ANNUAL REPORT FROM THE COMMISSION TO THE COUNCIL, THE EUROPEAN PARLIAMENT, THE ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS - THE EUROPEAN ECONOMIC AREA FINANCIAL MECHANISM
Date: 1996-12-13
Institutions: European Commission
Subjects: Community budget, European Economic Area, European Investment Bank, economic support, investment project

COMMISSION OF THE EUROPEAN  COMMUNITIES 

W  -ft  V 

Brussels,  13.12.1996 
COM(96) 653  final 

ANNUAL REPORT FROM THE COMMISSION  TO THE COUNCIL, 
THE EUROPEAN PARLIAMENT, THE ECONOMIC AND  SOCIAL COMMITTEE 
AND THE COMMITTEE OF THE REGIONS 

THE EUROPEAN ECONOMIC AREA FINANCIAL MECHANISM 

I. 

The  Financial  Mechanism 

With  the  objective  oï  stimulating  economic  cohesion  ami  development  between 
the  European  Economic  Area  (EEA)  regions,  a  Financial  Mechanism  to  support 
development  projects  in Greece,  Ireland,  Northern  Ireland,  Portugal  and  parts  of 
Spain  (the  objective  I  regions  as defined  in  1988)  was  established  on  1st  January 
1994 (article  115-1 16 of the  EEA  Agreement  and  Protocol  38). 

Over  its  five-year  life-span,  ending  3 1 December  1998,  the  Financial  Mechanism 
will  allocate  funds  to  the  beneficiary  regions  of  ECU  500  million  in grant  aid  and 
interest  rebates  of 2 %  per  annum  (available  for  10 years  with  a grace  period  of 2 
years)  on  ECU  1.5  billion  in loans,  from  the  European  Investment  Bank  (E1B). 

Priority  should  be  given  to  projects  which  place  particular  emphasis  on  the 
environment  (including  urban  development),  on  transport  (including  transport 
infrastructure)  or  on  education  and  training.  Among  projects  submitted  by 
private  undertakings,  special  consideration  is  given  to  small  and  medium-sized 
enterprises 

The  Mechanism  is  administered  by  I lie  EIB  The  EIB  appraises  each  project 
according  to  financial,  economic  and  technical  criteria  as  well  as  its  compatibility 
with  the  EU  objectives  sectorial  policies  and  environmental  regulations  and 
standards. 

The  EIB  then  submits  proposals  to  the  Financial  Mechanism  Committee, 
appointed  by  the  participating  EFTA  States  and  the  Commission,  which  decides 
on  the allocation  of the  financial  resources  available  under  the  Mechanism. 

The  Mechanism  was  initially  funded  by the  participating  EFTA  States.  The  role 
of  the  Commission  was  to  give  an  opinion  on  the  basis  of  the  proposals  before 
the approval  of the  EFTA  Financial  Mechanism  Committee. 

From  1 January  1995,  following  the  accession  of  the  Republic  of  Austria,  the 
Republic  of  Finland  and  the  Kingdom  of  Sweden  to  the  European  Union, 
Articles  83,  I I I  and  136  of  the  act  concerning  the  conditions  of  this  accession 
and  the  modification  to  the  treaties  on  which  the  European  Union  is  founded 
provide  that  the  obligations  of  the  three  acceding  countries  for  financing  the 
Mechanism  as  laid  down  in  article  1  16 of the  EEA  Agreement  is financed  out  of 
the general  budget  of the  European  Communities 

In  consequence,  the  Commission  has  become  co-responsible  for  the  Mechanism 
in  line with  Art.  205  of the  Treaty  whereby  the  Commission  shall  implement  the 
budget.  The  Communication  by  the  Commission  adopted  on  the  30  march  1995 
(C(95)  753),  established  the  operational  aspects  for  dealing  with  the  Financial 
Mechanism  within  the  Commission. 

Following  entry  into  force  of  the  EEA  Agreement  for  the  Principality  of 
Liechtenstein  on  I  May  1995,  the  Principality  now  fully  participates  in  the 
Mechanism. 

II.  The second annual report 

A  first  annual  report  was  presented  by  the  Commission  to  the  Council  in  June 
1995,  concerning  the  activity  of the  Mechanism  during  the  period  from  01.01.94 
to 31.05.1995. 

This second  annual  report  presents the  activity  concerning  the  Mechanism  during 
the  period  from  01.01.95 to  30.06.96. 

T.  The  aetivity  of the  Mechanism  up  to 30.06.1996 

Since  the  citation  of  (he  Mechanism  up 
the  Financial 
Mechanism  Committee  has  approved  grant  applications  to  a  total  of  ECU 
148.2  million  and  interest  rebates  on  a  total  loan,  portfolio  of  ECU  548.9 
million  as follows : 

to  30.06.96 

AiH'Kovi-:i) GRANTS 

APPROVHD 

• 

Greece 
Ireland 
Northern  Ireland 
Portugal 
Spain 
TOTAL 

_22_o 

8_0 
25.5 
92J 
1 148.2 

L( >ANS 
42_9 
-
-
127.7 
378.3 
|  548.9 

Grant  approved  (in  M ECU) 

Transport 
Environment 
Education 
Other 

Greece 
12.1 
8.3 
1.1 
1.1 
22.6 

Ireland  N  Ireland 

8.0 

Portugal 
25.5 

Spain 

46.7 
45.4 

8.0 

25.5 

92.1 

Total 
45.6 
55.0 
46.5 
1.1 
148.2 

Loan approved  (in  MECU) 

Transport 
Environment 
Education 

Greece 
42.9 

Ireland  N.  Ireland  Portugal 
127.7 

Spain 
164.1 
214.2 

Total 
334.7 
214.2 

42.9 

127.7 

378.3 

548.9 

The  activity  in  1995 

In  1995,  the  following  grant  applications,  amounting  up  to  ECU  68 07 
million,  were  approved: 

The monasteries  in the Athos  area  in (ireece  : Grants  for  the  restoration  and 
extension  of  monastery  buildings,  at  the  Iviron  monastery  ECU  3.684 
million  and  the  Simonos  Petras  monastery  ECU  0.89  million;  for 
the 
development  of  a  diagnostic  centre  for  the  study  of  Byzantine  and  post 
Byzantine  religious  paintings  and  restructuring  of  two  interior  courtyards  at 
the  Ormylia  monastery  ECU  1.745  million;  and  for  the  stabilisation  of  rock 
I 833  million  The 
foundations  at 
realisation  of  the  projects  will  contribute  to  the  preservation  of  a  unique 
cultural  monument  and  will  enable  the  development  of  the  region's  tourism 
potential  and  its diversification  towards  up-market  cultural  tourism 

the  Stavronikita  monastery  ECU 

The  Sanlorim  waste  water  treatment  plant  project 
in  (Ireece  :  For  the 
preparation  of  a  revised,  least-cost  investment  proposal,  a  grant  of  50  000 
ECU.  Economic  benefits  are  expected 
terms  of  environmental 
improvements  with  a consequent  effect  on  tourist  inflows. 

in 

The  Tsivlos  hydroelectric  power  plant  project 
the 
construction  of  a  2.5  MW  hydroelectric  plant  on  the  Peloponesos,  a  grant 
of  1.071  million.  The  project  contributes  to  the  development  of  a  local 
energy  resource  resulting  in a reduction  of  Greece's  dependence  on  external 
sources  of  supply. 

in  (ireece 

:  For 

The  Piraeus  port  project 
in  (ireece  :  For  handling  equipment  for  the 
lkonion  II  container  terminal,  a grant  of  ECU  12  I  million  The  project  will 
improve  the  efficiency  of  port  operations  with  economic  benefits  for  (ireece 
its 
which  presently  uses  maritime 
international  trade. 

than  90%  of 

for  more 

transport 

The  Tuerlos  marine  monitoring  project  in  Spain  :  For  the  extension  of  a 
marine  monitoring  and  surveillance  network  in  the  Spanish  waters  along  the 
coasts  o\" Asturias,  Galicia,  Andalucia  and  the  Canary  Islands,  a  grant  of 
ECU  4.7  million.  Its  main  economic  benefits  can  be  resumed  to  lessening  the 
likelihood  of  accidents  in  the  major  shipping  routes,  reducing  the  impact  of 
oil  spills  and  allowing  for  better  protection  of  coastal  areas  which  will  help 
to  avoid  possible  hazards  for  tourism  and  fisheries  activities. 

7'he Vigo  urban  renewal  project  in  Spain  :  For  the  remodelling  of  the  sea-
front  area,  a grant  of  ECU  19.5  million.  The  project  is  a  second  stage  in  an 
overall  urban  regeneration  program  in  Vigo  for  improving  the  quality  of  life 
for  the  citizens  and  more  generally  improve  the  attractiveness  of  the  uK 

The  (landia  urban  renewal  project  in  Spam  :  for  the  rehabilitation  of  the 
sea-front  area  and  historic  centre,  a  grant  of  ECU  22.5  million.  The  project 
aims to  improve  the  urban  and  natural  tourist  environment  of the city 

In  1995,  the  following  interest  rebate  applications,  amounting  up  to  a  total 
loan  amount  of ECU  302.4  million  were  approved: 

The  (ialicia  road  infrastructure  project  in  Spain  :  For  the  construction  of 
two  motorway  sections  and  upgrading  of  regional  road  sections,  an  interest 
rebate  for  a  loan  amount  of  ECU  19.5  million;  and  the  (ialicia 
loll 
mortorway  project  in  Spain  :  For  the  construction  of  three  sections  of  toll 
motorways,  an  interest  rebate  for  a loan  of ECU  32  million 

'  Both  projects  will  contribute  to  improving  the  tralllc  conditions  in  Galicia,  a 

region  which  is lacking  of  motorway  infrastructure. 

The Anthtlucia  reforestation  project  in Spain  : loi  the  reforestation  project, 
including  nurseries,  regeneration  of  degraded  forestry  areas,  construction 
and  rehabilitation  of forest  roads,  works  to  reduce  erosion  and  strenuthenini» 
of  forest  tire  fighting  capacity,  an  interest  rebate  for  a  loan  of  ECU  32 
million.  The  project  clearly  contributes  to  the  protection  of environment 

The  ICO  environmental  global  loan  project  in  Spam 
For  an  EIB  global 
loan  for  the  Spanish  state  credit  agency  and  development  bank  Institute)  de 
Crédite")  Oficial  for  the  financing  of  private  and  public  sector,  small  and 
medium  sized  environmental  projects  located  in  the  eligible  regions  in  Spam, 
an  interest  rebate  for  a loan  of  ECU  64  million;  and 
the  HCl,  environmental  global  loan  project  m  Spam  :  For  an  EIB  global 
loan  for 
the  financing  and 
environmental  projects  located  in  I he  eligible  regions  of  Spain,  an  interest 
rebate  for  a loan  amount  of  ECU  52 million 
Both  projects  will  contribute  to  the  protection  of  the  environment  and  the 
reduction  of  the pollution  in areas  of Spain 

the  Spanish  Banco  de  Crédite)  Local  for 

improvement 

The RENhh.  rail project  m  Spam  :  For  the  partial  financing  of  rolling  stock 
and  infrastructure 
the  Spanish  commuter 
railway  networks  and  intercity  lines,  an  interest  rebate  for  a  loan  of  ECU  60 
million.  The  project  will  benefit  existing  users  and  attract  new  clients, 
thereby  contributing  to  achieve  reductions  in  car  tralllc  congestion,  with  the 
accompanying  environmental  improvements. 

investments  for 

facilities 
The  Extremadura  road  improvement  and  drinking  water  supply 
project  in  Spain  :  For  the  financing  of  fifteen  water  supply  schemes  in  the 
provinces  of  Badajoz  and  Câceres  and  seventeen  small  road  improvement 
schemes,  an  interest  rebate  for  a loan  of  ECU  20  million  The  improvements 
to  water  supply  infrastructure  are  expected  to  have  a  positive  effect  on  the 
environment  (better  quality  supply)  and  investments  in  the  basic  road 
network  should  enhance  the  conditions  for  the  development  of  the  region  of 
Exlremadura 

The Piraeus  port  project  in  (ireece  :  For  the  construction  of  and  handling 
equipment  for  the  Ikonion  II  container  terminal,  an  interest  rebate  for  a  loan 
of  ECU  42.9  million.  The  project  will  improve  the  efficiency  of  port 
operations  with  economic  benefits  for  (ireece  which  presently  uses  maritime 
transport  for  more  then  90% of its international  trade. 

The  activity  in  1996 (up  to  30.06.96) 

Only  one  grant  application  concerning 
Island 
harbours  in  Northern  Ireland,  ECU  8  million  for  improvements  to  the  two 
harbours.  The  benefits  of the  project  will  include  the  amelioration  of access  to 
the  region  and  the development  of tourism  in Northern  Ireland. 

the  Hallycastle'Rathlin 

The  following  interest  rebate  applications  amounting  up  to  a  total  loan 
amount  of  ECU  68.5  million  were  approved 

EN A  (ia/icia  2-toll  motorways  :  the  construction  and  operation  of  two 
sections  of  toll  motorways  in  the  provinces  of  La  Coruna  and  Pontevedra, 
an  interest  rebate  for  a  loan  of  ECU  32  million.  The  project  will  contribute 
to  improving  the  traffic  conditions  in  Galicia,  a  region  which  lacks  an 
adequate  motorway  infrastructure. 

Water  supply  &  forestry  schemes  in  the  region  of  ( \istilla  y  Lean  :  the 
contribution  to  the  financing  of  an  investment  programme  in  water  supply 
infrastructure  and  forestry,  an  interest  rebate  for  a  loan  of  ECU  20  million 
The  programme  will  contribute  to  regular  and  reliable  provision  of  potable 
water  to  towns  and  will  support  economic  activities  Forestry  projects  will 
contribute  to  the  safeguard  and  expansion  of the  region's  forest  resources 

Waste  wafer  treatment  and  road  schemes  m  Kiurcia  :  the  contribution  of 
financing  of  investments  in  waste  water  treatment  infrastructure  and  roads, 
an  interest  rebate  for  a loan  of  ECU  16,5  million  The  project  contributes  to 
the  extension  and  upgrading  of  the  waste  water  treatment  infrastructure  in 
the  region  of  Murcia  according  to  modern  standards  i.e.  in  line  with  EC 
directives  as well  as environmentally  more  demanding  tourism  activities. 

2.  The  Community  contribution 

The  Act  of  Accession  (Articles  83,  111,  136)  specifies  that  the  shares  of  the 
new  Member  States  in  the  Mechanism  are  to  be  met  from  the  general  budget 
of  the  Communities.  On  a  proposal  from  the  Commission  (COM(94)  398), 
the  financial  perspective  has  already  been  reworked  accordingly  by  adding  a 
new  heading  under  "Structural  Activities'1.  The  budgets  adopted  for  1995  and 
1996  contain  a  heading  with  the  relevant  comments  (B2-40I).  The  amount 
forecast  for  each  year  is ECU  108 million 

As  far  as  the  actual  payments  are  concerned,  taking  over  the  shares  of  the 
new  Member  States  means  complying  with  the  terms  of  Article  4A  of  the 

Cooperation  Agreement  between  the EFTA  countries  and the EIB  dated  30 
June 1992, as amended by the amending protocol of 18 June 1993. 

In  line with  these  procedures,  the  contributions  for  1995  and  1996  and  the 
shares  between  the  participating  EFTA  countries  and  the  Commission  were 
decided respectively by the Financial Mechanism Committee, on  19.12.94 and 
on  20.12.95.  These  contributions  were  calculated  in  accordance  with  the 
gross national  product  at  market  prices using data for  the  last three  calendar 
years and  assuming  a total  annual  contribution from the  Community  and  the 
EFTA States of ECU  110 million. 

In  consequence,  the amount  paid  by the Commission  out  of the  Community 
budget  in  1995  is  89  793  000  and  in  1996,  is  ECU  87  076  000.  These 
amounts are much below the ECU  108 million forecast  each  calendar year in 
the Community budget.  The amount  which  has not been transferred  from  the 
Community budget to the EIB account cannot be transferred  at a later stage. 

The credit outstanding  on the Mechanism  account  at the EBB, which  has not 
been used yet due to the slow progress in the activity of the Mechanism, bears 
interest  at  a  monthly  rate.  Even  though  all  the  contributions  have  not  been 
used  it  is  important  to  keep  a  reasonable  contribution  to  the  Mechanism 
account  each year in order to be able to  match  the future  final  obligations at 
the end of 1998. 

Cost  sharing  of  the  initial  funding  and  replenishment  of  the  Financial 
Mechanism: 

inMECU 

fceJand  Norway  Liechtenstein  Austria  Finland  Sweden 

Total 

Community budget fro»» 1995 

i"  u i ' i i i"  m 'H  m 

i 

H  1.078 
(0.98 %) 

18.436 

0.187 

29.348 

20.526 

40.425 

110 

(16.76 %) 

(0.17%) 

(26.68 %) 

( 18.66 %) 

(36.75 %) 

imt 

mm 

1.111 

19.063 

0.198 

(1.01 %) 

(17.33 %) 

(0.18%) 

1.122 

21.604 

0.198 

(1.02%) 

(19.64%) 

(0.18%) 

Total: 

(82.09%) 

89.628' 

(81.48%) 

87.076 

(79.16%) 

110 

110 

•I  3.311 

59.103 

0.583 

267.003 

330 

1 The Commission did not request a transfer  of Liechtenstein's reimbursement  in August  1995. 
Accordingly, this amount was deducted from  the third instalment  in  1996. 

3.  The  Mechanism  account  at  the  1  IB 

As  of  3 1 December  1995,  the  balance  of  the  Financial  Mechanism  account 
was  ECU  212  923  519  In  summary,  the  account  transactions  during  the  year 
1995 were as  follows: 

Balance  as of  31 December  1994 
Crediting 

Second  instalment  in  1995 
Accrued  interest  in  1995 
Liechtenstein's  reimbursement" 

Debiting 

113 665  937 

I 10 000  000 
10 842  555 
405  236 

Interest  subsidies 
Grant  disbursements' 
Transfer  of Liechtenstein's  reimbursement 

- 7 964  055 
-  13 789  898 
- 236  256 

Balance  as of  31 December  1995 

212  923  519 

As  of  30  June  1996,  the  balance  of  the  Financial  Mechanism  account  was 
ECU  302  326  080.  In  summary,  the  account  transactions  up  to  30.06.96  have 
been  the  following: 

Balance  as of  31 December  1995 
( redit itig 

Third  instalment  in  1996 

Accrued  interest  up  to  30.06.96 

Debiting 

Interest  subsidies 
Grant  disbursements 

212  923  519 

I 10 000 000 
- 4 I 83 
(> 203 935 

9 286 183 
17 51 I 007 

Balance  as  of  30 June  1996 

302  326  080 

Following entry  into force of the  l:FA  Agreement  foi  Liechtenstein  on  I  Ma\  1995.  the  Principality 
reimbursed  Austria. Finland.  Iceland.  Norwa\.  Sweden and  the Commission  ihe amounts advanced by 
them to cover Liechtenstein's share of the Mechanism  in  1994-1995. i.e. ECU 405 236. 
For  Austria.  Finland.  Norway  and  Sweden.  Ihe  relevant  amounts  (in  total  ECU  236  256)  were 
transferred,  whereas  the  Commission's  and  Iceland's  shares  are  kept  on  the  Financial  Mechanism 
account, to be deducted  from  the third  instalment  in  1996. 
3 The grant  disbursement  amount  comprises the actual  grant  disbursement  increased  by 0.5% of such 
amount  as administrative cost  for the EIB. 
4  For  Austria.  Finland.  Norway  and  Sweden,  the  relevant  amounts  (in  total  ECU  236  256)  were 
transferred,  whereas  the  Commission's  and  Iceland's  shares  are  kept  on  the  Financial  Mechanism 
account, to be deducted  from  the third  instalment  in  1996. 

Iceland  did  not  request  a  transfer  of  Liechtenstein's  reimbursement  in  August  1995  According!). 

Iceland  has deducted  4  IS"? ECU from  its pa\inent. 

4.  Coordination  and  complementarity  with  other  financial  instriinients  of 

the  European  Union. 

The  Commission  ensures,  within 
the  partnership, 
the 
coordination  and  consistency  between  Ihe  projects  carried  out  under  the 
Financial  Mechanism  and  measures  undertaken  by  the  Structural  Funds,  the 
Cohesion  Fund,  the  European  Investment  Bank  and  the  other  financial 
instruments  of the  European  Union 

framework  of 

In  that  respect,  operating  rules  concerning  the  combination  and  overlapping 
of  the  Financial  Mechanism  aid  with  other  Community  assistance,  have  been 
clearly  defined  in  the  "Operational  arrangements"  concluded  between  the 
Commission  and  the  European  Investment  Bank,  on  9  March  1994. 

ISSN 0254-1475 

COM(96) 653  final 

DOCUMENTS 

EN 

09  10  13 

Catalogue number  :  CB-C0-96-665-EN-C 

ISBN 92-78-13243-8 

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