W -ft V COMMISSION OF THE EUROPEAN COMMUNITIES 
Brussels, 13.12.1996 
COM(96) 653 final 
ANNUAL REPORT FROM THE COMMISSION TO THE COUNCIL, 
THE EUROPEAN PARLIAMENT, THE ECONOMIC AND SOCIAL COMMITTEE 
AND THE COMMITTEE OF THE REGIONS 
THE EUROPEAN ECONOMIC AREA FINANCIAL MECHANISM 

I. The Financial Mechanism 
With the objective oï stimulating economic cohesion ami development between 
the European Economic Area (EEA) regions, a Financial Mechanism to support 
development projects in Greece, Ireland, Northern Ireland, Portugal and parts of 
Spain (the objective I regions as defined in 1988) was established on 1st January 
1994 (article 115-1 16 of the EEA Agreement and Protocol 38). 
Over its five-year life-span, ending 3 1 December 1998, the Financial Mechanism 
will allocate funds to the beneficiary regions of ECU 500 million in grant aid and 
interest rebates of 2 % per annum (available for 10 years with a grace period of 2 
years) on ECU 1.5 billion in loans, from the European Investment Bank (E1B). 
Priority should be given to projects which place particular emphasis on the 
environment (including urban development), on transport (including transport 
infrastructure) or on education and training. Among projects submitted by 
private undertakings, special consideration is given to small and medium-sized 
enterprises 
The Mechanism is administered by I lie EIB The EIB appraises each project 
according to financial, economic and technical criteria as well as its compatibility 
with the EU objectives sectorial policies and environmental regulations and 
standards. 
The EIB then submits proposals to the Financial Mechanism Committee, 
appointed by the participating EFTA States and the Commission, which decides 
on the allocation of the financial resources available under the Mechanism. 
The Mechanism was initially funded by the participating EFTA States. The role 
of the Commission was to give an opinion on the basis of the proposals before 
the approval of the EFTA Financial Mechanism Committee. 
From 1 January 1995, following the accession of the Republic of Austria, the 
Republic of Finland and the Kingdom of Sweden to the European Union, 
Articles 83, I I I and 136 of the act concerning the conditions of this accession 
and the modification to the treaties on which the European Union is founded 
provide that the obligations of the three acceding countries for financing the 
Mechanism as laid down in article 1 16 of the EEA Agreement is financed out of 
the general budget of the European Communities 
In consequence, the Commission has become co-responsible for the Mechanism 
in line with Art. 205 of the Treaty whereby the Commission shall implement the 
budget. The Communication by the Commission adopted on the 30 march 1995 
(C(95) 753), established the operational aspects for dealing with the Financial 
Mechanism within the Commission. 
Following entry into force of the EEA Agreement for the Principality of 
Liechtenstein on I May 1995, the Principality now fully participates in the 
Mechanism. 
II. The second annual report 
A first annual report was presented by the Commission to the Council in June 
1995, concerning the activity of the Mechanism during the period from 01.01.94 
to 31.05.1995. 
This second annual report presents the activity concerning the Mechanism during 
the period from 01.01.95 to 30.06.96. 
T. The aetivity of the Mechanism up to 30.06.1996 
Since the citation of (he Mechanism up to 30.06.96 the Financial 
Mechanism Committee has approved grant applications to a total of ECU 
148.2 million and interest rebates on a total loan, portfolio of ECU 548.9 
million as follows : 
AiH'Kovi-:i) GRANTS APPROVHD 
L( >ANS 
Greece • _22_o 42_9 
Ireland -
Northern Ireland 8_0 -
Portugal 25.5 127.7 
Spain 92J 378.3 
TOTAL 1 148.2 | 548.9 
Grant approved (in M ECU) 
Transport 
Environment 
Education 
Other Greece 
12.1 
8.3 
1.1 
1.1 
22.6 Ireland N Ireland 
8.0 
8.0 Portugal 
25.5 
25.5 Spain 
46.7 
45.4 
92.1 Total 
45.6 
55.0 
46.5 
1.1 
148.2 
Loan approved (in MECU) 
Transport 
Environment 
Education Greece 
42.9 
42.9 Ireland N. Ireland Portugal 
127.7 
127.7 Spain 
164.1 
214.2 
378.3 Total 
334.7 
214.2 
548.9 
The activity in 1995 
In 1995, the following grant applications, amounting up to ECU 68 07 
million, were approved: 
The monasteries in the Athos area in (ireece : Grants for the restoration and 
extension of monastery buildings, at the Iviron monastery ECU 3.684 
million and the Simonos Petras monastery ECU 0.89 million; for the 
development of a diagnostic centre for the study of Byzantine and post 
Byzantine religious paintings and restructuring of two interior courtyards at 
the Ormylia monastery ECU 1.745 million; and for the stabilisation of rock 
foundations at the Stavronikita monastery ECU I 833 million The 
realisation of the projects will contribute to the preservation of a unique 
cultural monument and will enable the development of the region's tourism 
potential and its diversification towards up-market cultural tourism 
The Sanlorim waste water treatment plant project in (Ireece : For the 
preparation of a revised, least-cost investment proposal, a grant of 50 000 
ECU. Economic benefits are expected in terms of environmental 
improvements with a consequent effect on tourist inflows. 
The Tsivlos hydroelectric power plant project in (ireece : For the 
construction of a 2.5 MW hydroelectric plant on the Peloponesos, a grant 
of 1.071 million. The project contributes to the development of a local 
energy resource resulting in a reduction of Greece's dependence on external 
sources of supply. 
The Piraeus port project in (ireece : For handling equipment for the 
lkonion II container terminal, a grant of ECU 12 I million The project will 
improve the efficiency of port operations with economic benefits for (ireece 
which presently uses maritime transport for more than 90% of its 
international trade. 
The Tuerlos marine monitoring project in Spain : For the extension of a 
marine monitoring and surveillance network in the Spanish waters along the 
coasts o\" Asturias, Galicia, Andalucia and the Canary Islands, a grant of 
ECU 4.7 million. Its main economic benefits can be resumed to lessening the 
likelihood of accidents in the major shipping routes, reducing the impact of 
oil spills and allowing for better protection of coastal areas which will help 
to avoid possible hazards for tourism and fisheries activities. 
7'he Vigo urban renewal project in Spain : For the remodelling of the sea-
front area, a grant of ECU 19.5 million. The project is a second stage in an 
overall urban regeneration program in Vigo for improving the quality of life 
for the citizens and more generally improve the attractiveness of the uK 
The (landia urban renewal project in Spam : for the rehabilitation of the 
sea-front area and historic centre, a grant of ECU 22.5 million. The project 
aims to improve the urban and natural tourist environment of the city 
In 1995, the following interest rebate applications, amounting up to a total 
loan amount of ECU 302.4 million were approved: 
The (ialicia road infrastructure project in Spain : For the construction of 
two motorway sections and upgrading of regional road sections, an interest 
rebate for a loan amount of ECU 19.5 million; and the (ialicia loll 
mortorway project in Spain : For the construction of three sections of toll 
motorways, an interest rebate for a loan of ECU 32 million 
' Both projects will contribute to improving the tralllc conditions in Galicia, a 
region which is lacking of motorway infrastructure. 
The Anthtlucia reforestation project in Spain : loi the reforestation project, 
including nurseries, regeneration of degraded forestry areas, construction 
and rehabilitation of forest roads, works to reduce erosion and strenuthenini» 
of forest tire fighting capacity, an interest rebate for a loan of ECU 32 
million. The project clearly contributes to the protection of environment 
The ICO environmental global loan project in Spam For an EIB global 
loan for the Spanish state credit agency and development bank Institute) de 
Crédite") Oficial for the financing of private and public sector, small and 
medium sized environmental projects located in the eligible regions in Spam, 
an interest rebate for a loan of ECU 64 million; and 
the HCl, environmental global loan project m Spam : For an EIB global 
loan for the Spanish Banco de Crédite) Local for the financing and 
environmental projects located in I he eligible regions of Spain, an interest 
rebate for a loan amount of ECU 52 million 
Both projects will contribute to the protection of the environment and the 
reduction of the pollution in areas of Spain 
The RENhh. rail project m Spam : For the partial financing of rolling stock 
and infrastructure improvement investments for the Spanish commuter 
railway networks and intercity lines, an interest rebate for a loan of ECU 60 
million. The project will benefit existing users and attract new clients, 
thereby contributing to achieve reductions in car tralllc congestion, with the 
accompanying environmental improvements. 
The Extremadura road improvement and drinking water supply facilities 
project in Spain : For the financing of fifteen water supply schemes in the 
provinces of Badajoz and Câceres and seventeen small road improvement 
schemes, an interest rebate for a loan of ECU 20 million The improvements 
to water supply infrastructure are expected to have a positive effect on the 
environment (better quality supply) and investments in the basic road 
network should enhance the conditions for the development of the region of 
Exlremadura 
The Piraeus port project in (ireece : For the construction of and handling 
equipment for the Ikonion II container terminal, an interest rebate for a loan 
of ECU 42.9 million. The project will improve the efficiency of port 
operations with economic benefits for (ireece which presently uses maritime 
transport for more then 90% of its international trade. 
The activity in 1996 (up to 30.06.96) 
Only one grant application concerning the Hallycastle'Rathlin Island 
harbours in Northern Ireland, ECU 8 million for improvements to the two 
harbours. The benefits of the project will include the amelioration of access to 
the region and the development of tourism in Northern Ireland. 
The following interest rebate applications amounting up to a total loan 
amount of ECU 68.5 million were approved 
EN A (ia/icia 2-toll motorways : the construction and operation of two 
sections of toll motorways in the provinces of La Coruna and Pontevedra, 
an interest rebate for a loan of ECU 32 million. The project will contribute 
to improving the traffic conditions in Galicia, a region which lacks an 
adequate motorway infrastructure. 
Water supply & forestry schemes in the region of ( \istilla y Lean : the 
contribution to the financing of an investment programme in water supply 
infrastructure and forestry, an interest rebate for a loan of ECU 20 million 
The programme will contribute to regular and reliable provision of potable 
water to towns and will support economic activities Forestry projects will 
contribute to the safeguard and expansion of the region's forest resources 
Waste wafer treatment and road schemes m Kiurcia : the contribution of 
financing of investments in waste water treatment infrastructure and roads, 
an interest rebate for a loan of ECU 16,5 million The project contributes to 
the extension and upgrading of the waste water treatment infrastructure in 
the region of Murcia according to modern standards i.e. in line with EC 
directives as well as environmentally more demanding tourism activities. 
2. The Community contribution 
The Act of Accession (Articles 83, 111, 136) specifies that the shares of the 
new Member States in the Mechanism are to be met from the general budget 
of the Communities. On a proposal from the Commission (COM(94) 398), 
the financial perspective has already been reworked accordingly by adding a 
new heading under "Structural Activities'1. The budgets adopted for 1995 and 
1996 contain a heading with the relevant comments (B2-40I). The amount 
forecast for each year is ECU 108 million 
As far as the actual payments are concerned, taking over the shares of the 
new Member States means complying with the terms of Article 4A of the 
Cooperation Agreement between the EFTA countries and the EIB dated 30 
June 1992, as amended by the amending protocol of 18 June 1993. 
In line with these procedures, the contributions for 1995 and 1996 and the 
shares between the participating EFTA countries and the Commission were 
decided respectively by the Financial Mechanism Committee, on 19.12.94 and 
on 20.12.95. These contributions were calculated in accordance with the 
gross national product at market prices using data for the last three calendar 
years and assuming a total annual contribution from the Community and the 
EFTA States of ECU 110 million. 
In consequence, the amount paid by the Commission out of the Community 
budget in 1995 is 89 793 000 and in 1996, is ECU 87 076 000. These 
amounts are much below the ECU 108 million forecast each calendar year in 
the Community budget. The amount which has not been transferred from the 
Community budget to the EIB account cannot be transferred at a later stage. 
The credit outstanding on the Mechanism account at the EBB, which has not 
been used yet due to the slow progress in the activity of the Mechanism, bears 
interest at a monthly rate. Even though all the contributions have not been 
used it is important to keep a reasonable contribution to the Mechanism 
account each year in order to be able to match the future final obligations at 
the end of 1998. 
Cost sharing of the initial funding and replenishment of the Financial 
Mechanism: 
inMECU 
fceJand Norway Liechtenstein Austria Finland Sweden 
i" ui'iii" m'H m i Community budget fro»» 1995 Total 
H 1.078 
(0.98 %) 18.436 
(16.76 %) 0.187 
(0.17%) 29.348 20.526 40.425 
(26.68 %) ( 18.66 %) (36.75 %) 
Total: (82.09%) 110 
imt 1.111 
(1.01 %) 19.063 
(17.33 %) 0.198 
(0.18%) 89.628' 
(81.48%) 110 
mm 1.122 
(1.02%) 21.604 
(19.64%) 0.198 
(0.18%) 87.076 
(79.16%) 110 
•I 3.311 59.103 0.583 267.003 330 
1 The Commission did not request a transfer of Liechtenstein's reimbursement in August 1995. 
Accordingly, this amount was deducted from the third instalment in 1996. 
3. The Mechanism account at the 1 IB 
As of 3 1 December 1995, the balance of the Financial Mechanism account 
was ECU 212 923 519 In summary, the account transactions during the year 
1995 were as follows: 
Balance as of 31 December 1994 113 665 937 
Crediting 
Second instalment in 1995 I 10 000 000 
Accrued interest in 1995 10 842 555 
Liechtenstein's reimbursement" 405 236 
Debiting 
Interest subsidies - 7 964 055 
Grant disbursements' - 13 789 898 
Transfer of Liechtenstein's reimbursement - 236 256 
Balance as of 31 December 1995 212 923 519 
As of 30 June 1996, the balance of the Financial Mechanism account was 
ECU 302 326 080. In summary, the account transactions up to 30.06.96 have 
been the following: 
Balance as of 31 December 1995 212 923 519 
( redit itig 
Third instalment in 1996 
Accrued interest up to 30.06.96 
Debiting 
Interest subsidies 
Grant disbursements I 10 000 000 
- 4 I 83 
(> 203 935 
9 286 183 
17 51 I 007 
Balance as of 30 June 1996 302 326 080 
Following entry into force of the l:FA Agreement foi Liechtenstein on I Ma\ 1995. the Principality 
reimbursed Austria. Finland. Iceland. Norwa\. Sweden and the Commission ihe amounts advanced by 
them to cover Liechtenstein's share of the Mechanism in 1994-1995. i.e. ECU 405 236. 
For Austria. Finland. Norway and Sweden. Ihe relevant amounts (in total ECU 236 256) were 
transferred, whereas the Commission's and Iceland's shares are kept on the Financial Mechanism 
account, to be deducted from the third instalment in 1996. 
3 The grant disbursement amount comprises the actual grant disbursement increased by 0.5% of such 
amount as administrative cost for the EIB. 
4 For Austria. Finland. Norway and Sweden, the relevant amounts (in total ECU 236 256) were 
transferred, whereas the Commission's and Iceland's shares are kept on the Financial Mechanism 
account, to be deducted from the third instalment in 1996. 
Iceland did not request a transfer of Liechtenstein's reimbursement in August 1995 According!). 
Iceland has deducted 4 IS"? ECU from its pa\inent. 
4. Coordination and complementarity with other financial instriinients of 
the European Union. 
The Commission ensures, within the framework of the partnership, 
coordination and consistency between Ihe projects carried out under the 
Financial Mechanism and measures undertaken by the Structural Funds, the 
Cohesion Fund, the European Investment Bank and the other financial 
instruments of the European Union 
In that respect, operating rules concerning the combination and overlapping 
of the Financial Mechanism aid with other Community assistance, have been 
clearly defined in the "Operational arrangements" concluded between the 
Commission and the European Investment Bank, on 9 March 1994. 

ISSN 0254-1475 
COM(96) 653 final 
DOCUMENTS 
EN 09 10 13 
Catalogue number : CB-C0-96-665-EN-C 
ISBN 92-78-13243-8 
Office for Official Publications of the European Communities 
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