DRAFT ECSC OPERATING BUDGET FOR 2001

(presented by the Commission)

TABLE OF CONTENTS

Foreword

I. General introduction

A. Economic context

1. Outlook for the coal industry

2. Outlook for the steel industry

B. Financial and policy context

1. Financial activities

2. Budgetary approach for 2001

3. Incorporation of ECSC budgetary activities in the general budget

II. Draft ECSC operating budget for 2001

A. Resources

B. Requirements

C. Draft budget for 2001

D. Summary table

Annexes

I. ECSC illustrative scenario 2002

II. ECSC operating budget for 1999

III. ECSC operating budget for 2000

IV. ECSC balance sheet at 31 December 1999

V. ECSC borrowing and lending operations (1999/2000/2001)

VI. Analysis of requirements and resources for 2001

FOREWORD

As usual, the views of Parliament will be sought before the Commission takes a decision on the ECSC operating budget for the financial year 2001.

This aide-mémoire forms the basis for the consultation of Parliament. It is divided into the two following chapters and a number of annexes:

I. General introduction

II. Draft ECSC operating budget for 2001.

The draft ECSC budget for 2001 is also being sent, for information, to the ECSC Consultative Committee and to the Council, in response to the latter's request to be informed of future trends in the ECSC's financial activities.

The amounts appearing in the draft ECSC operating budget for 2001 are given in euros where they relate to 1999 or subsequent years. Amounts relating to years before 1999 are still in ecus.

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I. General introduction

This chapter summarises the information needed to set the draft ECSC operating budget for 2001 in its economic, policy and financial context.

A. Economic context

1. Outlook for the coal industry

Inland deliveries of hard coal in Member States in 1999 came to 248.8 million tonnes, some 14.6 million tonnes (5.6%) less than in 1998, when they totalled 263.4 million tonnes. The surge in oil prices which occurred in the second half of the year had little effect in terms of slowing the downward trend.

By sector, deliveries to power stations in 1999 totalled 173.8 million tonnes, down by 5.6% on 1998, when they were 184.1 million tonnes. Deliveries declined in all Member States, except for Spain and Portugal, where they were 27 and 5 million tonnes respectively, higher than the 1998 levels of 24.9 and 4.2 million tonnes. The reason for this was the drought which struck the Iberian peninsula reducing the power output from hydroelectric plants. The biggest drop, from 48.3 to 40.3 million tonnes, occurred in the UK where some long-term supply contracts with power producers expired and were renewed at lower levels.

Deliveries to coke ovens in 1999 totalled 49 million tonnes against 51.9 million tonnes in 1998. 'Other' industries and the domestic sector (including issues to workers) appear to follow the same trend, with deliveries of 25.5 million tonnes, compared with 27 million tonnes in 1998. This represented a fall of 1.5 million tonnes, or 5.5%.

The forecast for total inland deliveries for 2000 is some 239.3 million tonnes in Member States, a drop of 10.5 million tonnes, or 3.8%, on the figure for 1999. Most of the reduction (8.7 million tonnes) is expected to be accounted for by the power station sector, although some fall in deliveries to coking plants, and to 'other' industries, is expected; there will also be small reductions in other sectors.

Production of hard coal in the Member States has been continuing to decline because of the high costs of domestic production compared with imported coal, which has been available on the market at very low prices, helped by a very sluggish freight market. In 1999 it is expected to be about 100 million tonnes. This compares with output in 1998 of 106.6 million tonnes, a drop of 6.6 million tonnes (6.2%) year on year.

For 2000, forecasts for annual production show a continuing decline in Community production. Total production is expected to fall to about 86 million tonnes, a further drop of 14%, which will concern all producer countries.

Imports for 1999 from non-Community countries were estimated at 152.9 million tonnes, with no substantial change from 1998, and represent 60% of the total availability in Member States. Purchasing policies of coal importers continue to be reflected in the shift to different sources for the various types of coal. With plenty of coal available on the market, there has been a trend over recent years to buy coal on a spot basis, moving away from long-term contracts, particularly for steam coals. Since coal prices continued to weaken during 1999, some types of coal became uncompetitive (for example coal from the United States, the swing supplier, which was also badly affected by the soaring dollar) and were no longer being offered on the market, except where there were long-term contracts to the advantage of other exporting countries. South Africa, whose coals were cheap, remained the leading exporter to Europe, shipping more than 30 million tonnes, followed by Australia with about 23 million; together, they supplied more than a third of EU coal import requirements in 1999.

The forecast of imports for 2000 is 154 million tonnes, with no substantial change from 1999.

Total coke production in 1999 in Member States was 37.7 million. It compares with reported coke production in 1998 of 39.4 million tonnes.

In terms of deliveries, total inland deliveries were 45.3 million tonnes in 1999, of which 40.3 million tonnes, some 89%, went to the steel industry. Deliveries in 1998 came to 46.8 million tonnes. Imports of coke from non-Community countries in 1999 were 7.9 million tonnes, but are expected to rise to 8.2 million tonnes in 2000.

It is forecast that 2000 coke production will rise to 38 million tonnes, but will still remain below the reported production levels in 1998 of 39.4 million tonnes. Deliveries will be slightly lower in 2000, at 44.9 million tonnes.

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* March 2000 estimates.

2. Outlook for the steel industry

Following the excellent results in 1998, the Community economy went through what ultimately proved to be a fairly short slowdown up to the middle of 1999 as a result of the disruption caused by the Asian crisis which affected trade, then industrial output and even investment.

There was, however, a very distinct upturn from summer 1999, brought on by the recovery of external demand which prompted a clear revival of business confidence. The brightening of the general economic climate during this period was, however, also caused by the steady rise in consumer confidence, with individuals very optimistic about the Union's short-term growth prospects.

Taking advantage of the economic upturn, the steel-consuming industries, and in particular those most exposed to world competition, saw the pace of their activity accelerate sharply with the pick-up in exports, which was behind a marked increase in demand and an ensuing recovery in steel prices, although the pattern was not entirely uniform for all products.

In 2000, the favourable trends of the second half of 1999 should grow stronger on the Community steel market, with firmer demand, output up on 1999 and prices remaining buoyant.

The favourable outlook for steel is the result of the excellent levels of activity in the main steel-using industries, including the building industry which is now experiencing long-term growth despite a slight downturn in the motor vehicle industry which has achieved some outstanding performances in recent years.

With the Community economy set to maintain a rate of growth in 2001 similar to that of 2000, as a result of domestic demand sustained by private consumer expenditure and a marked rise in investment in plant and machinery, the Community steel industry can look forward to an increase both in steel consumption and steel production, especially as the international economic context should also be more stable.

On the basis of recent trends and the outlook described above, the following table gives an indication of Community steel production and employment levels in the Union steel industry for 2000 and 2001.

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* March 2000 estimates.

B. Economic and policy context

1. Financial activities

ECSC financial report No 44, outlining the ECSC's borrowing and lending activities and other financial operations in 1999, will be published shortly.

Since June 1994, the Commission has revised its borrowing and lending policy under the ECSC Treaty in view of the expiry of that Treaty in July 2002.

In this context in 1999 the ECSC neither raised nor paid out any loans.

Financing for the construction of workers' housing came to an end in 1998.

At 31 December 1999 outstanding borrowings came to EUR2 432 million and outstanding loans to EUR2 473 million.

On 11 September 1996 the Commission confirmed that it wishes to maintain reserves to cover all loans outstanding after 23 July 2002 which are not guaranteed by a Member State. The guarantee fund was therefore increased by EUR23 million to move towards this objective.

2. Budgetary approach for 2001

As stated above, the budgetary approach for 2001 should be seen against the general background of how expiry of the Treaty is influencing the budgetary and financial management of the ECSC.

It is therefore proposed that the Commission's proposals should be placed in perspective in an overall illustrative scenario for the period leading up to expiry of the Treaty.

Of course, this scenario by no means prejudges the decisions which will be taken each year as part of the budgetary procedure, but it will allow interested parties to assess the trend of the ECSC's financial and budgetary activities.

As the levy was reduced to 0% as from 1 January 1998, the budgetary approach from 1998 onwards has been to finance all the requirements identified for social aid and to adjust the level of research aid in order to ensure optimum continuity of financing.

Any change in resources in the ECSC operating budget will thus be dictated mainly by the level of internal revenue (net balance), the cancellation of commitments and the rate of implementation of the provision to finance the ECSC operating budget.

At all events, the projections reveal that the provisions set up will be sufficient to keep budgetary activity, up to expiry of the Treaty, at a level commensurate with the social and research aid requirements so far identified while complying with the Commission's target for the level of reserves for 23 July 2002.

3. Incorporation of ECSC budgetary activities in the general budget

The state of play as regards the phasing-out and phasing-in of ECSC policies is as follows:

- As regards social measures, the Commission decided on 24 June 1994 to suspend, with effect from 1 January 1995, its contributions to vocational training programmes and employment aid under Article 56 of the ECSC Treaty and stated (OJ C 178 of 30 June 1994) that these measures may henceforth be financed by the ESF provided that they qualify under the Structural Fund regulations. Incorporation of these measures in the general budget will also be conditional on the Member States assigning them the necessary priority and proposing their co-financing.

- No other ECSC instrument in connection with redeployment aid (early retirement, tideover allowances, allowances to offset loss of earnings, geographical mobility allowances, retirement grants, etc.) is involved in the "phasing-in/out" exercise. There are no plans to suspend the cofinancing of the other measures before expiry of the ECSC Treaty nor, at this stage, to change the level of cofinancing for each job lost under the various measures mentioned above.

- For research aid, the replies to all the calls for proposals show that the phasing-in of ECSC research activities into the Fifth Framework Programme is limited.

- The structure of the framework programmes is designed for pre-competitive and confidential generic research and multisectoral applications. Some of these aspects are contrary to the features of ECSC research, as it is sectoral and requires the research findings to be made available to anyone in the Community who is interested.

II. Draft ECSC operating budget for 2001

A. Resources

It is assumed that the ECSC levy will be 0% in 2001. ECSC resources will then consist of the net balance, miscellaneous revenue, cancellations of commitments and, finally, funds drawn from the provisions to finance the operating budget.

The net balance for 2001 is estimated at EUR48 million. This estimate takes account of the volume of investments and the assumed changes in interest rates.

The miscellaneous revenue relates to debt repayments of an estimated EUR3 million for 2001.

The cancellation of commitments not likely to be implemented is estimated to come to EUR36 million.

Finally, to balance this budget, EUR103 million will have to be withdrawn from the provisions which were set up as a precaution to offset the disappearance of the levy.

B. Requirements

The Commission's proposals are as follows:

- EUR5 million for administrative expenditure;

- EUR109 million for social aid. Of this EUR80 million is for traditional redeployment aid, comprising EUR41 million for actual redundancies in 2000 and EUR39 million in 2001, so that an adjustment can be made with a view to the expiry of the Treaty. EUR29 million is earmarked for social measures in the coal industry.

The indicative breakdown of redeployment aid is EUR55 million for coal workers and EUR25 million for steel workers;

- EUR76 million for research expenditure broken down into EUR54 million for steel and EUR22 million for coal.

It is worth noting that the breakdown of research funding which prevailed up to 2000 (69% steel, 31% coal) will be altered slightly (to 71% steel, 29% coal), as a gradual step towards the post-2002 target accepted by the Council (72.8% steel, 27.2% coal).

The indicative amounts for technical research projects in connection with nuisances at the workplace and around steel plants will be around EUR4 million while the amounts for research projects in connection with industrial hygiene and mine safety will come to around EUR3 million.

C. Draft budget for 2001

The draft ECSC operating budget for 2001 established on this basis comes to EUR190 million and is presented in the form of the summary table attached (II.D).

TABLE II. D

DRAFT ECSC OPERATING BUDGET FOR 2001

(EUR million)

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(1) The indicative breakdown for aid for redeployment is EUR 55 million for coalworkers and EUR 25 million for steelworkers.

(2) Including projects with an impact on technical measures to combat harmful effects at the workplace and around steel plants (indicative amount of EUR 4 million),

industrial hygiene and mine safety (indicative amount of EUR 3 million).

ANNEX I

ECSC 2002 - ILLUSTRATIVE SCENARIO version 10****

ECSC OPERATING BUDGET

ECU/EUR million

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* Not including provisions for fines and other amounts to be recovered.

** Foreseeable outturn for 1999 and budget for 2000.

*** Up to 23 July 2002.

**** This scenario does not prejudge the decisions to be taken under the annual budget.

ANNEX II

ECSC OPERATING BUDGET FOR 1999 - OUTTURN*

(EUR million)

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* foreseeable outturn

ANNEX III

ECSC OPERATING BUDGET FOR 2000

(EUR million)

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(1) The indicative breakdown for aid for redeployment is EUR 34 million for coalworkers and EUR 27 million for steelworkers.

(2) Including projects with an impact on technical measures to combat harmful effects at the workplace and around steel plants (indicative amount of EUR 4 million), industrial hygiene and mine safety (indicative amount of EUR 3 million).

ANNEX IV

ECSC BALANCE SHEET AT 31 DECEMBER 1999*

(EUR)

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* This balance sheet must be considered as a draft as it has not yet been formally approved by the Commission, and the Court of Auditors has not yet produced its report on the ECSC's financial statements for 1999.

** including provisions for fines and other amounts to be recovered

ANNEX V

ECSC - BORROWING AND LENDING OPERATIONS (1999-2000-2001)

Amounts receivable

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mounts payable

ANNEX VI

ANALYSIS OF REQUIREMENTS AND RESOURCES FOR 2001

(see summary table II.D)

1. Chapter 1: Administrative expenditure - EUR 5 million

The ECSC contribution to administrative expenditure is provided for in Article 50 ECSC and specified in Article 20 of the Merger Treaty. The Council Decision of 21 November 1977, adopted in this framework, set the annual amount of the payment at EUR 5 million.

2. Chapters 2 and 4: Social aid - EUR 109 million

Social aid is granted under Article 56 of the ECSC Treaty, in accordance with the bilateral conventions which have been agreed between the Commission and the Member States. The aid is available to part-finance national measures, such as early retirement pensions and enhanced unemployment benefits, for workers affected by the restructuring of the coal and steel industries.

The grant of aid is conditional on the payment by the Member State concerned of a special contribution at least equivalent to the amount of ECSC aid. The average amount of this aid per worker is subject to the ceilings set out in the relevant legislation and in the bilateral conventions.

Chapter 2: Aid for redeployment ("traditional aid") - EUR 80 million

It is estimated that around 18 400 coal workers and 8 200 steelworkers will be eligible for traditional redeployment aid in 2001. Of this total, 13 800 will be affected by restructuring in 2000 and 12 800 in 2001.

Chapter 4: Social measures connected with the restructuring of the coal industry - EUR 29 million

It is estimated that around 7 200 coal workers will be eligible for this aid in 2001 and that expenditure will amount to EUR 29 million.

3. Chapter 3: Aid for research - EUR 76 million

Aid for research is granted under Article 55 ECSC, which states that the Commission must promote technical and economic research into the production and use of coal and steel and occupational safety in the coal and steel industries. To this end, it grants aid to finance research after obtaining the opinion of the ECSC Consultative Committee and after receiving the Council's assent.

As mentioned above, the breakdown of research funding in 2000 (69% steel, 31% coal) will be altered slightly (to 71% steel, 29% coal), as a gradual step towards the post-2002 target accepted by the Council (72.8% steel, 27.2% coal).

3.1 Article 3.1: Steel - EUR 54 million

Research is concentrated on:

- improving quality and reducing production costs;

- maintaining traditional outlets for steel and opening up new markets;

- adjustment of production processes in order to meet increasingly strict environmental requirements.

Technical research projects involving, in part, nuisances at the workplace and around steel plants, which were initially financed by the ECSC social research programmes, will be financed from the steel research heading, depending on the quality of the proposals; an indicative amount of EUR 4 million is earmarked.

3.2 Article 3.2: Coal - EUR 22 million

Research is concentrated on:

- effective protection of the environment and increasing public awareness of the role of coal as an energy source;

- improving the competitiveness of coal;

- the rational use of Community resources.

Technical research projects involving industrial hygiene and mine safety, which were initially financed by the ECSC social research programmes, will be financed from this heading, depending on the quality of the proposals; an indicative amount of around EUR 3 million is earmarked.

Resources

1. Article 1.1: Yield from levy - token entry

The levy was reduced to 0% in 1998. The levy rate will also be fixed at 0% in 2001.

2. Article 1.2: Net balance of the financial year - EUR 48 million

The net balance of the financial year is the result of the ECSC's financial and budget operations minus any provisions or transfers to the reserves.

Under its decision of 30 June 1993, [1] the Commission enters the full balance in the budget. As the exact figure of the balance is not determined until the Commission adopts the ECSC balance sheet and related accounts after the end of the financial year, the amount entered in the budget is an estimate.

[1] SEC(93)988 final.

3. Article 1.3: Fines and surcharges for late payment - token entry

This item is to accommodate the payment of fines and penalties imposed by the Commission, in particular under Articles 47, 48 and 60 of the ECSC Treaty. In view of the appeals made to the Court of Justice, the revenue in question should be regarded as deferred resources. Only payments expected in the course of the financial year are entered as budgetary resources.

4. Article 1.4: Miscellaneous - EUR 3 million

This article allows miscellaneous revenue to be entered as resources for the financial year (in particular, repayments of amounts paid in excess).

5. Chapter 2: Cancellation of commitments not likely to be implemented - EUR 36 million

This item is based on the Internal Rules for the drawing up and implementation of the ECSC operating budget, which state that, once all parties have discharged their obligations under a commitment, any remaining part of the provision will be cancelled. Any remaining part of a provision for a contract or agreement for which obligations have not been satisfied in accordance with the contractual requirements may also be cancelled in full or in part. The amounts thus released become available again as resources for the current financial year.

The estimate shown in this chapter relates to normal cancellations involving redeployment and interest subsidies on loans. Other amounts relate to the cancellation of balances remaining in respect of completed research contracts.

It is difficult to estimate the rate of cancellation as it depends on several factors, such as negotiations with the national or regional authorities in the case of redeployment aid and social measures and with the banks for loans bearing interest subsidies. The level of cancellations is expected to fall, in line with the general decline in the ECSC's activities.

6. Chapter 3: Withdrawal from provisions to finance the ECSC operating budget - EUR 103 million

This item allows the operating budget to be balanced at the end of the financial year from the provision to finance the operating budget set up as a precaution in view of the disappearance of the levy.