Proposal for a COUNCIL DECISION concerning the exceptional use of interest from the European Development Fund for the financing of costs linked to the implementation of the devolution exercise in ACP countries for a transitional period

(presented by the Commission)

EXPLANATORY MEMORANDUM

1. Introduction

The Commission decided on 16 May 2000 to reform the management of external aid programmes as part of the global reform of the Commission carried out under the authority of Mr Kinnock.

This decision brought to light the lack of human resources at the disposal of the Commission to implement external aid. The elements of reform linked to human resources consisted of reorganising the management of the project cycle, a major devolution of activities to the external Delegations, dismantling the Technical Assistance Offices and reintegrating the equivalent human resources under other contractual arrangements.

The devolution exercise is aimed at improving the efficiency of aid management and the quality of operations. Bringing the decision-making closer to the field will accelerate the programming, identification and implementation of programmes and projects. It will also reduce delays and administrative circuits, rationalise the utilisation of human resources, reduce «ex-ante» control tasks, make the relevant officials more responsible, and strengthen coordination with Member States on the spot.

In its letter of amendment No 1 to the preliminary draft budget for 2001, the Commission outlined its assessment of staff needs and administrative appropriations required in order to match the Commission's activities with its human resources. Taking into account the restructuring and redeployments already decided, human resources in the Commission were found to be 1 254 posts short, of which 574 (46%) in the external relations services.

Initial assessments of the staffing requirements of the Delegations in the devolution exercise have shown that each delegation will require on average between 10 and 15 additional staff (officials, external experts, external local staff).

The official posts must be found within part A of the Budget through restructuring, redeployment and some of the additional posts requested in the letter of amendment to the 2001 preliminary draft budget. The cost of the external experts and local staff, on the other hand, will be borne by using a proportion of the part BA lines of expenditure in the budget relating to the delegation in question, e.g. ALA, MEDA, TACIS, PHARE.

These arrangements cover the costs of external staff (including training, office costs, and logistics such as informatics) for all Delegations except for those in ACP States, whose principal task is the management of aid provided through the European Development Fund (EDF). This is because the EDF is funded separately by the Member States, and is only mentioned as a «p.m.» in part B of the Commission budget.

The Internal Agreement between the Member States on the 9th EDF specifically sets aside a sum of EUR125 million over 5 years for costs linked to implementation of the 9th EDF. However, additional funding is needed to finance the costs of the devolution exercise in the years 2001 and 2002, prior to the entry into force of the Cotonou Agreement. The Commission proposes to finance part of the extra costs arising from the devolution exercise in ACP States in the years 2001 and 2002 from interest accrued on the EDF.

2. The devolution programme for ACP Delegations

The first phase of devolution, due to start in mid-2001, concerns 23 Delegations, of which six (Dominican Republic, Ivory Coast, Kenya, Mali, Senegal and South Africa) are ACP Delegations. Of these, South Africa can be discounted for the purpose of this exercise, as it has its own line in part BA of the budget and does not draw from the resources of the EDF.

The second phase of devolution, which it is envisaged will start in 2002, should involve another 31 Delegations, eight of which would be situated in ACP States (Benin, Burkina Faso, Cameroon, Guinea (Conakry), Madagascar, Niger, Tanzania and Ethiopia).

The third and final phase of devolution is scheduled for 2003 and should comprise the remaining 31 Delegations in ACP States, i.e. Angola, Barbados, Botswana, Burundi, Central African Republic, Congo (Brazzaville), Democratic Republic of Congo, Eritrea, Fiji, Gabon, Guinea-Bissau, Guyana, Haiti, Jamaica, Lesotho, Malawi, Mauritania, Mauritius, Mozambique, Namibia, Nigeria, Papua New Guinea, Rwanda, Sierra Leone, Sudan, Trinidad & Tobago, Uganda Zimbabwe, Chad and Zambia.

3. Cost estimates

The extra costs created by the devolution exercise break down into three categories:

(1) Increased administrative expenditure in the Delegations concerned in the long-term, including the costs for additional officials in Delegations,

(2) One-off costs linked to the devolution exercise, such as removal expenditure, hardware installation, technical training etc, and

(3) Additional external personnel (experts and local staff).

3.1 Increased administrative costs

The increased administrative costs of running enlarged Delegations will have to be borne by part A of the budget. This category includes higher general administrative costs caused by the fact that more officials will be working in the field.

3.2 Costs linked to the installation of "devolved" Delegations

There are extra costs linked to the installation of devolved Delegations, such as installation of secure communication channels, adaptation of existing buildings and renting of additional buildings, removal expenditure, adaptation of IT systems and project management systems, etc. These costs should also be covered by part A of the budget.

3.3 Expenses for external personnel

The additional staffing needs in Delegations will to a large degree be met by external contract personnel. In this category of expenses falls also the administrative expenditure linked to the efficient functioning of this group of staff (office rental, stationery and maintenance expenses, training, contract management...) as well as related equipment (computers, etc.)

These costs are estimated as follows (yearly average costs in euros):

Group 1 Individual Expert/ALAT : 120 000

Group 1 Local Agent (LA) : 50 000

Group 2 Local Agent : 32 000

Group 3 Local Agent : 26 000

4. Proposed source of additional funding for starting the devolution process: EDF interest

4.1 Funding after 2002:

As noted above, Article 4 of the Internal Agreement between Representatives of the Governments of the Member States, meeting within the Council, on the financing and administration of Community aid under the Financial Protocol to the Partnership Agreement between the African, Caribbean and Pacific States and the European Community and its Member States, signed in Cotonou (Benin) on 23 June 2000 and the Allocation of Financial Assistance for the Overseas Countries and Territories to which Part Four of the EC Treaty applies, [1] provides that:

[1] OJ L 317 of 15 December 2000 (hereafter, the 9th EDF Internal Agreement).

"An amount of EUR125 million shall be reserved for the financing of costs linked to implementation incurred by the Commission in the framework of the ACP-EC Agreement."

Article 9(1)(b) of the 9th EDF Internal Agreement specifies further that this amount can be used inter alia for

"reinforcing the administrative capacities of the Commission and its Delegations in order to ensure a smooth preparation and implementation of operations financed from the 9th EDF".

Moreover, Article 9(1) clarifies that "such assistance shall not be assigned to core tasks of the European public service, i.e. the Commission's permanent staff".

Other possible activities that can be financed from these resources include administrative and financial costs arising from the cash management of the EDF, as well as the financing of studies, assessments, audits or consultancy services.

The financing of the devolution costs for external experts in ACP Delegations falls within the scope of Article 9(1)(b) of the 9th EDF Internal Agreement as described above. It is therefore possible to finance at least part of the costs for the devolution exercise in ACP States from this source once the 9th EDF is established.

4.2 Funding during the transitional period (until entry into force of the Cotonou Agreement)

Since it is unlikely that the 9th EDF Internal Agreement will be ratified and enter into force before mid-2002, a transitional solution for the financing of the devolution exercise in ACP States needs to be found.

The Commission informs the Council that, as of March 2001, there were resources amounting to EUR29.6 million resulting from accumulated interest on deposited EDF funds in the EDF general treasury. [2] Following the standard practice for managing EDF resources, this interest cannot be divided between the 6th, 7th and 8th EDFs, but must remain physically inseparable in the EDF general treasury.

[2] This interest has accrued on funds deposited by the EDFs, and derives from the balances held on account with European banks; the interest payments are determined by service contracts between DG Budget and these banking institutions.

Article 9(2) of the 6th EDF "Internal Agreement on financing and administration of Community aid" [3] provides that "any other revenue" may be allocated by the Council, acting by qualified majority on a proposal from the Commission.

[3] OJ L 86 of 31 March 1986 (hereinafter, the 6th EDF Internal Agreement).

Article 9(2) of the 8th EDF "Internal Agreement between the representatives of the Government of the Member States, meeting within the Council, on financing and administration of the Community aid under the Second Financial Protocol to the fourth ACP-EC Convention" [4] provides for a number of possible uses for the revenue accruing from interest on the funds deposited with the paying agents in Europe. However, acting on a Commission proposal, the Council may decide by qualified majority to use the revenue referred to in this article for purposes other than those provided for in paragraph 2.

[4] OJ L 156/108 of 29 May 1998 ( hereinafter, the 8th EDF Internal Agreement).

Article 9(2) of the 7th EDF "Internal Agreement on the financing and administration of Community aid under the Fourth ACP-EEC Convention" [5] does not explicitly spell out a similar enabling clause for a Council Decision on the use of interest for other purposes.

[5] OJ L 229/288 of 17 August 1991 (hereinafter, the 7th EDF Internal Agreement).

In the light of the impossibility of separating the interest accrued to the 6th, 7th and 8th EDF, the lack of a provision in the 7th EDF Internal Agreement enabling the Council to decide on the use of this interest would lead to use of the interest accrued on all three EDFs being de facto blocked.

However, the impossibility of using this accrued interest would be incompatible with the intentions of the Representatives of the Member State Governments who explicitly made the Council responsible for deciding how it should be used in the 6th and 8th EDF Internal Agreements. Moreover, the nature and objectives of all three EDFs are identical. Therefore, the lack of a clause making the Council responsible for deciding on the use of such interest in Article 9(2) of the 7th EDF Internal Agreement would appears to be an accidental omission. On the basis that this lacuna is not deliberate, Article 9(2) of the 7th EDF Internal Agreement cannot be interpreted so as to prevent the Council from deciding on the use of interest accrued on the 6th, 7th and 8th EDFs.

The Commission proposes that the Council decide to use part of the interest accrued on EDF funds held on deposit to contribute to the financing of the devolution exercise for Delegations in ACP States during the transitional period. This solution is coherent with the financing foreseen for devolution in the other regions of the world.

Specifically, the Commission proposes that the Council decide to use up to EUR23 000 000 of the above amount to cover the following types of expenditure for the 13 Delegations concerned for a period of 2 years (from the end of 2001 to beginning of 2003, when it is expected that funding from the 9th EDF will have been made available): [6]

[6] The amount of EUR23 000 000 has been calculated on the basis of an average additional staff of 8 level 1 experts (5 ALAT and/or IE + 3 AL Group 1), 2 level 2 Local Agents and 1 level 3 Local Agent per Delegation, i.e. an average EUR840 000 per Delegation per year. It also includes an amount of EUR500 000 for technical assistance to facilitate the devolution of the OLAS system, and a contingency reserve of EUR660 000 (estimated at EUR25 000 per Delegation per year).

(1) Support expenses in relation to programming, identification, preparation, management, follow-up, audit and control of the Commission's aid operations in ACP countries, in particular costs linked to the recruitment of experts and local agents that will assist in handling these tasks.

(2) Administrative costs as far as these are directly linked to the efficient functioning of the experts and local agents recruited, including the purchase of equipment, the temporary renting of extra office space, related IT costs, etc.

5. Concluding remarks

The political necessity and desirability of the devolution exercise towards the Commission's external Delegations is not in doubt. For all Delegations except those in ACP States, the solution of using a proportion of the relevant part BA budget lines has been accepted in principle. The fact that the EDF is not currently included in the Commission budget spending appropriations is a technicality which the Commission proposes to overcome by means of using the interest arising on EDF deposited funds.

The estimated amount of the devolution costs for 2001/2002 period are based on the assessment of human resources needed for proper management, on a devolved basis, of the existing and forthcoming portfolio of activities of the ACP Delegations concerned. In this context, the Commission would like to draw attention to the following:

- during the first round of the devolution exercise, Commission departments will have to manage in parallel a majority of Delegations operating under the current system, and a number of Delegations in a learning process operating under the new "devolved" system,

- this exercise coincides with the entry into force of the Cotonou Agreement, which has a significant impact on the nature of tasks and responsibilities for the ACP Delegations and their staff requirements in terms of numbers and profiles.

In the longer term, it is expected that the generalisation of the devolution, as well as the rationalisation of the projects portfolio ( through reduction of backlog of former EDF's projects, concentrating programmes in focal sector, etc...), the strengthening of coordination mechanisms (including co-financing) and the simplification of procedures and modus operandi will permit a reassessment and redeployment of resources needed for the management of the ACP cooperation between headquarters and Delegations.

In addition, the Commission would emphasise that:

(1) The present proposal is a temporary solution to cover the period until the entry into force of the Cotonou Agreement, and the necessary provisions can be made in the Part A of the Community budget.

(2) No new funds are requested. The financing already exists and is not needed for other purposes.

Proposal for a

COUNCIL DECISION

concerning the exceptional use of interest from the European Development Fund for the financing of costs linked to the implementation of the devolution exercise in ACP countries for a transitional period

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community,

Having regard to the third ACP-EC Convention,

Having regard to the fourth ACP-EC Convention, [7] as revised by the Mauritius Agreement signed on 4 November 1995, [8]

[7] OJ L 229, 17.8.1991, p.3.

[8] OJ L 156, 29.5.1998, p.3.

Having regard to the Internal Agreement of 19 February 1985 between the Member States on financing and administration of Community aid, [9] and in particular Article 9(2) thereof,

[9] OJ L 86, 31.3.1986.

Having regard to the Internal Agreement of 16 July 1990 on the financing and administration of Community aid under the Fourth ACP-EEC Convention, [10] and in particular Article 9(2) thereof,

[10] OJ L 229/288, 17.8.1991 (hereinafter, the "7th EDF Internal Agreement").

Having regard to the Internal Agreement of 15 December 1995 between the Representatives of the Governments of the Member States, meeting within the Council, on financing and administration of Community aid under the Second Financial Protocol to the fourth ACP-EC Convention, [11] and in particular, the second paragraph of Article 9(2) thereof,

[11] OJ L 156/108, 29.5.1998 (hereinafter, the "8th EDF Internal Agreement").

Having regard to the proposal from the Commission,

Whereas:

(1) The Commission decided on 16 May 2000 to reform the management of external aid programmes as part of the global reform of the Commission,

(2) This decision highlighted the lack of human resources at the disposal of the Commission to implement external aid,

(3) The elements of reform linked to human resources include reorganising the management of the project cycle and a major devolution of decision-making closer to the field and of activities to external Delegations. The objective is to improve the efficiency of aid management and the quality of operations, as well as accelerate the programming, identification and implementation of programmes and projects,

(4) In this context it is necessary to strengthen both the human resources as well as the physical infrastructure of the Commission's external delegations,

(5) In this process the costs for these personnel will be borne by using a proportion of Part BA lines of expenditure in the budget relating to the programmes outside the ACP regions,

(6) During the period 2001-2002, 13 of the Commission's ACP Delegations should be "devolved",

(7) The Internal Agreement on the financing and administration of Community Aid under the Financial Protocol to the Partnership Agreement between the ACP States and the European Community and its Member States, signed on 14 September 2000, hereinafter referred to as "the 9th EDF Internal Agreement", and in particular Articles 1(3), 4 and 9 thereof, identifies financial resources to reinforce the administration capacities of the Commission's Delegations for the implementation of the operations financed from the 9th EDF,

(8) Pending the entry into force of the 9th EDF, financial resources should be made available from interest accrued to the funds deposited by the EDFs and now held in the general treasury of the EDF, where it is physically inseparable, in accordance with the provisions of the 6th, 7th and 8th EDF Internal Agreements,

HAS DECIDED AS FOLLOWS:

Article 1

An amount of EUR23 000 000 shall be reserved from interest accumulated on deposited EDF funds and held in the general treasury of the EDF, for the financing of costs linked to the implementation of the devolution exercise in ACP States, as specified in Article 2.

Article 2

The resources referred to in Article 1 shall be used to finance the following types of expenditure:

(1) Support expenses in relation to identification, preparation, management, follow-up, accounting, audit and control of the Commission's aid operations in ACP countries, in particular costs linked to the recruitment and stationing in Delegations of experts and local agents that will assist in handling these "devolved" tasks and to the provision of technical support to the "devolution" of the Commission's computerised on-line accounting system (OLAS).

(2) Administrative costs, to the extent these are directly linked to the efficient functioning of the experts and local agents recruited, including the purchase of equipment, the temporary renting of extra office space, related IT costs and others.

Article 3

This Decision shall enter into force on the day of its adoption.

Done at Brussels,

For the Council

The President

LEGISLATIVE FINANCIAL STATEMENT

Policy areas(s): Management EC/ACP Community aid

Activity(ies): Reinforcing external support staff in Delegations as part of the devolution process using EDF interest

Title of action: Devolution exercise in the ACP states 2001-2002

1. BUDGET LINE(S) + HEADING(S): EDF Interest

2. OVERALL FIGURES

2.1 Total allocation for action: EUR23 million for commitment

2.2 Period of application: October 2001 - March 2004

2.3 Overall multi-annual estimate of expenditure:

a) Schedule of commitment appropriations/payment appropriations (financial intervention) (see point 6.1.1)

(EUR million to three decimal places)

>TABLE POSITION>

b) Technical and administrative assistance and support expenditure (see point 6.1.2) - Not applicable - EDF financing

>TABLE POSITION>

>TABLE POSITION>

c) Overall financial impact of human resources and other administration expenditure (see points 7.2 and 7.3) Not applicable - EDF financing

>TABLE POSITION>

>TABLE POSITION>

2.4 Compatibility with financial programming and financial perspective

[X] Proposal is compatible with existing financial programming.

Proposal will entail reprogramming of the relevant heading in the financial perspective.

Proposal may require application of the provisions of the Interinstitutional Agreement.

2.5 Financial impact on revenue [12]

[12] For further information, see separate explanatory note.

[X] Proposal has no financial implications (involves technical aspects regarding implementation of a measure).

Proposal has financial impact - the effect on revenue is as follows:

(EUR million to one decimal place)

>TABLE POSITION>

3. BUDGET CHARACTERISTICS - Not applicable - EDF FINANCING

>TABLE POSITION>

4. LEGAL BASIS

- Internal Agreement of 19 February 1985 on the financing and administration of Community aid under the Third ACP-EC Convention (Lome III),

- Internal Agreement of 17 August 1991 on the financing and administration of Community aid under the Fourth ACP-EC Convention (Lome IV),

- Internal Agreement of 29 May 1998 on the financing and administration of Community aid under the Second Financial Protocol to the Fourth ACP-EC Convention (Lome IV).

5. DESCRIPTION AND GROUNDS

5.1 Need for Community intervention [13]

[13] For further information, see separate explanatory note.

5.1.1 Objectives pursued

Adapting the organisation and redistribution of responsibilities between headquarters and the Delegations by a process of devolution is one of the main planks of the development aid policy statement. Devolution must meet the major objective laid down in the communication to the Commission on reform of the management of external aid, namely to improve the speed and quality of the provision of Community aid.

The objective of the financing is to contribute to devolving the management of Community aid to the ACP States in 5 ACP Delegations in 2001 and 8 in 2002.

5.1.2 Measures taken in connection with ex ante evaluation

On 16 May 2000 the Commission decided to reform the management of external aid as part of the more general reform of the Commission.

The reform exercise revealed the direct and adverse impact of staff shortages on the speed and quality of the provision of Community aid and showed that every effort must be made to remedy this situation. The second aspect that emerged was the need to get closer to the ground in order to improve the effectiveness and ownership of aid.

5.2 Actions envisaged and budget intervention arrangements

As regards the organisation and redistribution of responsibilities between headquarters and the Delegations, the programme responds to the guidelines for the European Community's development policy as adopted by the Council and Parliament in April 2000.

The aim of the devolution process is to facilitate the implementation of projects and programmes in the ACP countries concerned. It must go together with a reinforcement of external contractual staff in the Delegations and with ad hoc temporary technical support at headquarters to adapt the computerised accounting system, supplementing the extra permanent Commission staff covered by the Commission budget.

5.3 Methods of implementation

The appropriations will be made available to and managed by the Commission as part of the devolution process, in accordance with the provisions of the financial regulation adopted by the Council on 16 June 1998 and applicable to development financing cooperation under the Fourth ACP-EC Convention (OJ L 191/53 of 7.7.1998).

6. FINANCIAL IMPACT

6.1 Total financial impact over the entire programming period

(The method of calculating the total amounts set out in the table below must be explained by the breakdown in Table 6.2.)

6.1.1 Financial intervention

Commitments (EUR million to three decimal places)

>TABLE POSITION>

>TABLE POSITION>

6.2. Calculation of costs by measure envisaged in Part B (over the entire programming period) [14] -

[14] For further information, see separate explanatory note.

(Where there is more than one action, give sufficient details of the individual measures to be taken for each one to allow the volume and costs of the outputs to be estimated)

Commitments (in EUR million to three decimal places)

>TABLE POSITION>

(If necessary, explain the method of calculation)

7. IMPACT ON STAFF AND ADMINISTRATIVE EXPENDITURE (once stabilised, for 13 delegations)

7.1. Impact on human resources

>TABLE POSITION>

7.2 Overall financial impact of human resources

>TABLE POSITION>

The amounts are total expenditure for 12 months and 13 delegations, once the situation has stabilised.

7.3 Other administrative expenditure deriving from the action

>TABLE POSITION>

The amounts are total expenditure for 12 months.

(1) Specify the type of committee and the group to which it belongs.

I. Annual total (7.2 + 7.3)

II. Duration of action

III. Total cost of action (I x II) // EUR

years

EUR

(In the estimate of human and administrative resources required for the action, DGs/Services must take into account the decisions taken by the Commission in its orientation debate and when adopting the preliminary draft budget (PDB). This means that DGs must show that human resources can be covered by the indicative pre-allocation made when the PDB was adopted.

Exceptional cases (i.e. those where the action concerned could not be foreseen when the PDB was being prepared) must be referred to the Commission for a decision on whether and how (by means of an amendment of the indicative pre-allocation, an ad hoc redeployment exercise, a supplementary/amending budget or a letter of amendment to the draft budget) implementation of the proposed action can be accommodated.

8. FOLLOW-UP AND EVALUATION

8.1. Follow-up arrangements

As part of the process of devolution to the Delegations, headquarters will conduct regular audits to check the quality of the management of devolved activities and especially compliance with procedures.

8.2. Arrangements and schedule for evaluation

At the end of each year the Commission will send a progress report to the EDF Committee covering the operations financed under this proposal.

9. ANTI-FRAUD MEASURES

As part of certification missions by headquarters, prior checks will made in each Delegation to verify the preconditions for devolution (secure communication system, an appropriate framework of procedures, suitable level of staff training etc).

The memorandum of understanding between Financial Control and the EuropeAid Cooperation Office provides for regular and where possible, joint on-the-spot missions according to a provisional calendar drawn up by the two Directorates.