Third 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: 1997-11-27
Institutions: European Commission
Subjects: European Economic Area, European Investment Bank, economic and social cohesion, economic support, support policy

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels,  27.11.1997 
COM(97) 567 final 

THIRD 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 

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I. 

The Financial  Mechanism 

With the  objective  of  stimulating  economic  cohesion  and  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  1  regions as defined  in  1988) was established  on  1st January 
1994 (article  115-116 of the EEA Agreement  and Protocol 38). 

Over its five-year  life-span,  ending 31 December  1998, the Financial  Mechanism 
will allocate funds  to the beneficiary  regions of ECU  500 million in grant  aid  and 
interest  rebates  of  2  percentage  points  per  annum  on  ECU  1.5  billion  in  loans, 
from  the European Investment Bank (EIB). 

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  the  EEB.  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,  111 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  116  of the EEA  Agreement  are 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  1  May  1995,  the  Principality  now  fully  participates  in  the 
Mechanism. 

II. 

The  third  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. 

The  second  annual  report  presented  the  activity  concerning  the  Mechanism 
during the period  from  01.01.95 to 30.06.96. 

This third  annual report  presents the activity from  01.07.96 to 30.06.97. 

1.  The activity  of the  Mechanism  up to  30.06.1997 

In  June  1997, 
the 
Operational  Guidelines  for  the Implementation  of the Financial  Mechanism  in 
agreement  with the European  Investment Bank. 

the  Financial  Mechanism  Committee  has  adopted 

Since  the  creation  of  the  Mechanism  up  to  30.06.97  the  Financial 
Mechanism  Committee  has  approved  grant  applications  to  a  total  of  ECU 
309.218  million  and  interest  rebates on a total  loan  portfolio  of ECU  1037.40 
million  as follows : 

APPROVED GRANTS 

s 

51.498 
22.5 
8J0 
52_3 
174.87 
309.218 

1 

(MECU) 
APPROVED 

LOANS 

199.4 
40.0 
0 
260.6 
537.4 
1037.4 

| 

Greece 
Ireland 
Northern  Ireland 
Portugal 
Spain 
TOTAL 

Grant  applications: 

Transport 
Environment 
Education 
Other 

1 

| 

ECU 
59 600 000 
179 452 000 
69 045 000 
1071000 

Total 
19.3% 
58% 
22.4% 
0.3% 

22,4% 

0.3% 

19,3% 

H Transport 

•  Environment 

E3 Education and training 

E> Other 

58% 

Loan applications: 

Transport 
Environment 
Education 

Total 
60.4% 
39.6% 
-

I 

I 

ECU 
626 260 000 
411  140 000 

_0 

o% 

39,6% 

0  Transport 

H Environnement 

•  Education and training 

60,4% 

The activity  from  01.07.96 to 30.06.97 

The  following  grant  applications,  amounting  to  ECU  161.05  million,  were 
approved: 

Greece: 

The  Marine  Monitoring  Network  "Poseidon"  project:  For  a  marine 
environment  monitoring  and  surveillance  system,  a  grant  of  12.5  million 
ECU.  The  project  aims  to  prevent  marine  pollution  and  contribute  to  the 
protection  of  the  marine  ecosystem  ; thus  encouraging  the  optimisation  of 
commercial fishing and of aquaculture farming production.  Tourism will also 
benefit  by  avoiding  possible  ecological  hazard  in  waters  and  particularly 
along  the  coastal  areas  where  most  of  the  country's  tourism  infrastructure 
exists. Furthermore, through the fast  and effective  actions to be taken by the 
port  authorities  in  combating  the  sea  pollution,  the  project  will  contribute 
significantly  in improving the overall sea transport  security. 

The Fire-fighting  Equipment: ECU 6.13  million for  heavy duty vehicles and 
equipment  as  a  part  of  a  large  modernisation  programme  of  the  National 
Fire  Service.  The interest  of the project  lies in the  prevention  of damage  as 
result of the more rapid and efficient  intervention of the Fire Service. 

Urban  and  Environmental  Development  in  Kalamata:  ECU  10.35  million 
for  urban  improvements,  including  introduction  of  an  environmentally 
friendly 
light  rail  system.  The  project  addresses  specific  aspects  of 
pedestrianisation,  limiting  traffic  in  the  town  centre,  improving  public 
transport  and encouraging tourism. 

Ireland: 

* 

Technical  Education:  ECU  22.5  million  for  investments  in  13  educational 
institutions  at  tertiary  level  in  cofinancing  with  the  European  Regional 
Development  Fund  (ERDF).  The  project  covers  the  construction  of  new 
buildings,  extensions  and  modification  of existing  facilities  and  provision  of 
new equipment  at  13 locations in eight cities and towns. The purposes of the 
investments  are  to  meet  vocational  education  and  training  needs  ;  provide 
local and national industries with a pool  of technically  qualified  workers  and 
technicians;  enhance  the  validity  of  industrial  and  business  training  and  to 
improve  the  capacity  of  the  institutions  to  assist  industry  through  active 
R&D. 

Portugal: 

Urban  Rehabilitation  by  Local  Municipality  Councils:  ECU  26.8  million 
for  rehabilitation  of deprived urban areas in  11 local municipalities. 

Spain: 

Environmental  Monitoring:  ECU  8.27  million  for  field  equipment, 
laboratories  and  training  centre  of  Spain's  nation-wide  environmental 
surveillance organisation "Seprona". 

Urban Renewal  and Protection  of Historical  Heritage  in  Castilla y  Lean: 
ECU  33.8  million  for  urban  rehabilitation,  including  the  restoration  of  the 
cathedrals of Leon,  Salamanca and Burgos which are amongst  the  country's 
historic and cultural landmarks. 

Transport  and  Urban  Environment  in  Jerez:  ECU  15.8  million  for 
expansion  of  existing  railway  capacity  and  environmentally  motivated  re 
routing  of tracks,  pedestrianisation  and  landscaping  works.  It  will  improve 
the main link from  Cadiz to Jerez and its regional airport  and is therefore  the 
backbone  of  the  regional  public transport  system.  The  Jerez  project  takes 
advantage  of  the  railway  works  to  develop  the  areas  close  to  the  railway 
track.  This will bring significant  benefits  to most  of the urban  areas  adjacent 
to the railway track. 

Urban Renewal in Oviedo: ECU  17.9 million for  environmentally  motivated 
re-routing  of railway tracks, rehabilitation of the main railway  station  and  its 
adjacent  areas in co-financing  with the ERDF. 

Canary  Islands  Airports:  ECU  7  million  for  upgrading  and  expansion  of 
facilities  at Lanzarote Airport.  The project  concerns mainly the investment in 
a  new terminal  of 40  500 m2 and  landside  access.  The  capacity  of  the  new 
terminal  will  allow  for  5  million  passengers  per  annum.  This  investment  is 
crucial to the island with its economy depending essentially on tourism. 

The  following  interest  rebate  applications,  amounting  to  a  total  loan 
amount of ECU 488.5 million were approved: 

Greece: 

'ESSI"  Motorway:  interest  rebate  on  a  loan  of ECU  156.5  million  for  the 
Athens  ringroad  which  will  connect  the  new  Spata  airport.  Thé  project  is 
part  of  the  Patras-Athens-Thessaloniki  (PATHE)  North  South  main  road 
axis (a TEN priority project)  and it will also link the  Athens city centre with 
the  new  Airport.  It  will  also  reduce  traffic  congestion  in  the  Athens 
metropolitan  region that has seen extremely rapid growth  in vehicle  traffic. 

Ireland: 

Irish  Roads:  Interest  rebate  on  a  loan  of  ECU  40  million  for  four  road 
local 
improvements  schemes  of  the  National  Roads  Authority  and 
authorities.  The  project  covers  four  important  schemes  on  the  national 
primary  road  network  which  will improve traffic  conditions through  greater 
safety  and  time  savings,  and  help  communications  between  economic 
regions  of  Ireland  and  with  ports  and  tourism  areas,  as  well  as  reducing 
urban traffic  congestion. 

Portugal: 

Urban  rehabilitation  Schemes  by  Local  municipality  Councils:  Interest 
rebate  on  a  loan  of  ECU  13.4  million  for  deprived  urban  areas  in  11 
municipalities, as supplement to the grant assistance mentioned  above. 

Oil  Products  Storage  and  Multi-Product  Distribution  Pipeline:  Interest 
rebate  on  a  loan  of  ECU  27.1  million  for  new  storage  and  distribution 
infrastructure  for  Central  Portugal  including .the  Lisbon  metropolitan  area. 
The  present  project  will  allow  the  replacement  of  an  obsolete  storage 
complex  located  in central  Lisbon by  a new facility  located  in a low  density 
population  area. 

Solid  Waste Disposal  "Valorsul":  Interest  rebate  on  a  loan  of  ECU  46.2 
million for  a municipal  waste incineration  plant on the outskirts of Lisbon. It 
will be sited  on underdeveloped  land  in an industrial  area alongside the river 
Tagus. Steam produced  will be used for  electricity generation. 

Solid  Waste  Disposal  "Lipor":  Interest  rebate  on  a  loan  of  ECU  46.2 
million  for  a  municipal  waste  incineration  plant  on  the  outskirts  of  Porto. 
The  plant  will  supply  proven  incineration  technology  and  comprise  two 
incineration  lines with  large  dimension  grills,  conventional  flue  gas  cleaning 
systems and equipment for  steam production  and production  of electricity. 

Spain: 

Water Infrastructure  and Forestry Projects in  Galicia: Interest  rebate  on  a 
loan of ECU 26.5 million for 60 water treatment  and distribution projects,  as 
well  as  reforestation  after  forest  fires  and  afforestation  of  a total  of  55000 
ha. 

Urban Renewal in Oviedo: Interest rebate on a loan of ECU  13.0 million  for 
the  main  railway  station  and  its adjacent  areas,  as  supplement  to  the  grant 
assistance mentioned  above in co-financing  with ERDF. 

Canary  Islands  Airports:  Interest  rebate  on  a  loan  of  ECU  68  million  for 
extensions  at  the  airports  of Tenerife,  Lanzarote  and Fuerteventura  islands. 
Air  transport  is  obviously  vital  for  Canary  Islands,  either  for  access  from 
outside or for  internal  communications.  Any bottleneck  in this  sector  would 
therefore  have significant  repercussions on the whole economy  and  specially 
on tourism which requires a good/ efficient  access by air. 

ICO  Environmental  Global Loan II: Interest  rebate  on  a loan  of ECU  51.6 
million  for  Instituto  de  Crédito  Oficial,  for  financing  of  private  and  public 
sector  small and medium-sized  environmental  projects.  This new global loan 
to  ICO  would  contribute  to  the  protection  of  the  environment  and  the 
reduction  of pollution in Objective  1  areas in Spain. 

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".  The  budget  adopted  for  1997 
contains  a  heading  with  the  relevant  comments  (B2-401).  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  contribution  for  1997  and  the  shares 
between  the  participating  EFTA countries  and  the Commission  were  decided 
respectively  by the Financial  Mechanism  Committee,  in consultation  with  the 
EIB,  on  17  December  1996.  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  of ECU  130 
million. 

a)-  A total contribution of ECU  130 million for  1997 

At  the  creation  of  the  Financial  Mechanism  a  first  estimate  was  made 
corresponding  to  an  annual  instalment  of ECU  130  mill,  but  during  the 
years  1994-1996  initial  funding  and  replenishment  of  ECU  110  mill,  of 
the Financial Mechanism took place as shown in the table below  together 
with the aggregated  contributions during the same period. 

Article 4 of the Cooperation  Agreement  states that  the EFTA  States  and 
the  Community  budget  shall  deposit  the  amounts  necessary  to  meet  the 
commitment  schedules, the consequent  disbursements  and  the  associated 
administrative  costs  of  the  interest  payments  and  the  grants.  The  Bank 
and  the  Committee  shall  review  the  amount  of  grants  and  the  interest 
subsidies  disbursed  in  order  to  determine  the  amounts  of  the  subsequent 
instalments  to  be  deposited  by  the  EFTA  States  and  the  Commission. 
Any amount  outstanding  at the time of termination  of operations  shall  be 
repaid to the EFTA States and the Community budget. 

On  17 December  1996 the Financial Mechanism  Committee  decided  that 
the contributions from the donors would have to rise accordingly  in order 
to  meet  the final obligations.  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 reasonably  the 
future  final  obligations  in  terms  of  commitments  at  the  end  of  1998. 
An increase  from  ECU  110 mill,  to  ECU  130  mill,  in the  replenishment 
for  1997 will alleviate the final replenishment in 1998. 

b)-  The Community  contribution 

The  cost  sharing  of the initial funding  and replenishment  of the  Financial 
Mechanism  calculated  in  accordance  with  the  gross  national  product  at 
market prices using data for the last three calendar years is the  following: 

Iceland  Norway  Uechtçnsteîn 

Austria  Finland 

Sweden  Total 

t l l l l l l l l M I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I H II 

1  Cotamiinï^ budget from 1^95 

1.078 

18.436 

0.187 

29.348 

20.526 

40.425 

110 

(0.98 %) 

(16.76 %) 

(0.17%) 

(26.68%) 
Total: 

(18.66%) 
(82.09%) 

(36.75%) 

WM 

MMjujum,;,;,;,! 

Iliiil 

1.111 

19.063 

0.198 

(1.01 %) 

(17.33 %) 

(0.18%) 

m  1.122 

(1.02 %) 

21.604 

0.198 

(19.64 %) 

(0.18%) 

mm 

1.300 

25.935 

0.247 

(1.00%) 

(19.95 %) 

(0.19%) 

89.628' 

(81.48 %) 

87.076 

(79.16%) 

102.518 

(78.86 %) 

110 

110 

130 

Total 

4.611 

85.038 

0.83 

369.521 

460 

ECU mill ion 

In  consequence,  the  Commission  approved  on  27  February  1997  the 
Community budget contribution for  1997 of ECU  102 518 000. 

The  credit  outstanding  at  the Mechanism  account  at  the  EIB,  which  has 
not been used yet, bears interest at a monthly rate. 

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. 

10 

3.  The Mechanism  account at the EIB 

As  of  31  December  1996,  the  balance  of  the  Financial  Mechanism  account 
was  ECU  276  640  719.  In  summary,  the  account  transactions  during  the 
second  semester of year  1996 were as follows: 

ECU 
302 326 080 

Balance  as of 30 June  1996 
Crediting 

Accrued  interest 

6  100 090 

Debiting 

Interest  subsidies 
Grant  disbursements 
Liaison Officer  function  cost2 

-14  497  183 
-  16 901 894 
-386  374 

Balance  as of SI  December 1996 

276 640 719 

As of 30 June  1997, the balance of the Financial Mechanism  account  was  ECU 
337  377  385. In  summary,  the account  transactions  up  to  30.06.97  have  been 
the  following: 

ECU 

276 640 719 

Balance  as of 31 December 1996 
Crediting 

Fourth  instalment in  1997 
Accrued  interest up to 30.06.97 

Debiting 

Interest  subsidies 
Grant disbursements 

130 000 000 
6 499 752 

- 37 075  188 
- 38 687 898 

Balance  as of 30 June  1997 

337 377 385 

2 In the accession agreements for Austria, Finland and Sweden, it is agreed that the budget of the 
European Communities takes over the obligations of the acceding States towards the Financial 
Mechanism. Accordingly, the sharing of the Liaison Officer function costs between the three EFTA 
States and the Commission applies retroactively as from  1995. However, during the first six months 
in 1995 the Liaison Officer  function was funded by an intermediate arrangement under which the 
former EFTA States, including the three States acceding to the European Union, covered the costs. 
The new cost sharing arrangements thus applies as from  1 July 1995. 

The Financial Mechanism Committee approved the cost statement for  1995 amounting to 109 680 
ECU and the cost estimate for  1996 amounting to 276 694 ECU. The total amount of 386 374 ECU 
was debited by the EB  on 12 July 1996. 

11 

4.  Coordination  and  complementarity  with  other financial instruments  of 

the European Union 

The  Commission  ensures,  within  the  framework  of  the  partnership, 
coordination  and  consistency  between  the  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. 

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. 

12 

ISSN 0254-1475 

COM(97) 567 final 

DOCUMENTS 

EN 

09  17 

Catalogue  number  :  CB-CO-97-583-EN-C 

ISBN  92-78-26769-4 

Office  for Official  Publications of the European Communities 

L-2985 Luxembourg 

\2>