COMMUNICATION FROM THE COMMISSION - EUROPEAN DEVELOPMENT FUND (EDF) - Estimate of decisions, payments and contributions to be paid by the Member States for 2003 and 2004 and Forecast of decisions and payments for the period 2005 to 2008

TABLE OF CONTENTS

Introduction

Summary

1 Overall situation of the EDF at 31.08.2003

2 EDF implementation in a historical perspective

3 Financial implementation forecasts for 2003 and 2004

3.1 Decisions

3.1.1 2003

3.1.2 2004

3.2 Payments

3.2.1 2003

3.2.2 2004

3.3 Calls for contributions to be paid by the Member States in 2003 and 2004

3.3.1 The last tranche for 2003

3.3.2 Calls for contributions in 2004

4 EDF expenditure forecasts 2005 to 2008

5 Contributions to the EDF for 2003 by Member State

6 Contributions to the EDF for 2004 by Member State

7 Acronyms and abbreviations

INTRODUCTION

The Commission draws up this communication to the Council each year in accordance with Article 8 of the Financial Regulation applicable to the 9th EDF. Its purpose is to provide an estimate of payments for the following financial year (2004) and set out the schedule of calls for contributions, taking into account the EIB's estimates for the operations which it manages. As provided for in Article 8 of the Financial Regulation, the communication also gives estimates of commitments and payments for each of the following four years (2005 to 2008). It starts with a revision of the EDF expenditure estimate for the current year (2003).

Since the entry into force of the 9th EDF, the Member States have made direct contributions to the EIB for the 9th EDF instruments it manages (the Investment Facility and interest-rate subsidies), while contributions for the old instruments managed by the EIB (risk capital and interest-rate subsidies) will still go through the Commission. This communication therefore draws a clear distinction between EIB payments under the 9th EDF, and Commission payments (including the old instruments managed by the EIB).

In accordance with Article 38(2) of the Financial Regulation, this communication is accompanied by a proposal for a Council Decision on the first tranche of contributions for 2004.

It covers the EDF resources of both the ACP countries and the OCTs.

SUMMARY

For each ACP country the Commission has updated its forecast of decisions and payments for the years 2003 and 2004. For decisions, the Commission has a management tool to help it track projects under appraisal that are scheduled to start up before the end of 2004. Risk analysis was used to gauge the probability of projects being completing on time. The payment forecasts have been updated for each country. The Commission has taken great care with the payments estimate so as to minimise the risk of Member States' earmarking too great an amount in their national budgets. As was done this year, the estimates for 2004 will be reviewed in greater detail at the beginning of the year.

The EIB has also updated its forecasts for instruments of both the 9th EDF and previous Funds. The full figures are set out in this communication.

Decisions in 2003 and 2004

For 2003 the Commission can announce that the estimate made in June (EUR2 500 million) has been revised upwards significantly and could reach EUR3 200 million, mainly as a result of the launching of a new HIPC initiative (debt reduction: EUR460 million) and this summer's decision on the financing of the devolution of responsibilities from headquarters to the delegations (EUR120 million). [1] At this stage, the estimate for 2004 (EUR3275 million) still holds but this figure could rise if new initiatives take shape, in particular the peace initiative estimated at EUR250 million.

[1] Communication from the Commission to the Council: financial information on the European Development Funds (COM(2003) 353 final of 13.6.2003).

Payments in 2003 and 2004

Although the Commission is doing everything it can, as it pledged in the last communication, to improve on the prudent objective of EUR2500 million it set itself in June (EUR2100 million in regular payments and EUR400 million in payments under the Stabex and HIPC instruments), no increase looks likely. For the moment, therefore, the EUR2500 million figure stands. In June the Commission forecast EUR2600 million for 2004. Although this amount certainly remains realistic, the Commission prefers to reduce it by EUR100 million in order to minimise the risk of Member States' entering too big an appropriation in their national budgets. This minor downwards revision stems from the fact that the 2003 contract forecasts were reduced for some countries, which is likely to bring down the payments rate in 2004. There will, however, be payments in 2004 under the HIPC instrument of last July but the volume is difficult to judge at this stage. Depending on the amounts involved, payments might reach EUR2600 million or more. The Commission will reassess the situation at the beginning of 2004.

Calls for contribution in 2003 and 2004

For the last tranche of contributions for 2003, it is proposed that Member States pay the total amount specified in June, namely EUR450 million, of which EUR420 million to the Commission and EUR30 million to the EIB (against EUR400 million and EUR50 million respectively in June).

For 2004, following a careful downwards revision of payments and taking into account recoveries and interest, the total for contributions has been estimated at EUR2440 million euros (against EUR2550 million in June). Although slightly below the June estimate, this volume of the contributions is very high and confirms the strongly upwards trend of recent years (2001: EUR1130 million); 2002: EUR1705 million; 2003: EUR2200 million.

The future

The Commission and the EIB believe that they will be able to commit the funds made available under the Cotonou Agreement (including the remaining balances of the 6th, 7th and 8th EDFs transferred to the 9th EDF) within five years. This supposes however that the political situation in all the ACP countries is such that the conditions required for disbursing the funds are met. The cooperation agreements (Lomé and Cotonou) are rooted in the principle of partnership between the Union and the ACP countries, which means that implementation of the EDF depends on the absorption capacity (political stability, quality of governance, etc.) of the ACP countries. Payments of budgetary aid (structural adjustment programmes and the HIPC instrument), which accounts for a growing share of aid, depend on the ACP country's satisfying certain macroeconomic conditions. Note finally that utilisation of the funds made available by the Cotonou Agreement will also depend on the results of any reallocation of following the mid-term review scheduled for 2004. A real reallocation of aid to the best-performing countries is a precondition for satisfactory use of the whole Fund.

1. OVERALL SITUATION OF THE EDF AT 31.08.2003

As a result of the entry into force of the 9th EDF the Commission has not been able to take new decisions on the old Funds since 1 April 2003. In accordance with Article 133 of the 9th EDF Financial Regulation, on 24 June 2003 the Commission transferred the non-committed amounts of the 6th, 7th and 8th EDFs to the 9th EDF. The total transferred stands at EUR2 315.33 million, which has been added to the EUR12 800 million of the 9th EDF. This transfer has not concerned risk capital and interest-rate subsidies administered by the EIB, which has an additional three months after the entry into force of the Agreement to make commitments under the previous Funds. This last transfer will take place within a few months. In accordance with the same article of the Financial Regulation, the Commission will make other transfers as decommitments are made and inform the Member States.

The following table presents the financial situation of the EDF at 31 August 2003, including the transfer of 24 June 2003. Note that:

- of the EUR32.8 billion made available under the 6th, 7th and 8th EDFs, decisions accounted for EUR30.1 billion, 92%, contracts for EUR25.7 billion (78%) and payments EUR22.5 billion (68%);

- total funds made available to the 9th EDF, including the transfers of 24 June, stand at EUR15 115.3 million. This amount does not include the EUR1000 million that the Council may release after examining the results of the performance review scheduled for 2004 (Article 2(2) of the Internal Agreement of the 9th EDF); [2]

[2] OJ L 317, 15.12.2000, p. 355.

- The total sum allocated to the Funds from the 6th to the 9th stands at EUR45 645 million euros.

6th, 7th, 8th and 9th EDFs (ACP STATES AND OCTs)

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2. EDF IMPLEMENTATION IN A HISTORICAL PERSPECTIVE

The following graph shows trends in decisions and payments since 1990. The commitment cycle is clearly in evidence, the rate rising at the beginning of each Convention and dropping towards the end of it. It also shows that there is an overall upwards trend across the cycles.

Payments have a less pronounced cyclical nature and the cycles lag behind decisions. While the average volume of payments fluctuated around EUR1500 million in the period 1990-99, there has been a clear upwards trend since 2000.

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The Commission wishes to stress that the significant increase in payments since 2000 is not attributable to greater use of the Stabex and HIPC instruments, both high disbursing instruments. As the following table shows, the increase (2000-2003) has been achieved entirely through the traditional instruments, mainly the national and regional programmes..

Payments

EUR million

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3. FINANCIAL IMPLEMENTATION FORECASTS FOR 2003 AND 2004

3.1. Decisions

3.1.1. 2003

In the communication of June 2003 the Commission and the EIB estimated decisions in 2003 at EUR2500 million in total, broken down as follows:

- EUR345 million for the instruments managed by the EIB under the 9th EDF, and

- EUR2155 million for the instruments managed by the Commission (including EUR125 million for the old EIB instruments).

Situation at 31 August 2003 and outlook for the end of the year:

- At the end of August the EIB had committed a total of EUR141 million under the Investment Facility (9th EDF), 41% of the target. It believes it will be able to achieve its goal of EUR345 million by the end of the year.

- In the case of instruments managed by the Commission (including the old EIB instruments), EUR675 million had been committed at 31 August, 31% of the target. Note that the procedure for adopting decisions is such that in the first half of the year a large number of pending decisions accumulate. They are usually projects in the course of adoption by the Commission. At the end of August this amount stood at EUR1397 million. The total therefore rises to EUR2072 million (final amounts and those in the pipeline), 96% of the target. Of this EUR2072 million, some EUR1800 million was for projects that had been before the EDF Committee. On the basis of the information available, and in view of the degree of uncertainty still surrounding some projects, the Commission estimates that projects to a value of some EUR 920 million will be committed following approval by the EDF Committee in September, October and November. Another EUR135 million approximately will be added by the instruments managed by the EIB, bringing the total to some EUR2850 million.

- In all, the Commission believes that the estimated EUR2500 million will be exceeded and could rise to EUR3200. This increase is largely attributable to the fact that the two decisions taken in the summer - the new HIPC initiative (debt reduction) for EUR460 million, and the decision on financing the costs of devolution (120 million euros) - had not been part of the initial forecasts.

3.1.2. 2004

In the communication of June 2003 the Commission and the EIB forecast a joint total of EUR3275 million, of which EUR400 million for the EIB (9th EDF) and EUR2875 million for the Commission. This amount (EUR3275 million) was identical to that announced in the communication of November 2002. [3] As a result of the entry into force of the 9th EDF, there are no new commitments under the old EIB-managed instruments.

[3] COM(2002) 673 final of 28.11.2002.

The Bank revised its forecast upwards to some EUR450 million (including EUR40 million for interest-rate subsidies). In view of the projects in the pipeline, and taking account of the risk that some projects do not end on time, the Commission finds it advisable to keep to the June estimate, EUR3275 million. It might increase, even considerably, if new initiatives such as the EUR250 million peace initiative are launched.

3.2. Payments

3.2.1. 2003

In the communication of June 2003 the Commission and the EIB estimated payments in 2003 at EUR2500 million in total, broken down as follows:

- EUR2100 million for regular payments, including:

* EUR60 million for the instruments managed by the EIB under the 9th EDF, and

* EUR2040 million for other payments (NIP, RIP, structural adjustment, etc). Of this amount, EUR224 million was earmarked for EIB instruments of earlier EDFs;

- EUR400 million for payments under the Stabex and HIPC instruments.

These figures were in line with the communication of November 2002.

Situation at 31 August 2003 and outlook for the end of the year:

- At the end August 2003 the EIB had made only a few payments under the 9th EDF, something which can be explained by the very short time that had elapsed since the official inauguration of the new facility. Given the volume of forecast decisions, the EIB is asking for a provision of EUR70 million to cover requests for funds up to the end of the year.

- For the other instruments, payments of about EUR973 million have been made, 48% of the June estimate (EUR2040 million). Taking account of a total of EUR111 million under appraisal in the payment circuit, the implementation rate was 53%. On the basis of a new country-by-country analysis, and taking account of the figures communicated by the EIB for the old EDF, the Commission believes that the forecast year-end figure can be reached.

- Other payments concerned a Stabex transfer of EUR191 million in July to a secure account opened for Sudan. It is planned to transfer EUR209 million for debt reduction (HIPC) in September and October, thus meeting the objective of EUR400 million. Note that in coming months the Commission will have to pay a first tranche of EUR100 million under the new HIPC initiative adopted this summer (total amount EUR460 million). This is a transfer to the World Bank (Trust Fund) and may take place before or after the end of the year, depending on the Bank's requirements. At present the Commission is assuming that the transfer will be made at the beginning of 2004.

- To sum up, the Commission believes that, overall, the June forecast of EUR2500 million is achievable. Although it is doing all it can to speed up payments, the volume is unlikely to increase.

3.2.2. 2004

In the communication of June payments were estimated at EUR2600 million, including EUR225 million under the 9th EDF instruments managed by the EIB and EUR190 million for the old EIB instruments.

The EIB has revised its 9th EDF requirements upwards (EUR260 million, including EUR10 million for interest-rate subsidies, against EUR225 million) and those for the old instruments downwards (EUR170 million against EUR190 million in June), which does not change the overall estimate for payments.

The Commission has reviewed its forecasts on a case-by-case basis and concluded that it is unlikely to achieve the volume predicted in June. The 2003 contract forecasts were reduced for some countries, which will be reflected in a smaller volume of payments next year. So, in order to avoid Member States' setting aside financial resources unnecessarily, the Commission prefers to lower its forecast by EUR100 million. In total, therefore, payments should reach about EUR2500 million (against EUR2600 million forecast in June), including EUR260 million for the EIB (9th EDF). Of this EUR2500 million, some will be disbursed under the HIPC instrument (debt reduction). This involves transfers to both the World Bank (the Union as donor) and the EIB (the Union as a creditor). The payments will be made on the basis of the two institutions' needs, which they will communicate in good time to the Commission.

3.3. Calls for contributions to be paid by the Member States in 2003 and 2004

3.3.1. The last tranche for 2003

- The EIB has slightly increased its estimate of payments in 200, from EUR60 million to EUR70 million. But it believes EUR10 million should be sufficient to cover the period between 1 January 2004 and the arrival of the first tranche of 2004 contributions towards mid-January (compared with EUR40 million in June). In conclusion, a last contribution of EUR30 million for 2003 should suffice (against EUR50 million forecast in June).

- The Commission has revised down the amount needed for other instruments to bridge the gap between 1 January 2004 and the time when the funds of the first 2004 call will be available. It has instituted an analysis of the cash position and it estimates that some EUR170 million should be enough (a figure of EUR225 million had been advanced in June). EUR170 million might seem a lot but do not forget that, if deadlines are respected, the funds of the first 2004 call will not be paid by the Member States until 21 January 2004 ; and that once paid, these funds will be transferred to various commercial banks in the EU and from there to the banks in the ACP countries. These transfers take time. With EUR170 million it will also be possible to transfer, if need be, EUR100 million under the HIPC instrument at the end of the year or the beginning of next, depending on the requirements of the World Bank. With the forecast for 2003 payments unchanged and a flat-rate amount of EUR50 million entered for recoveries (as in June), the level of the contributions is put at EUR2120 million (against EUR2150 million in June). Since the earlier calls came to EUR1700 million, the Commission has proposed [4] that the Member States pay EUR420 million into the accounts of the Commission for the last 2003 tranche.

[4] COM(2003) 608 final of 14.10.2003.

- The overall level of the last tranche remains the same as predicted in June, namely EUR450 million, although the breakdown of the payments to the EIB and the Commission is slightly different.

The table on following page summarises the forecast cash situation.

The table in point 5 gives the contributions called for by Member State in 2003.

3.3.2. Calls for contributions in 2004

- Since payments have been revised down slightly (from EUR2600 million to EUR2500 million) and a flat-rate amount of EUR50 million has been entered for recoveries, contributions are put at EUR2440 million, of which EUR260 million (including EUR10 million for interest-rate subsidies) for the EIB and EUR2180 million for the Commission.

- Going by the historical rate of disbursements by the Commission and the forecasts communicated by the EIB, and also taking into account the Member States' wish to keep funding down, the Commission and the EIB propose the three following tranches for 2004 :

EUR million

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The table in point 6 sets out the contributions called for, by Member State, in 2004.

As usual, these tranches may be adjusted up or down in line with real requirements at the time of the quarterly call. Similarly, if forecasts are implemented at a more sustained rate the Commission will have recourse to the Internal Agreement to obtain enough funding to meet requirements.

Estimated cash flow at 31/12/2003 and 31/12/2004 EUR million

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4. EDF EXPENDITURE FORECASTS 2005 TO 2008

Forecasts for 2005 to 2008 are only an approximate estimate of expenditure, based on the rates in previous years. For example, figures may vary considerably if, say, there are new debt relief commitments.

On the question of decisions, the Commission reiterates its pledge to do everything in its power to mobilise the funds made available under the 9th EDF (including transfers from old Funds) by the end of 2007. It is clear that achievement of this objective is not up to the Commission alone. Indeed, the very nature of the cooperation agreements (Lomé and Cotonou), namely the fact that they are based on partnership, means that the rate at which the EDF is implemented will depend on the absorption capacity of the ACP countries (sufficiently stable political situation, minimum governance, etc). Although the Commission endeavours to give National Authorising Officers as much technical assistance as possible, it cannot actually take the place of the ACP country. Another determining factor is the reallocation of funds scheduled to take place when the mid-term review is carried out. If allocations are not redirected to the best-performing countries, the goal will not be achieved. The amounts forecast for the period 2005-2007 are in line with the Commission's aim to commit all 9th EDF funds (including the remaining balances of the previous EDFs). The Commission does not plan to make new decisions on the EDF in its current form from 2008.

While it is difficult to make reliable long-term estimates for decisions, it is even harder for payments, because the payments rate is dictated by factors over which the Commission has no control. In the case of projects it certainly takes the lead in the design and decision phase but it has only an ancillary role during implementation, since the principle of partnership cited above means that at this point it intervenes only through technical assistance. The pace of payments of budgetary aid, which accounts for an increasing proportion of all aid, is also dependent on factors not easily controllable, such as the economic situation and the political stability of the States concerned.

Going by the historical rates of payments under previous Funds, and taking into account the expected beneficial effects of the reform of the Commission's external service, in particular the devolution towards the ACP States that is planned for the second half of 2003, the Commission believes that the pace of payments will pick up significantly from 2005.

Forecast EDF decisions and payments 2005-2008

EUR million

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5. CONTRIBUTIONS TO THE EDF FOR 2003 BY MEMBER STATE

Euro

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(1) According to the 8th EDF Financial Regulation.

(2) According to the 9th EDF Financial Regulation.

6. CONTRIBUTIONS TO THE EDF FOR 2004 BY MEMBER STATE

Euro

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7. ACRONYMS AND ABBREVIATIONS

APC African, Caribbean and Pacific States

JPA Joint Parliamentary Assembly

TA technical assistance

EIB European Investment Bank

CDE Centre for the Development of Enterprise

CTA Centre for the Development of Agriculture

EDF European Development Fund

NIP national indicative programme

RIP regional indicative programme

HIPC Highly indebted poor countries

OCT Overseas Countries and Territories