and this is reflected in the information presented above.

9. RECONCILIATION ECONOMIC OUTTURN - BUDGET OUTTURN

The economic outturn of the year is calculated on the basis of accrual accounting principles. The budget outturn is however based on cash accounting rules. As both are the result of the same underlying transactions, it is a useful control to ensure that they are reconcilable. The table below shows this reconciliation, highlighting the key reconciling amounts, split between revenue and expenditure items.

|| || EUR millions

|| 2013 || 2012

|| ||

ECONOMIC OUTTURN OF THE YEAR || (3 072) || (3 023)

|| ||

REVENUE || ||

Entitlements not affecting the budget outturn || (68) || (47)

Entitlements established in the current year but not yet collected || (6) || (8)

Entitlements established in previous years and collected in the current year || 10 || 14

Net effect of pre-financing || 71 || 62

Net accrued revenue || 19 || (40)

|| ||

EXPENDITURE || ||

Expenses of the current year not yet paid || 90 || 38

Expenses of previous years paid in the current year || (53) || (101)

Payment cancellations || 13 || 7

Net effect of pre-financing || (431) || (316)

Net accrued expenses || 464 || 204

|| ||

BUDGET OUTTURN OF THE YEAR || (2 963) || (3 209)

9.1 Reconciling items – Revenue

The budgetary revenue of a financial year corresponds to the revenue collected from entitlements established in the course of the year and amounts collected from entitlements established in previous years.

The entitlements not affecting the budget outturn are recorded in the economic outturn but from a budgetary perspective cannot be considered as revenues as the cashed amount is transferred to reserves and cannot be recommitted without a Council decision.

The entitlements established in the current year but not yet collected are to be deducted from the economic outturn for reconciliation purposes as they do not form part of budgetary revenue. On the contrary, the entitlements established in previous years and collected in the current year must be added to the economic outturn for reconciliation purposes.

The net effect of pre-financing is the clearing of the recovered pre-financing amounts. This is a cash receipt which has no impact on the economic outturn.

The net accrued revenue mainly consists of accruals made for year-end cut-off purposes. Only the net effect, i.e. the accrued revenue of the current year less the reversal of accrued revenue of the previous year, is taken into consideration.

9.2 Reconciling items – Expenditure

Expenses of the current year not yet paid are to be added for reconciliation purposes as they are included in the economic outturn but do not form part of budgetary expenditure. On the contrary, the expenses of previous years paid in the current year must be deducted from the economic outturn for reconciliation purposes as they are part of the current year's budgetary expenditure but have either no effect on the economic outturn or they decrease the expenses in case of corrections.

The cash receipts from payment cancellations do not affect the economic outturn whereas they impact the budget outturn.

The net effect of pre-financing is the combination of the new pre-financing amounts paid in the current year (recognised as budgetary expenditure of the year) and the clearing of pre-financing paid in the current year or previous years through the acceptance of eligible costs. The latter represents an expense in accrual terms but not in the budgetary accounts since the payment of the initial pre-financing had already been considered as a budgetary expenditure at the time of its payment.

The net accrued expenses mainly consist of accruals made for year-end cut-off purposes, i.e. eligible expenses incurred by beneficiaries of EDF funds but not yet reported to the EDF. Only the net effect, i.e. the accrued expenses of the current year less the reversal of accrued expenses of the previous year, is taken into consideration.

2. REPORT ON FINANCIAL IMPLEMENTATION

INTRODUCTORY NOTE

Previous EDFs

· As the 6th EDF was closed in 2006 and the 7th EDF was closed in 2008, the annual accounts no longer contain implementation tables for these EDFs. However, implementation of the transferred balances can be found in the 9th EDF.

· As in past years, to ensure transparency in the presentation of the accounts for 2013, the tables set out separately for the 8th EDF the part used for Lomé Convention programming and the part used for programming under the Cotonou Agreement

· In accordance with article 1(2)(b) of the Internal Agreement of the 9th EDF, balances of the EDFs previous to the 9th EDF have been transferred to the 9 th EDF, and, during the life ot the 9th EDF, has been committed as 9th funds.

10th EDF

The ACP-EC Partnership Agreement signed on 23 June 2000 in Cotonou by the Member States of the European Community and the States of Africa, the Caribbean and the Pacific (ACP States) entered into force on 1 April 2003. The Cotonou Agreement was amended twice, firstly by the agreement signed in Luxembourg on 25 June 2005, secondly by the agreement signed in Ouagadougou on 22 june 2010.

The EU Council Decision of 27 November 2001 (2001/822/EC) on the association of the overseas countries and territories (OCT) with the EU entered into force on 2 December 2001. This Decision was amended on 19 March 2007 (Decision 2007/249/EC).

The Internal Agreement on the financing of Community aid under the multiannual financial framework for the period 2008-2013 in accordance with the revised Cotonou Agreement, adopted by the Representatives of the Governments of the Member States of the European Community on 17 July 2006, entered into force on 1 July 2008.

Under the Cotonou Agreement, the second period (2008-2013) of Community aid to the ACP States and OCTs is funded by the 10th EDF to the tune of EUR 22 682 million, of which:

· EUR 21 966 million is allocated to the ACP countries in accordance with the multiannual financial framework set out in Annex Ib to the revised Cotonou Agreement, of which EUR 20 466 million is managed by the Commission;

· EUR 286 million is allocated to the OCTs in accordance with Annex IIAa of the revised Council Decision on the association of the OCTs with the European Community, of which EUR 256 million is managed by the Commission;

· EUR 430 million is for the Commission to finance the costs arising from the programming and implementation of 10th EDF resources, in accordance with Article 6 of the Internal Agreement.

Since the date of entry into force of the 10th EDF, the initial amount allocated to the 10th EDF has been supplemented by decommitments from previous EDF's, interest income and unused cash balances resulting from the system to guarantee the stabilisation of export earnings from primary agricultural products (STABEX) under the Funds prior to the 9th EDF. All funds are managed in accordance with their specific rules as foreseen in the revised Cotonou Agreement and the Internal Agreement.

31 December 2013 was an important target , the "Sunset clause" of the 10 th EDF. This clause sets a clear cut-off date for commitments under the 10th EDF (articles 1(4) and (5) of the 10th EDF Internal Agreement). During the whole year, every effort has been made in order to commit the maximum of the funds available from the 10th EDF.

- 10th EDF non-mobilisable performance reserve

Since the 10th EDF came into force on 1 July 2008, the remaining balances and the amounts decommitted from projects under the 9th and previous EDFs are transferred to the performance reserve of the 10th EDF, with the exception of Stabex funds and 9th EDF administrative envelope.

(EUR million)

ACP 10th EDF non-mobilisable performance reserve at 31/12/2013 || 924.1

OCT 10th EDF non-mobilisable performance reserve at 31/12/2013 || 14.1

Total 10th EDF non-mobilisable performance reserve at 31/12/2013 || 938.2

In accordance with article 1(4) of the 10th EDF Internal Agreement, the Council has, on 12 December 2013, decided to use these funds for the Bridging Facility.

- 10th EDF uncommitted funds

On 31/12/2013, the total amount of uncommitted funds resulted as:

(EUR million)

ACP (Bilateral, Regional Intra-ACP, Reserve NIP/RIP) || 74.5

OCT || 0.08

Total 10th EDF uncommitted funds at 31.12.2013 || 74.6

These funds have also been transferred to the Bridging Facility.

- Bridging Facility

The Internal Agreement establishing the 11th EDF was signed by the Member States, meeting within the Council, in June 2013. This Internal Agreement will only enter into force after ratification by all Member States.

Pending the entry into force of the 11th EDF, the Commission has proposed transitional measures, the "Bridging Facility", to ensure the availability of funds for cooperation with ACP countries and with OCT, as well as for support expenditure, between January 2014 and the entry into force of the Internal Agreement establishing the 11th EDF.

This Bridging Facility has been adopted on 12 December 2013 (Decision 2013/759/EU), and is financed from the following sources:

- funds decommitted from 8th and 9th EDF up to 31.12.2013,

- uncommitted balances from the 10th EDF at 31.12.2013,

- funds decommitted from the 10th and previous EDFs as from 01.01.2014.

At 31.12.2013, the total funds available for the bridging facility amount to EUR 998.6 milion for ACP, and EUR 14.2 milion for OCT, not taking interests into accounts. These funds are accounted for the 11th EDF.

- 10th EDF Stabex reserve

Following the closure of Stabex accounts, unused/decommitted funds are transferred to the 10th EDF Stabex A Envelope reserve (10th EDF Internal Agreement Art. 1(4)) and then to the national indicative programmes of the countries concerned. As of 31 December 2013, the total amount of de-committed Stabex funds, transferred to the 10th EDF for 33 countries reached EUR 165.3 million.

- 10th EDF Co-financings

Under the 10th EDF, transfer agreements for co-financings from Member States were signed, and commitment appropriations were opened for a total amount of EUR 134.4 million, while payment appropriations were opened for the cashed amounts totalling EUR 110.6 million.

The situation of co-financing appropriations at 31.12.2013 is shown in the table below (EUR million):

|| Commitments appropriations || Payment appropriations

Co-financing - A Envelope || 118.1 || 95.3

Co-financing - Intra ACP || 12.1 || 12.1

Co-financing – Administrative expenses || 4.2 || 3.2

|| 134.4 || 110.6

The following tables, concerning the amounts decided, contracted and paid, show net figures.

The tables presenting the situation by country and by instrument are annexed.

2.1 ALLOCATIONS

TABLE 1.1 ||

8th EDF ||

EVOLUTION OF APPROPRIATIONS: 31 December 2013 ||

ANALYSIS OF CREDITS PER INSTRUMENT ||

|| || (EUR million) || || || (EUR million) ||

INSTRUMENT || INITIAL APPROPRIATION || INCREASES/ DECREASES IN CUMULATIVE RESOURCES AT 31 DECEMBER 2012 || INCREASE OR DECREASE IN RESOURCES IN 2013 || Notes || CURRENT APPROPRIATION ||

ACP || || || || || ||

Lomé || || || || || ||

Total indicative programmes || 7 562 || (2 473) || ( 69) || (1) || 5 020 ||

Interest-rate subsidies || 370 || ( 287) || || || 83 ||

Emergency aid || 140 || ( 4) || || || 136 ||

Aid for refugees || 120 || ( 17) || || (1) || 103 ||

Risk capital || 1 000 || 37 || ( 17) || || 1 019 ||

Stabex || 1 800 || (1 077) || 0 || (1) || 724 ||

Sysmin || 575 || ( 474) || || || 101 ||

Structural adjustment || 1 400 || 97 || ( 0) || || 1 497 ||

Heavily indebted poor countries || || 1 060 || ( 1) || || 1 059 ||

Use of interest income || || 36 || ( 1) || || 35 ||

Cotonou || || || || || ||

A envelope || || 419 || ( 1) || (1) || 418 ||

B envelope || || 252 || ( 14) || (1) || 238 ||

TOTAL ACP || 12 967 || (2 431) || ( 104) || || 10 432 ||

OCT || || || || || ||

Total indicative programmes || 115 || ( 78) || ( 0) || || 37 ||

Interest-rate subsidies || 9 || ( 7) || || || 1 ||

Emergency aid || 3 || ( 3) || || || ||

Aid for refugees || 1 || ( 1) || || || ||

Risk capital || 30 || ( 24) || || || 6 ||

Stabex || 6 || ( 4) || || || 1 ||

Sysmin || 3 || ( 0) || || || 2 ||

TOTAL OCT || 165 || ( 117) || ( 0) || || 48 ||

TOTAL 8th EDF || 13 132 || (2 548) || ( 104) || || 10 481 ||

|| || || || || ||

(1) all decreases are decommitments transferred to the non-mobilisable performance reserve 10th EDF || || ||

||

2.2 AGGREGATED ACCOUNTS

TABLE 2.1: EDF AGGREGATED ACCOUNTS AT 31.12.2013: PROGRESS REPORT.

TABLE 2.2: EDF AGGREGATED ACCOUNTS AT 31.12.2013: CLASS OF AID.

PART II - EDF ANNUAL ACCOUNTS: FINANCIAL STATEMENTS OF THE INVESTMENT FACILITY

EUROPEAN INVESTMENT BANK || CA/472/14

|| 13 March 2014

|| Document 14/108

||

||

BOARD OF DIRECTORS

Investment Facility

financial statements

as at 31 december 2013

|| ||

|| - Statement of financial position - Statement of profit or loss and other comprehensive income - Statement of changes in contributors’ resources - Statement of cash flows - Notes to the financial statements - Independent auditor’s report ||

ORG.: E ||

3. FINANCIAL STATEMENTS OF THE INVESTMENT FACILITY

3.1. STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2013

(In EUR’000)

|| Notes || 31.12.2013 || 31.12.2012

|| || ||

ASSETS || || ||

Cash and cash equivalents || 5 || 599 515 || 466 568

Derivative financial instruments || 6 || 1 024 || 115

Loans and receivables || 7 || 1 222 199 || 1 146 280

Available-for-sale financial assets || 8 || 331 699 || 333 001

Amounts receivable from contributors || 9/15 || - || 87 310

Held-to-maturity financial assets || 10 || 102 562 || 99 029

Other assets || 11 || 148 || 224

|| || ||

Total Assets || || 2 257 147 || 2 132 527

|| || ||

|| || ||

LIABILITIES AND CONTRIBUTORS' RESOURCES || || ||

|| || ||

LIABILITIES || || ||

Derivative financial instruments || 6 || 3 545 || 7 035

Deferred income || 12 || 35 083 || 37 808

Amounts owed to third parties || 13 || 331 235 || 312 086

Other liabilities || 14 || 2 572 || 1 153

|| || ||

Total Liabilities || || 372 435 || 358 082

|| || ||

CONTRIBUTORS' RESOURCES || || ||

Member States Contribution called || 15 || 1 661 309 || 1 561 309

Fair value reserve || || 78 191 || 68 434

Retained earnings || || 145 212 || 144 702

|| || ||

Total Contributors' resources || || 1 884 712 || 1 774 445

|| || ||

Total Liabilities and Contributors' resources || || 2 257 147 || 2 132 527

The accompanying notes form an integral part of these financial statements.

3.2. STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2013

(In EUR’000)

|| Notes || From 01.01.2013 || From 01.01.2012 ||

|| to 31.12.2013 || to 31.12.2012 ||

|| || || ||

Interest and similar income || 17 || 68 270 || 67 503 ||

Interest and similar expenses || 17 || -1 175 || -1 114 ||

|| || || ||

Net interest and similar income || || 67 095 || 66 389 ||

|| || || ||

Fee and commission income || 18 || 4 051 || 1 934 ||

Fee and commission expenses || 18 || -43 || -292 ||

|| || || ||

Net fee and commission income || || 4 008 || 1 642 ||

|| || || ||

Fair value change of derivative financial instruments || || 4 399 || 5 348 ||

Net realised gains on available-for-sale financial assets || 19 || 5 294 || 1 045 ||

Net foreign exchange loss || || -6 925 || -10 575 ||

|| || || ||

Net result on financial operations || || 2 768 || -4 182 ||

|| || || ||

Change in impairment on loans and receivables, net of reversal || 7 || -27 334 || 597 ||

Impairment on available-for-sale financial assets || 8 || -8 176 || -8 927 ||

Impairment on other assets || 20 || - || -337 ||

General administrative expenses || 21 || -37 851 || -36 202 ||

|| || || ||

Profit for the year || || 510 || 18 980 ||

|| || || ||

Other comprehensive income: || || || ||

Items that are or may be reclassified to profit or loss: || || || ||

Available-for-sale financial assets – Fair value reserve || 8 || || ||

1. Net change in fair value of available-for-sale financial assets || || 12 350 || 18 551 ||

2. Net amount transferred to profit or loss || || -2 593 || 8 133 ||

Total available-for-sale financial assets || || 9 757 || 26 684 ||

|| || || ||

Total other comprehensive income || || 9 757 || 26 684 ||

|| || || ||

Total comprehensive income for the year || || 10 267 || 45 664 ||

The accompanying notes form an integral part of these financial statements.

3.3 STATEMENT OF CHANGES IN CONTRIBUTORS’ RESOURCES FOR THE YEAR ENDED 31 DECEMBER 2013

(In EUR’000)

|| Contribution called || Fair value reserve || Retained earnings || Total

At 1 January 2013 Notes || 1 561 309 || 68 434 || 144 702 || 1 774 445

|| || || ||

Member States contribution called during the year 15 || 100 000 || - || - || 100 000

|| || || ||

Profit for the year 2013 || - || - || 510 || 510

|| || || ||

Total other comprehensive income for the year || - || 9 757 || - || 9 757

|| || || ||

Changes in contributors’ ressources || 100 000 || 9 757 || 510 || 110 267

|| || || ||

At 31 December 2013 || 1 661 309 || 78 191 || 145 212 || 1 884 712

|| || || ||

|| Contribution called || Fair value reserve || Retained earnings || Total

At 1 January 2012 Notes || 1 281 309 || 41 750 || 125 722 || 1 448 781

|| || || ||

Member States contribution called during the year 15 || 280 000 || - || - || 280 000

|| || || ||

Profit for the year 2012 || - || - || 18 980 || 18 980

|| || || ||

Total other comprehensive income for the year || - || 26 684 || - || 26 684

|| || || ||

Changes in contributors’ ressources || 280 000 || 26 684 || 18 980 || 325 664

|| || || ||

At 31 December 2012 || 1 561 309 || 68 434 || 144 702 || 1 774 445

|| || || ||

|| || || ||

The accompanying notes form an integral part of these financial statements.

3.4 STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2013

(In EUR’000)

|| Notes || From 01.01.2013 to 31.12.2013 || From 01.01.2012 to 31.12.2012

OPERATING ACTIVITIES || || ||

Profit for the financial year || || 510 || 18 980

Adjustments made for: || || ||

Impairment on available-for-sale financial assets || || 8 176 || 8 927

Net change in impairment on loans and receivables || || 27 334 || -597

Interest capitalised on loans and receivables || 7 || -10 363 || -9 622

Change in accrued interest and amortised cost on loans and receivables || || -249 || -1 407

Change in accrued interest and amortised cost on held-to-maturity financial assets || || 733 || -751

Change in deferred income || || -2 725 || 4 805

Effect of exchange rate changes on loans || || 30 402 || 16 044

Effect of exchange rate changes on available-for-sale financial assets || || -1 154 || -1 204

Effect of exchange rate changes on cash held || || -378 || -389

Profit on operating activities before changes in operating assets and liabilities || || 52 286 || 34 786

Loan disbursements || 7 || -242 203 || -233 018

Repayments of loans || 7 || 119 160 || 115 480

Change in accrued interest on cash and cash equivalent || || -1 || 389

Fair value changes on derivatives || || -4 399 || -5 348

Increase in held-to-maturity financial assets || 10 || -680 635 || -98 278

Maturities of held-to-maturity financial assets || 10 || 676 369 ||

Increase in available-for-sale financial assets || 8 || -34 700 || -81 981

Repayments/Sales of available-for-sale financial assets || 8 || 38 737 || 19 601

Decrease in other assets || || 76 || 192

Increase in other liabilities || || 1 419 || 40

(Decrease)/Increase in amounts payable to the European Investment Bank || || -6 539 || 6 876

Net cash flows from operating activities || || -80 430 || -241 261

FINANCING ACTIVITIES || || ||

Contribution received from Member States || || 187 310 || 236 345

Amounts received from Member States with regard to interest subsidies || || 50 000 || 43 655

Amounts paid on behalf of Member States with regard to interest subsidies || || -24 312 || -24 450

Net cash flows from financing activities || || 212 998 || 255 550

Net increase in cash and cash equivalents || || 132 568 || 14 289

Summary statement of cash flows: || || ||

Cash and cash equivalents at the beginning of financial year || || 466 561 || 451 882

Net cash from: || || ||

Operating activities || || -80 430 || -241 261

Financing activities || || 212 998 || 255 550

Effects of exchange rate changes on cash and cash equivalents || || 378 || 389

Cash and cash equivalents at the end of the financial year || || 599 507 || 466 561

Cash and cash equivalents are composed of: || || ||

Cash in hand || || 194 107 || 10 588

Term deposits (excluding accrued interest) || || 405 400 || 455 973

|| || 599 507 || 466 561

The accompanying notes form an integral part of these financial statements.

3.5 NOTES TO THE FINANCIAL STATEMENTS AS AT 31 DECEMBER 2013

1 General information

The Investment Facility (“the Facility” or “IF”) has been established within the framework of the Cotonou Agreement (the “Agreement”) on co-operation and development assistance negotiated between the African, Caribbean and Pacific Group of States (the “ACP States”) and the European Union and its Member States on 23 June 2000, revised on 25 June 2005 and 23 June 2010.

The Facility is not a separate legal entity and the European Investment Bank (“EIB” or “the Bank”) manages the contributions on behalf of the Member States (“Donors”) in accordance with the terms of the Agreement and acts as an administrator of the Facility.

Financing under the Agreement is provided from EU Member States’ budgets and is disbursed according to financial protocols defined for successive five- to six-year periods. Within the framework of the Agreement and following the entry into force of a second financial protocol on 1 July 2008 (covering the period 2008-2013), referred to as the 10th European Development Fund (“EDF”), the EIB is entrusted with the management of:

- the Facility, a EUR 3 185.5 million risk-bearing revolving fund geared to fostering private sector investment in ACP countries of which EUR 48.5 million are allocated to Overseas Countries and territories (“OCT countries”);

- grants for the financing of interest rate subsidies worth EUR 400 million for ACP countries and EUR 1.5 million for OCT countries. Up to 15% (10 % up the end of 2012) of these subsidies can be used to fund project-related technical assistance.

The present financial statements cover the period from 1 January 2013 to 31 December 2013.

On a proposal from the Management Committee of EIB, the Board of Directors of EIB adopted the Financial Statements on 13 March 2014, and authorised their submission to the Board of Governors for approval by 29 April 2014.

2 Significant accounting policies

2.1 Basis of preparation – Statement of compliance

The Facility’s financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union.

2.2 Significant accounting judgments and estimates

The preparation of financial statements requires the use of accounting estimates. It also requires the European Investment Bank’s Management to exercise its judgment in the process of applying the Investment Facility’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed hereafter.

The most significant use of judgments and estimates are as follows:

§ Measurement of fair values of financial instruments

Fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market prices or broker price quotations. Where the fair values cannot be derived from active markets, they are determined using a variety of valuation techniques that include the use of mathematical models. The input to these models is taken from observable markets where possible, but where this is not feasible, a degree of judgement is required in establishing fair values. The valuations are categorised into different levels in the fair value hierarchy based on the inputs used in the valuation techniques as described and disclosed in Notes 2.4.3 and 4.

These valuation techniques may include net present value and discounted cash flow models, comparison to similar instruments for which market observable prices exist, Black-Scholes and polynomial option pricing models and other valuation models. Assumptions and inputs used in valuation techniques include risk-free and benchmark interest rates, credit spreads used in estimating discount rates, bond and equity prices, foreign currency exchange rates, equity and equity index prices and expected price volatilities and correlations.

The objective of valuation techniques is to arrive at a fair value measurement that reflects the price that would be received to sell the asset or paid to transfer the liability in an orderly transaction between market participants at the measurement date.

The Facility uses widely recognised valuation models for determining the fair value of common and more simple financial instruments, like interest rate and currency swaps that use only observable market data and require limited management judgement and estimation. Observable prices and model inputs are usually available in the market for listed debt and equity securities, exchange traded derivatives and simple over the counter derivatives like interest rate swaps. Availability of observable market prices and model inputs reduces the need for management judgement and estimation and also reduces the uncertainty associated with determination of fair values. Availability of observable market prices and inputs varies depending on the products and markets and is prone to changes based on specific events and general conditions in the financial markets.

For more complex instruments, the Facility uses own valuation models, which are developed from recognised valuation models. Some or all of the significant inputs into these models may not be observable in the market, and are derived from market prices or rates or are estimated based on assumptions. Example of instruments involving significant unobservable inputs includes certain loans and guarantees for which there is no active market. Valuation models that employ significant unobservable inputs require a higher degree of management judgement and estimation in the determination of fair value. Management judgement and estimation are usually required for selection of the appropriate valuation model to be used, determination of expected future cash flows on the financial instrument being valued, determination of probability or counterparty default and prepayments and selection of appropriate discount rates.

The Facility has an established control framework with respect to the measurement of fair values. This framework includes the EIB’s Investment Bank’s Risk Management and Market Data Management functions. These functions are independent of front office management and are responsible for verifying significant fair value measurements. Specific controls include:

- Verification of observable pricing;

- A review and approval process for new valuation models and changes to existing models;

- Calibration and back testing of models against observed market transactions;

- Analysis and investigation of significant valuation movements;

- Review of significant unobservable inputs and valuation adjustments.

Where third-party information such as broker quotes or pricing services are used to measure fair value, the Facility verifies that such valuations meet the requirements of IFRS. This includes the following:

- Determining where broker quote or pricing service pricing is appropriate;

- Assessing whether a particular broker quote or pricing service is reliable;

- Understanding how the fair value has been arrived at and the extent to which it represents actual market transactions;

- When prices for similar instruments are used to measure fair value, how these prices have been adjusted to reflect the characteristics of the instrument subject to measurement.

§ Impairment losses on loans and receivables

The Facility reviews its loans and receivables at each reporting date to assess whether an allowance for impairment should be recorded in the statement of profit or loss and other comprehensive income. In particular, judgment by the European Investment Bank’s Management is required in the estimation of the amount and timing of future cash flows when determining the level of allowance required. Such estimates are based on assumptions about a number of factors and actual results may differ, resulting in future changes to the allowance. In addition to specific allowances against individually significant loans and receivables, the Facility may also book a collective impairment allowance against exposures which have not been individually identified as impaired and have a greater risk of default than when originally granted.

In principle, a loan is considered as impaired when payment of interest and principal are past due by 90 days or more and, at the same time, the European Investment Bank’s Management considers that there is an objective indication of impairment.

§ Valuation of unquoted available-for-sale equity investments

Valuation of unquoted available-for-sale equity investments is normally based on one of the following:

- recent arm’s length market transactions;

- current fair value of another instrument that is substantially the same;

- the expected cash flows discounted at current rates applicable for items with similar terms and risk characteristics;

- adjusted net assets method; or

- other valuation models.

The determination of the cash flows and discount factors for unquoted available-for-sale equity investments requires significant estimation. The Facility calibrates the valuation techniques periodically and tests them for validity using either price from observable current market transactions in the same instrument or from other available observable market data.

§ Impairment of available-for-sale financial assets

The Facility treats available-for-sale equity investments as impaired when there has been a significant or prolonged decline in the fair value below its cost or where other objective evidence of impairment exists. The determination of what is “significant” or “prolonged” requires judgment. The Facility treats “significant” generally as 30% or more and “prolonged” greater than 12 months. In addition, the Facility evaluates other factors, including normal volatility in share price for quoted equities and the future cash flows and the discount factors for unquoted equities.

2.3 Changes in accounting policies

Except for the changes below, the Facility has consistently applied the accounting policies set out in Note 2.4 to all periods presented in these financial statements. The Facility has adopted the following new standards and amendments to standards.

Standard adopted

The following standards, amendments to standards and interpretations were adopted in the preparation of these financial statements:

Amendments to IAS 1 Presentation of items of Other comprehensive income (OCI)

As a result of the amendments to IAS 1, the Facility has modified the presentation of items of OCI in its statement of profit or loss and OCI, to present separately items that would be reclassified to profit or loss from those that would never be. Comparative information has been re-presented accordingly.

IFRS 13 Fair value measurement

This standard establishes a single framework for measuring fair value and making disclosures about fair value measurements when such measurements are required or permitted by other IFRSs. It unifies the definition of fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It replaces and expands the disclosure requirements about fair value measurements in other IFRSs, including IFRS 7. As a result, the Facility has included additional disclosures in this regard. In accordance with the transitional provisions of IFRS 13, the Facility has applied the new fair value measurement guidance prospectively and has not provided any comparative information for new disclosures.

IFRS 13 refers to a number of valuation adjustments which the Facility has considered in the valuations of its derivatives, namely:

- credit value adjustments (CVA), reflecting the counterparties credit risk embedded in the fair value of derivatives;

- debit value adjustments (DVA), reflecting the Facility’s own credit embedded in the fair value of derivatives.

CVA per counterparty is calculated on the potential future exposure (PFE) and expected positive exposure (EPE) measures, per net counterparty exposure. The probabilities of default per counterparty are then modelled using market-available CDS spreads. For counterparties without available CDS spreads, spreads of banks of similar size and rating in similar jurisdictions are used.

The adoption of this standard resulted in the recognition of a loss of EUR 184k in the current period statement of profit or loss and other comprehensive income, as described in Note 4.

Standards issued but not yet effective

The following standards, amendments to standards and interpretations are effective for annual periods beginning after 1 January 2013, and have not been applied in preparing these Financial Statements. Those of which may be relevant for the Facility are set out below. The Facility does not plan to adopt these standards early.

IFRS 9 Financial instruments

The first step in a three part project by the IASB to replace IAS 39 Financial instruments, this standard redefines the categories of financial assets and liabilities and their accounting treatment. The standard remains a ‘work in progress’ and it will eventually replace IAS 39 in its entirety. The current effective date of the standard is no earlier than 1 January 2017. IFRS 9 has not yet been endorsed by the European Union. The Facility does not plan to adopt this standard early and the extent of the impact has not yet been determined.

The following three standards were issued in 2012 and have been endorsed by the European Union being effective for annual periods beginning after 1 January 2014. The impact of the adoption of these standards on the Facility’s financial statements has not yet been determined.

IFRS 10 Consolidated financial statements

This standard establishes the principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities.

IFRS 11 Joint arrangements

This standard sets up a framework for determining the type of joint arrangements that an entity has with another entity.

IFRS 12 Disclosure of interests in other entities

The objective of this standard is to require the disclosure of information that enables users of financial statements to evaluate the nature of, and risks associated with, its interests in other entities and the effects of those interests on its financial position, financial performance and cash flows.

2.4 Summary of significant accounting policies

The statement of financial p