RELIMINARY DRAFT AMENDING BUDGET N° 9 TO THE GENERAL BUDGET FOR 2004 - GENERAL STATEMENT OF REVENUE - STATEMENT OF REVENUE AND EXPENDITURE BY SECTION - Section III - Commission

(presented by the Commission)

Having regard to:

- the Treaty establishing the European Community, and in particular Article 272 thereof,

- the Treaty establishing the European Atomic Energy Community, and in particular Article 177 thereof,

- the Council Regulation (EC, Euratom) No 1605/2002 of 25 June 2002 on the Financial Regulation applicable to the general budget of the European Communities [1], and in particular Article 37 thereof,

[1] OJ L 248, 16.09.2002, p.1.

The European Commission hereby presents to the budgetary authority the preliminary draft amending budget No 9 to the 2004 budget for the reasons set out in the explanatory memorandum.

GENERAL STATEMENT OF REVENUE

STATEMENT OF REVENUE AND EXPENDITURE BY SECTION

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

EXPLANATORY MEMORANDUM

1. Introduction

The present Preliminary Draft Amending Budget No 9 for the year 2004 covers the following element:

- the creation of two budget lines under Heading 7 of the Financial Perspective, with the provision of supplementary appropriations to finance actions encouraging the economic development of the Turkish Cypriot Community.

This request is based on the Council's request to implement the package of EUR 259 million originally earmarked in the financial perspective in case of a political settlement over the years 2004-2006. No credits were budgeted since they would have been mobilised under the headings 1, 2 and 3 only in case of a political settlement in accordance with the table 1b of the revised financial perspective [2].

[2] Decision 2003/430/EC of the European Parliament and Council of 19 May 2003 on the revision of the financial perspective

Following the positive vote of the Turkish Cypriot community on the UN settlement proposal, the Council has called to put an end to the isolation of the Turkish Cypriot community and to facilitate the reunification of Cyprus by encouraging the economic development of the Turkish Cypriot community. The Council invited the Commission to bring forward comprehensive proposals to this end, with particular emphasis on the economic integration of the island and on improving contact between the two communities and with the EU.

Since no agreement has taken place, no heading of the financial perspective covers this particular type of assistance. However, since most of the activities will be similar to the pre-accession ones, it is proposed to consider the financial package under heading 7.

The Commission is therefore proposing to call a part of the margin of heading 7 to fund the 2004 support.

2. HEADING 7 - Pre-accession strategy: Financial support for encouraging the economic development of the Turkish Cypriot Community.

2.1. Background

On 26 April 2004, the Council at its meeting in Luxembourg noted the results of the referenda in Cyprus on 24 April 2004 and expressed its strong regret that the accession to the EU of a united Cyprus was not possible. The Council concluded that the Turkish Cypriot community have expressed their clear desire for a future within the European Union and expressed its determination to put an end to the isolation of the Turkish Cypriot community and to facilitate the reunification of Cyprus by encouraging the economic development of the Turkish Cypriot community.

The Council invited the Commission to bring forward comprehensive proposals to this end, with particular emphasis on the economic integration of the island and on improving contact between the two communities and with the EU. The Council recommended that the EUR 259 million already earmarked for the northern part of Cyprus in the event of a settlement now be used for this purpose.

Further to these conclusions, the Commission is proposing a specific basic act to implement the EUR 259 million over the period 2004-2006. The legislative financial statement attached to the draft Regulation presents an amount of EUR 6 million for 2004, mainly dedicated to feasibility studies for the implementation of the financial support over the years 2005 (EUR 114 million) and 2006 (EUR 139 million). A part of the assistance will be used to finance the support expenditure linked to the implementation.

No existing heading of the Financial Perspective precisely covers the intended expenditure directed towards areas of a Member State where the government does not exercise effective control and where the application of the acquis is suspended. The EUR 259 million package was earmarked under headings 1, 2 and 3 but only in case of a political settlement in accordance with the table 1b of the revised financial perspective2. The present package is now aiming at facilitating the reunification of Cyprus by encouraging the economic development with particular emphasis on the economic integration of the island, and by improving contacts between the two communities and with the EU. Besides reconciliation and confidence building measures, it will cover, inter alia, the promotion of social and economic development, development of the infrastructure, institution building, alignment with the acquis, and youth exchanges. Most of the activities will therefore be similar to pre-accession activities financed under Heading 7. Indeed, because of the isolation of this community these last years, the activities will have a strong focus on helping with Community acquis approximation, especially as regards investments to comply with European norms, inter alia, in the environmental area. The Decision on the revision of the financial perspective [3], in its article 1, has amended the title of heading 7 to read "Pre-accession strategy". This change aimed to widen the scope of this heading in order not to strictly limit it to pre-accession assistance as such, but to extend it to the financing of activities preparing in one way or another to the alignment with the 'acquis communautaire'. It allows for a wider interpretation about the end-use of the funds of the heading. Since the objective of the Community is to work towards the reunification of the island, the activities to be implemented can be considered as part of a strategy to prepare the areas concerned for the moment of lifting the suspension of the application of the acquis.

[3] Decision 2003/429/EC of the European Parliament and of the Council of 19 May 2003

Heading 7 appears therefore as the most suitable heading of the financial perspective to host this particular assistance. A margin of EUR 1,722 billion in commitment appropriations is available under the ceiling of Heading 7. It is requested to mobilise the EUR 6 million necessary for 2004 from that margin, of which EUR 0,16 million will be transferred to item 22 01 04 07 for the administrative support expenditure. As for payment appropriations, it is estimated that an amount of EUR1,16 million is necessary, of which EUR 1 million for operational expenditure. To avoid supplementary contributions, all payment appropriations will be provided through a transfer. For 2005, the Commission will present an amending letter to its preliminary draft budget.

In 2004, it is not likely that any potential projects will reach full maturity. Appropriations will be committed mostly to:

i) feasibility studies in priority areas such as environment, municipal and local community services and infrastructure, and agriculture; such studies will seed projects to be financed at a later stage,

ii) the preparation of projects for promoting reconciliation between the two communities,

iii) short-term technical assistance to be provided through the TAIEX office in the field of approximation of the acquis. This will notably cover peer missions to identify needs in terms of approximation with the acquis in a number of priority areas - internal market, customs union, taxation, energy, environment, transport, agriculture, justice and home affairs - and recommend follow-up actions such as training, secondment of experts and seminars. An amount of EUR 1,5 million is programmed for this purpose.

The following nomenclature and titles are proposed:

22 01 04 07 "Financial support for encouraging the economic development of the Turkish Cypriot Community - Expenditure on administrative management"

22 02 11 "Financial support for encouraging the economic development of the Turkish Cypriot Community"

Through this amending budget, it is proposed to endow these new budget lines with EUR 6 million in commitment appropriations and p.m in payment appropriations as follows:

Item 22 01 04 07: p.m.

Article 22 02 11: EUR 6,000,000 in commitment appropriations and p.m. in payment appropriations.

GENERAL BUDGET OF THE EUROPEAN UNION FOR THE FINANCIAL YEAR 2004

VOLUME II (SECTION 3) - COMMISSION

EXPENDITURE

TITLE 22: ENLARGEMENT

CHAPTER 22 01: Administrative expenditure of policy area "Enlargement"

22 01 04 07 - "Financial support for encouraging the economic development of the Turkish Cypriot Community - Expenditure on administrative management"

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Remarks

New item

This appropriation is intended to cover:

- expenditure on technical and administrative assistance which the Commission may delegate to an implementing agency governed by Community law,

- expenditure on technical and administrative assistance not involving public authority tasks outsourced by the Commission under ad hoc service contracts for the mutual benefit of the beneficiaries and the Commission,

- expenditure on studies, meetings of experts, information and publications directly linked to the achievement of the objective of the programme.

This appropriation covers administrative expenditure under Article 22 02 11.

CHAPTER 22 02: Preaccession assistance instrument

22 02 06 -- Technical Assistance Information Exchange Office (TAIEX) actions in the framework of the preaccession instruments

Add the following legal basis:

Commission proposal of [DD/MM/2004] for a Council Regulation on establishing an instrument of financial support for encouraging the economic development of the Turkish Cypriot Community (COM/XXX/2004).

22 02 11 - Financial support for encouraging the economic development of the Turkish Cypriot Community

>TABLE POSITION>

Remarks

New article

This appropriation is intended to cover the financial support for encouraging the economic development of the Turkish Cypriot Community. The assistance will focus particularly on the economic integration of the island and on improving contacts between the two communities and with the European Union in order to facilitate the reunification of Cyprus. The assistance may be used to support:

- the promotion of social and economic development, in particular concerning rural development, human resources development and regional development,

- the development and restructuring of infrastructure, in particular in the areas of energy and transport, the environment, telecommunications and water supply,

- reconciliation, confidence building measures, and support to civil society,

- bringing the Turkish Cypriot community closer to the Union, through inter alia information of the European Union's political and legal order, promotion of youth exchange and scholarships,

- progressive alignment with and preparation for implementation of the acquis communautaire.

Legal basis

Commission proposal of [DD/MM/2004] for a Council Regulation on establishing an instrument of financial support for encouraging the economic development of the Turkish Cypriot Community (COM/XXX/2004).

SUMMARY TABLE BY HEADING OF THE FINANCIAL PERSPECTIVE

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* PDAB 7 and 8/2004 have no financial implication on resources.

** The margins for heading 3 and heading 7 are to be increased in 2004 by respectively EUR 20 995 775 and EUR 961 220 corresponding to the expenditure of the European Union Solidarity Fund entered, by amending budget 3/2004, "in the budget over and above the relevant headings" as laid down in the interinstitutional agreement of 7 November 2002 (OJ C 283 of 20.11.2002).