PRELIMINARY DRAFT AMENDING BUDGET No 5 TO THE 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, 16.9.2002, p. 1.

The European Commission hereby presents to the budgetary authority the preliminary draft amending budget No 5 to the 2004 budget for the reasons set out in the explanatory memorandum.

EXPLANATORY MEMORANDUM

On 1 October 2003, 10 November 2003 and 26 January 2004 the Commission received applications from Spain, Malta and France to mobilise the EU Solidarity fund. The Commission services have carried out a thorough examination of the applications in accordance with Regulation EC No 2012/2002 [2] and in particular with Articles 2, 3 and 4 thereof.

[2] Council Regulation (EC) N° 2012/2002 of 11 November 2002 establishing the European Union Solidarity Fund,(OJ L 311, 14.11.2002, p. 3).

The French and Spanish applications do not qualify as "major disaster" as the estimated damage remains below the threshold of EUR 3 billion in 2002 prices applicable to these two countries (for both countries 0.6% of GNI is above EUR 3 billion so that the lower figure applies). The French application has thus been examined under the provisions of Article 2, paragraph 2, last subparagraph of the EUSF regulation setting out the conditions for exceptionally mobilising the Solidarity Fund if certain criteria are met ("extraordinary regional disaster"). The Spanish application, in its revised version received on 14 November, was examined under the "neighbouring country" criterion set out in Article 2 (2) second subparagraph.

By contrast, the application from Malta qualifies as major natural disaster and falls thus within the main purpose of the Solidarity Fund.

The most important elements of the assessments can be summarised as follows:

Spain - Forest Fires

On 1 October 2003 the Spanish authorities submitted to the Commission basic information about the forest fires that affected Spain during the summer supplementing an earlier letter received on 22 September. This information was regarded necessary to consider that a valid application had effectively been made.

Following a letter from the Commission informing the Spanish authorities that - given the disparate geographical locations of the fires in the initial application - the "regional disaster" criterion could not be applied, a revised application was presented on 14 November limiting the application to those fires in provinces neighbouring Portugal (located mostly in the west of Extremadura, as well as one fire each in Andalusia and Castilla y Leon). On 29 January 2004 further supplementary information was received. The Commission examined the application under the "neighbouring country" criterion laid down in Article 2(2) of Regulation 2012/2002. The following points are relevant:

1. The starting date of the disaster was 1 August 2003. The application was presented within the deadline of ten weeks. The disaster is of natural origin and therefore falls within the main field of application of the Solidarity Fund.

2. The Spanish regions bordering on Portugal were affected by similar meteorological conditions which lead to the major disaster in Portugal, namely very high temperatures and low atmospheric humidity. These conditions resulted in a number of forest fires in those regions. The condition for exceptionally benefiting from the Fund set out in Article 2(2), second subparagraph, of Regulation 2012/2002, whereby a neighbouring country must be affected by "the same disaster", was found to be met by only one of those fires, the so-called "foco de Valencia de Alcántara". This fire affected 19 289 hectares of forest-land destroying valuable trees and ecologically highly sensitive flora and fauna.

3. Total direct damage of EUR 51.042 million is claimed. This figure however contains an amount of EUR 3.553 million for income losses which may not be considered. On the other hand, emergency intervention costs of EUR 5.742 million should be added. Total direct damage should therefore be estimated at EUR 53.231 million.

4. The cost of essential emergency operations eligible under Article 3(2) of Regulation 2012/2002 has been estimated at EUR 29.206 million and is broken down by type of operation.

5. Funding from the Structural Funds programmes covering Spain is generally available. Spain intends to allocate EUR 716 700 from the Structural Funds (EAGGF and ESF) to fire-related operations.

6. According to the Spanish authorities the damage to private enterprises of EUR 0.902 million would have been insurable. There is, however, no insurance coverage of eligible operations referred to under point 4.

For the reasons set out above it is proposed to partly accept the application made by Spain under the "neighbouring country" criterion and to propose the mobilisation of the Solidarity Fund.

Malta - Storm and Flooding

On 10 November 2003 the Maltese authorities presented to the Commission an application to mobilise the Solidarity Fund to help finance emergency measures following the disaster caused by the heavy storm and flooding that hit Malta on 15 September 2003. The following points are relevant:

1. Under Article 2 (1) of Regulation 2012/2002 Malta, as a country involved in accession negotiations, qualifies to apply for Solidarity Fund assistance.

2 The application was presented within the deadline of 10 weeks after the first damage was recorded on 15 September 2003.

3. The disaster is of natural origin and total direct damage, estimated at EUR 30.172 million, exceeds the threshold of 0.6% of Malta's GNI (EUR 24.26 million). The disaster therefore qualifies as major natural disaster falling thus within the main field of application of the Solidarity Fund regulation.

4. The storm and flooding have caused severe disruption to economic activity including to fish farming installations at sea and caused severe damage to infrastructure and the natural environment throughout the islands of Malta and Gozo.

5. The cost of essential emergency operations eligible under Article 3(2) of Regulation 2012/2002 has been estimated at EUR 11.270 million and is broken down by type of operation. The Maltese authorities have confirmed that these costs relate to operations occurring in Malta.

6. Upon completion of the accession ratification process funding from the Structural Funds programmes and the Cohesion Fund may generally be available from 1 January 2004 for disaster-related operations; specific amounts have however not yet been identified.

7. According to the Maltese authorities there is no insurance coverage of the eligible operations referred to under point 4 above. There will be some limited insurance coverage of privately sustained damage (no figure was provided at this stage).

For the reasons set out above it is proposed to accept the application made by Malta as a "major disaster" and to propose the mobilisation of the Solidarity Fund.

Flooding in soutern France

On 26 January 2004 the French authorities presented to the Commission an application to mobilise the Solidarity Fund to help finance emergency measures following the disaster caused by severe flooding in the southern Rhone river valley. The following points are relevant:

1. The application was presented within the deadline of 10 weeks after the first damage was recorded on 1 December 2003.

2. The disaster is of natural origin and therefore falls within the main field of application of the Solidarity Fund.

3. Direct damage is estimated at EUR 785 million of which 21% (162 mEUR) is estimated to be public.

4. The flooding has caused severe damage to private property including some damage to some 8 400 houses or apartments. Private businesses were particularly hard hit (including the flooding of the entire industrial zone of Arles). In Arles alone some 700 businesses suffered damage with some 2 500 workers being still technically unemployed at mid-January. Public infrastructures have suffered severe damage in the fields of transport (close to 200 roads cut off, including motorways and national routes), provision of electricity and drinking water, telephone networks and schools.

5. The region affected by the disaster has been defined as the coherent territory of 53 communes (identified individually) along the Rhone river in the three departments of Le Gard, Vaucluse and Bouches du Rhone. These 53 communes to which the application relates have a total resident population is 295 000 inhabitants; they are the ones hardest hit by the flooding which concerned 24 French departments in all. The French authorities declare that 66% of this population are directly affected in various, often overlapping ways (e.g. 35 000 persons evacuated, 150 000 persons without drinking water, 30 000 persons without electricity, 45 000 cases of damage to private property, provisional housing for 716 families (some 2 500 persons) in public temporary accommodation etc.).

6. Major damage to businesses, including the almost complete destruction of the two most important industrial centres of the region (Arles and Gard Rhodanien), is expected to result in the repercussions of the disaster lasting longest in the economic field. One likely consequence will be/may be the permanent loss of some 4 000 jobs. It is also expected that a number of companies will relocate outside the area. In the Camargue area in particular the damage to hotels, holiday resorts etc will have negative consequences for tourism. Damage in the agricultural sector is not only due to lost soil and lost harvests (2003 and 2004) but also to repair works to the irrigation system that are expected to last for up to 5 years. As the affected region was already economically vulnerable before the flooding - with an unemployment rate 3 points above the national average - the disaster will have a further negative impact on the social and economic stability of the region.

7. The Commission concludes on the basis of the evidence presented that living conditions for an important part of the affected population will continue to be negatively affected for some time to come by, among other factors, technical unemployment, provisional housing and reduced income (particularly in agriculture and tourism).

It should also be considered that parts of the same region were already affected by the 2002 flooding and by the 2003 forest fires, the effects of which are still felt and add to the difficult situation of the region.

8. The affected region does not qualify as "remote or isolated". The French authorities have however presented convincing evidence of the particular severity of the damage and its socio-economic repercussions, such that the intervention of the Solidarity Fund appears justified.

9. The cost of essential emergency operations eligible under Article 3(2) of Regulation 2012/2002 is estimated at EUR 131.6 million and presented broken down by the categories of the Regulation. These operations relate mainly to emergency measures to restore to working order basic infrastructures and utilities, and immediate measures to protect against a recurrence of the disaster.

10. The affected region is partly eligible under Objective 2. Existing programmes already contain measures suited to intervene for disaster related operations and will now be directed at making good the damage of the flooding and preventive action against future flooding. In the Provence-Alpes-Côte d'Azur programme some EUR 8.6 million could be mobilised for this purpose, in the Languedoc-Roussillon region around EUR 5 million could be made available from ERDF and EAGGF funds. Concrete decisions in the relevant programme committees still need to be taken.

11. There is no coverage of eligible damage referred to under point 9 above by insurance.

For the reasons set out above it is proposed to accept the application made by France as an "exceptional regional disaster" and to propose the mobilisation of the Solidarity Fund.

Financing

The total annual budget available for the Solidarity Fund is EUR 1 000 million (cf. article 4(2) of Regulation EC No 2012/2002). In 2003 a total amount of EUR 104.789 million has been made available by the budgetary authority. For 2004 the full budget is still available. The Commission considers that grants made under the "neighbouring country" criterion should be counted within the total annual allocation available to the Fund and not within the allocation of 7.5% earmarked for "extraordinary regional disasters".

As solidarity was the central justification for the creation of the Fund, the Commission takes the view that aid from the Fund should be progressive. That means that the portion of the damage exceeding the threshold (0.6% of the GNI or EUR3 billion, whichever is the lower amount) should give rise to higher aid intensity than damage up to the threshold. The rate applied in the past for defining the allocations for major disasters is 2.5% of total direct damage under the threshold and 6% above. The Commission proposes to apply the same percentages in this case.

The Commission's proposed allocation under the Fund is based on the information made available by the applicants.

The Commission therefore proposes to grant the following amounts:

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These amounts of compensation will leave 25% of the European Union Solidarity Fund available for allocation during the last quarter of the year.

The necessary payment credits will be made available by means of a transfer of appropriations from other budget lines, which the Commission will propose to the Budgetary Authority in due time.

SUMMARY TABLE BY HEADING OF THE FINANCIAL PERSPECTIVE

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* AB 4/2004 has no financial implications

STATEMENT OF REVENUE AND EXPENDITURE BY SECTION

Section III - Commission

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CHAPTER 13 06 -- European Union Solidarity Fund

Article 13 06 01 -- European Union Solidarity Fund - Member States

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This article is intended to accommodate the appropriations resulting from the mobilisation of the European Union Solidarity Fund in the EU Member States.

Article 13 06 02 -- European Union Solidarity Fund - Countries Negotiating for Accession

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This article is intended to accommodate the appropriations resulting from the mobilisation of the European Union Solidarity Fund in countries that are eligible for support under the Fund on account of their accession country status.