Proposal for a COUNCIL DECISION relating to exceptional Community aid for the reconstruction of the areas stricken by the cyclone that hit Madeira in October 1993
Date: 1994-11-15
Institutions: European Commission
Subjects: EIB loan, EU aid, Madeira, atmospheric conditions, interest rate subsidy, natural disaster

1 

COMMISSION  OF THE EUROPEAN  COMMUNITIES 

COM(94)  488  final 

Brussels,  15.11.1994 

94/0258  (CNS) 

COMMUNICATION  FROM  THE  COMMISSION  TO  THE  COUNCIL 

concerning  the  intervention  of  the European  Investment  Bank  in  Madein 

Proposal  for  a 
COUNCIL  DECISION 

relating  to  exceptional  Community  aid  for  the  reconstruction  of  the 
areas  stricken  by  the  cyclone  that hit  Madeira  in  October  1993 

(presented  by  the  Commission) 

M 

• . • #' 

U&£;  • 

COMMUNICATION FROM THECOMMISSION TO THE COUNCIL 

concerning the intervention of m« European Investment Bank in  Madeira 

Introduction. 

Following  the  cyclone  that  hit  Madeira  on  28  and  29  October  1993,  the  Commission 
provided ECU 250,000 of exceptional humanitarian aid to the population most affected  by 
the catastrophe. 

On  11  January  1994,  the  Portuguese  authorities  addressed  to  the  Commission  a 
memorandum on the damage caused by the catastrophe to the infrastructures,  housing and 
productive sectors and requested  a special Community aid  The cost  of projects directly 
related  to  the  cyclone  damage  (infrastructures,  commerce,  industry,  agriculture  and 
fishing) are  estimated  by  the  authorities  to  amount  to  6  361  127  thousand  escudos 
[approx. ECU 31.7 million, June exchange rate]. 

Regarding thé fishing sector,  the  Commission  adopted  on  8 April  1994 the  granting of 
approximately  ECU  800,000  as  special  indemnity  to  compensate  for  the  damages 
suffered. 

Having examined  the Portuguese authorities request,  the Commission  considers  that  the 
most appropriate measure would be to  subsidise loans made by the European  Investment 
Bank on own resources with subsidies chargeable to the general budget 

The  EIB  agrees  in  principle  to  such  an  initiative  in  favour  of  Madeira,  subject  to  the 
normal eligibility criteria. 

The  Commission  is  therefore  proposing  a  means  of  responding  to  the  request  of  the 
Portuguese authorities for additional loan facilities on favourable terms. 
Similar actions 
were undertaken after the earthquakes of 1980 in Italy and 1981 and  1986 in Greece. 

Exceptional loans. 

The necessary  investment  required  to  reconstruct  the economic  and  social  infrastructure 
of  the  areas  devastated  by  the  cyclone justifies  that  the  economy  of  Madeira  should 
benefit,  with  the  help  of  the  Community,  of  an  important  volume  of  supplementary 
financial  resources. 

The Commission considers that exceptional loans of up to a maximum  of one half of the 
estimated  outturn  cost  of  eligible  reconstruction  operations  on  EIB  resources 
accompanied  by  an  interest  subsidy  to  lighten  the  debt  service  would  constitute  a 
significant  contribution to the repair of the damages occurred.  The  remainder  is to  be 
financed from domestic sources. 

Interest subsidies. 

The Commission proposes also to enlighten the debt service that Madeira would contract, 
by agreeing to charge interest subsidies to the general budget. 

To this end, it is proposed to grant  a subsidy at a rate of 3 percentage points per annum 
for a maximum period of 12 years.  Further, regarding the reimbursement of the principal, 
it  is proposed  that  credits  granted  in the framework of this  action  should  have  a  grace 
period of 5 years. 

The subsidy and grace period proposed are the same as those agreed in the framework  of 
the reconstruction measures following the catastrophes that occurred in Italy and Greece. 

Conclusion 

The Commission proposes to the Council: 

- 

to  show  the  Community's  solidarity  by  inviting  the  EIB  to  grant,  out  of  its  own 
resources, exceptional loans for a maximum of one half of the estimated outturn cost of 
eligible reconstruction operations in favour of Madeira. 

-  to decide on an interest subsidy at a rate of 3 percentage points per annum for up to 12 
years  chargeable to  the  Community  budget  and  to  adopt  to  this  effect  the  decision 
proposed in annex. 

Proposal for a 

COUNCIL DECISION 

relating to exceptional Community aid for the reconstruction of the areas stricken by the 
cyclone that hit Madeira in October 1993 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  of  the  Treaty  establishing  the  European  Community,  and  in  particular 
Article 23 5 thereof, 

Having regard to the proposal from the Commission, <l> 

Having regard to the opinion from the European Parliament, & 

Whereas  those  living  in  certain  areas  of  Madeira  have  been  seriously  affected  by  the 
cyclone of October  1993, with an ensuing need to help offset  the effects  of this disaster on 
their economic and social well-being; 

Whereas steps should be taken to deal quickly and efficiently  with  this quite exceptional 
situation; 

Whereas the European Investment Bank is able to grant loans out of its own resources to 
help achieve this objective; 

Whereas  an  interest  subsidy  chargeable  to  the  general  budget  of  the  European 
Communities should be provided on these loans; 

Whereas similar measures were adopted  following the natural catastrophes that  occurred 
in Italy <3> and in Greece <4>; 

Whereas  the  Treaty  has  not  provided,  for  the  adoption  of  the  measures  in  question, 
powers other then those provided for in article 235, 

(1)  OJNo.C 
(2)  OJNo.C 
(3)  OJNo.L 37, 20.1 1981 
(4)  OJNo. L 367,  14 12,1981; OJ no. L 309, 7.11.1988 

HAS DECIDED AS FOLLOWS: 

Article 1 

The ultimate recipients of the loans, granted  by the European  Investment  Bank out  of its 
own resources, for  investment  projects carried  out in the areas devastated  by the cyclone 
of  October  1993  in  Madeira,  shall  be  entitled  to  an  interest  subsidy  chargeable  to  the 
general budget  of the  European  Communities,  up to the  equivalent  of  a capital  value of 
ECU  15.85 million in all. 

On the basis of projects  put forward  by the authorities in Portugal,  and approved  by the 
Bank, the  Commission  shall  grant  this  subsidy  at  a  rate  of three  percentage  points  per 
annum for up to  12 years. 

This Decision shall take effect from 

Article 2 

Fm ike Council 

The President 

FINANCIAL STATEMENT 

1.  TITLE OF THE OPERATION 

Article B-5-203 :  Interest subsidies in favour of loans made to Madeira following the 
cyclone of October 1993. 

2.  BUDGET HEADING CONCERNED 

Article B-5-203. 

3. 

LEGALBASIS 

To be provided by the proposed decision, on the basis of Article 235 of the Treaty. 

4.  DESCRIPTION OF THE OPERATION 

4.1  Objectives: 

To grant a subsidy of 3 points of annual interest rate, for a maximum period of 
12 years,  to  loans  made by  the  European  Investment  Bank  out  or its  own 
resources  and  not  exceeding  ECU  15.85  million  in  principal,  in  favour  of 
investments  made  in the  areas  affected  by the  cyclone  in  October  1993  in 
Madeira. 

4.2  Period covered by the operation: 

Start: 

End: 

1995-96 

twelve years after the disbursement of the last loan. 

5.  CLASSIFICATION OF EXPENDITURE 

DNO; CD. 

6 

NATURE OF EXPENDITURE 

Interest subsidies. 

7. 

FINANCIAL IMPACT 

7.1  Method of calculation: 

Interest subsidies of 3% calculated half-yearly on the outstanding amount.  It 
should  be  noted  that  regarding  the  reimbursement  of  the  principal,  credits 
granted  in  the framework of  this  action  have  a  grace  period  of  5  years. 
Therefore,  during  the  first  five  years  the  amount  of  the  rebate  remains 
constant.  In all, interest subsidies would amount to approximately a maximum 
of ECU 4.4 million (the calculation is based on the  12-year ECU interest rate 
of April 1994). 

7.2  Cost distribution by elements of the operation: 

Not applicable. 

7.3  Operational expenditure relating to studies, expert meetings, etc. 

Not applicable. 

7.4  Schedule: 

For the first five years of operations the subsidy would amount to a maximum 
of ECU 475,500 per year. 

Year 

1995 

1996 

1997 

1998  1999 

2000 

2000+ 

Subsidy 
('000 ECU) 

475.5 

475.5  475.5 

475.5  475.5 

pm 

pm 

8.  ANTI-FRAUD  DISPOSITIONS  FORESEEN  (AND  RESULTS  OF  THEIR 

IMPLEMENTATION) 

Verification of subsidies and  of the requested preliminary, feasibility and evaluation 
studies is made by the Commission services before payment, taking into account the 
contractual obligations, economic principles and sound financial management.  Anti-
fraud  dispositions  (control,  reports,  etc.)  are  included  in  all  the  agreements  or 
contracts concluded between the Commission and the beneficiaries. 

9.  COST-EFFECTIVENESS ANALYSIS 

9.1 

i)  Quantifiable objectives:  See point 4.1 above, 

ii)  Population:  Madeira. 

9.2  Justification of operations: 

To help the realisation of investment in the areas affected by the cyclone. 

9.3  Follow-up and evaluation of the action: 

Not applicable. 

ISSN 0254-1475 

COM(94) 488  final 

DOCUMENTS 

EN 

13 oi 

Catalogue number : CB-CO-94-517-EN-C 

ISBN 92-77-81984-7 

Offîce for Official Publications of the European Communities 
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