Special Report No 4/99 concerning financial aid to overseas countries and territories under the sixth and seventh EDF accompanied by the replies of the Commission
Date: 1999-07-15
Institutions: European Court of Auditors
Subjects: European Development Fund, aid system, distribution of aid, financial aid, overseas countries and territories, use of aid

29.9.1999

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I

(Information)

COURT OF AUDITORS

SPECIAL REPORT No 4/99

concerning financial aid to overseas countries and territories under the sixth and seventh EDF
accompanied by the replies of the Commission

(pursuant to Article 248(4), second subparagraph, EC)

(1999/C 276/01)

TABLE OF CONTENTS

Paragraph
reference

Page

SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

General

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Scope of the Court(cid:146)s audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ALLOCATION OF FUNDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Context of aid to OCTs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The programming of aid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Allocation to groups of OCTs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Allocation of funds to individual OCTs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

IMPLEMENTATION OF AID . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Indicative programmes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Regional funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Non-programmable funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Implementation of individual projects and actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Monitoring and evaluation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1-5

1-4

5

6-19

6-10

11-19

13-16

17-19

20-62

20-24

25-31

32

33-55

56-62

63-71

ANNEXES 1 to 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Replies of the Commission. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2

2

2

3

3

3

3

4

4

5

5

6

7

7

9

9

11

18

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SUMMARY

it is implemented particularly in view of the important differences
in national income per head between the OCTs and the ACP States.

Overseas countries and territories (OCTs) of a number of Member
States associated with the then European Economic Community,
receive financial and technical aid from the EDF in accordance
with the provisions laid down in the relevant Council Decisions.

INTRODUCTION

According to these provisions a total amount of ECU 240 million
from EDF resources is available from the sixth and the seventh
EDF. Of this amount ECU 149,5 million is reserved for program-
mable aid to be allocated to individual OCTs (20) by the Member
States to which they are linked. Furthermore an amount of ECU
21,5 million is available for regional cooperation and ECU 69 mil-
lion for so-called non-programmable aid (mainly risk capital, Sta-
bex funds and interest subsidies). The amounts allocated to the
OCTs per head of their population are much larger than those
allocated to the ACP countries, although national income per
head is in generally considerably higher in the OCTs than in the
ACP countries.

In contrast to the ACP States, where the amounts for each state
and the broad objectives of the programmes are agreed with the
Commission, the financing for OCTs is allocated en bloc to the
Member States concerned, whose responsibility it is to allocate
the money to the individual territories. It is the latter(cid:146)s responsibil-
ity to prepare and communicate to the Commission an indicative
programme which is consistent with their development plans and
objectives and which provides an appropriate framework for the
implementation of the aid to which the OCTs are entitled. For the
seventh EDF provision is made for the Commission to be associ-
ated with the approval of these indicative programmes.

The implementation of individual projects has suffered from defi-
ciencies in appraisal, preparation and monitoring and from delays
in inputs and outputs which have considerably reduced their
effectiveness. To a certain extent such deficiencies are due to the
cumbersome management structure of this aid.

Moreover, the Commission(cid:146)s financial management information
system does not provide readily available information on the allo-
cation of programmable funds and on the use of regional funds.

The administrative burden in terms of human and material
resources to manage a comparatively small amount of aid is high
for both the services of the Commission and these of the local
administration.

Consideration should be given to changing the management struc-
ture for aid to the OCTs so as to give the main responsibility for
implementation and monitoring to the Member States concerned,
perhaps by analogy with an other Community instrument. Equally
should there be an examination of the aims of the aid and the way

General

1. The financial and technical aid to overseas countries and ter-
ritories (OCTs) associated with the European Economic Commu-
nity is based on the Treaty establishing the European Community
(1957). The basic idea of the association as laid down in Part IV
of the Treaty was (cid:145)to promote the economic and social develop-
ment of these countries and territories and to establish close eco-
nomic relations between them and the Community as a whole(cid:146) (1).
When gradually more and more of the former overseas countries
and territories became independent States, the basic idea of the
association became the foundation for the European Union(cid:146)s
development policy as set out in the YaoundØ and LomØ conven-
tions with the ACP States. For those countries and territories
which did not become independent for a variety of reasons, it was
necessary to maintain a certain level of Community aid, financed
through the EDF, using the same basic mechanisms and proce-
dures as applied to the ACP States.

2. For the OCTs, details and characteristics of the association are
given in decisions adopted by the Council (2) (hereinafter called
(cid:145)Council Decisions(cid:146)) (3). The general aim indicated by these deci-
sions is to promote and accelerate the economic, cultural and
social development and to strengthen the economic structures of
the OCTs (for more detailed objectives see Annex 1).

3. A particular aspect of the cooperation arrangements between
the Commission, the EIB and the OCTs is the involvement of the
EU Member States in question (Denmark, France, Netherlands and
United Kingdom) notably in the allocation of funds to OCTs and
the signing of Financing Agreements. In this context it is noted
that the relevant Council Decision for the seventh EDF (Articles
234-236) also provides for a so-called (cid:145)partnership(cid:146) for the imple-
mentation of Community action. This partnership includes the
Commission, the EU Member State to which the OCTs are linked

(1) Article 131 of the EEC Treaty of Rome.
(2) For LomØ III and IV these are: Council Decision 86/283/EEC of 30
June 1986 on the association of the overseas countries and territories
with the EEC for LomØ III (OJ L 175, 1.7.1986) and Council Decision
91/482/EEC of 25 July 1991 on the association of the overseas coun-
tries and territories with the EEC for LomØ IV (OJ L 263, 19.9.1991).
(3) Neither the Conventions nor the Decisions give further distinctive
definitions of (cid:145)countries(cid:146) and (cid:145)territories(cid:146); between these categories no
differences of treatment are foreseen.

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and the competent authorities of the OCTs and deals with the
programming, financing, follow-up and evaluation of aid actions
financed from Community funds. However, the Commission
remains the authority with overall responsibility for the manage-
ment of the EDF resources allocated to the OCTs.

ALLOCATION OF FUNDS

Context of aid to OCTs

4. At present there are 20 OCTs, which can be divided into four
groups, i.e. British OCTs, French OCTs, Netherlands OCTs and
Greenland (4) (see Annex 2). The total Community funds allocated
to these OCTs amounted to ECU 100 million for the validity
period of the sixth EDF and to ECU 140 million for the seventh
EDF. The split of the amounts between the various instruments is
given in Table 1. A summary of amounts committed and paid per
OCT, split between programmable and non-programmable aid
for both the sixth and seventh EDF (funds managed by the Com-
mission only), is given in Annex 3.

Table 1

Allocation of amounts to types of EDF intervention

OCT F
OCT NL
OCT UK

Total indicative programmes (1)

Regional Cooperation (2)

Total projects and programmes

Interest subsidies
Emergency aid
Refugee aid
Risk capital
Stabex
Sysmin

(ECU million).

Seventh
EDF

Sixth EDF

26,5
26,5
10,5

63,5

10,0

73,5

2,5
3,0
1,0
15,0 (3)
5,0 (3)
p.m.

35,3
35,3
15,4

86,0

11,5

97,5

6,0 (3)
2,5
0,5
25,0 (3)
6,0 (3)
2,5 (3)

Total allocation EDF

100,0 (3)

140,0 (3)

(1) For the sixth EDF this comprises grants and loans.
(2) Including regional programmes for trade development.
(3) Allocation already included in the Internal Agreement (IA) on the financing and

administration of Community aid under the ACP-EEC Conventions.

6. The general context of the aid operations to the OCTs differs
from that for the ACP countries, due to a number of specific cir-
cumstances.

In the first place the level of economic development, expressed
7.
in per capita GDP, is rather high (see Annex 4). For a number of
OCTs, it even exceeds that of some EU Member States. Since the
conclusion of the Treaty establishing the European Community
the economic situation of these OCTs and their level of develop-
ment have considerably improved, partly as a result of intensive
economic and social cooperation with the EU Member States
with which the OCTs maintain a special relationship.

8. Although per capita GDP in the large majority of OCTs is
higher than that of ACP States, the annual aid per capita figures
for ACP States are ECU 4,32 compared to ECU 37,76 for OCTs (5).
Per capita GDP and per capita aid for the OCTs visited and for a
representative selection of ACP States are given in Annex 4.

9. Even where per capita GDP is relatively high in a number of
OCTs, substantial differences in income and living standards exist
within their populations. However, indicative programmes (IPs) (6)
have not explicitly given priority to the poorer segments of the
population.

10. Whereas the ACP States receive funds, other than EDF assis-
tance from a multitude of bilateral and multilateral donors (e.g.
World Bank) and from the Community budget, in principle OCTs
receive financial aid neither from the Community budget nor
from donors other than the Member States with which they
maintain a special relationship and from which they receive sig-
nificant if not exclusive development assistance. The total amounts
of aid to individual OCTs given by the Member States over recent
five-years periods are given in Annex 5.

Scope of the Court(cid:146)s audit

The programming of aid

5. The audit concerned the regularity of the use of the funds
supplied and the soundness of the financial management of devel-
opment operations in OCTs financed under the sixth and seventh
EDF. For this purpose the Court has examined a considerable
range of aid operations in eight OCTs.

(4) Greenland never received an allocation.

11. The programming of aid for the individual OCTs follows the
following stages:

(5) Figures presented by Commission in document 057545 of 15 Novem-
ber 1996 and derived from global aid figures for the eighth EDF.
(6) Under the sixth EDF IPs had to be drawn up by the authorities of the
OCTs whereas under the seventh EDF, OCTs and Commission had a
joint responsibility for the preparation of these IPs.

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Table 2

Allocation of programmable funds to groups of OCTs

Commission proposal (1)

Sixth EDF

Council Decision
86/283/EEC

Seventh EDF

Final

Commission proposal (2)

Council Decision
91/482/EEC

ECU million

%

ECU million

%

ECU million

%

ECU million

%

ECU million

27,00
27,00
9,00

42,80
42,80
14,40

26,50
26,50
10,50

41,70
41,70
16,60

28,327
27,900
11,245

41,97
41,35
16,18

35,30
35,30
15,40

41,00
41,00
18,00

40,20
30,30
15,50

%

47
35
18

63,00

100,00

63,50

100,00

67,465

100,00

86,00

100,00

86,00

100

France
NL
UK

Total

(1) Source: Document DG VIII 04158 of 12.2.1986.
(2) Source: COM(91)141 Final of 19.4.1991.

(a) fixing (7) of the total amount available for aid to OCTs, split

into financial instruments;

(b) allocation of the available funds (amounts reserved for pro-
grammable aid only) to the Member States by Council deci-
sion (8);

(c) allocation of the funds to the individual OCTs, by the authori-
ties of the Member State concerned, whereby the needs of the
least-developed OCTs have to be particularly taken into
account (9);

(d) establishment of IPs by the authorities of the OCTs, from sev-
enth EDF onwards with the Commission, along the lines laid
down in the Council Decisions (10).

12. Of the total amounts available for aid to OCTs the amounts
fixed for the various forms of non-programmable aid are deducted.
The remainder constitutes the programmable aid, which amounts
to ECU 63,5 million for the sixth EDF and ECU 86 million for the
seventh EDF (see Table 1).

Allocation to groups of OCTs

14. For the sixth EDF, the Commission decided (11) in accor-
dance to Article 154 of the Council Decision for the seventh EDF
(see Footnote (2)) to transfer to the programmable funds of the
French (ECU 1,4 million), Netherlands (ECU 1,4 million) and Brit-
ish OCTs (ECU 0,615 million) the unused funds initially earmarked
for emergency and refugee aid. The Chief Authorising Officer of
the EDF, with the relevant authorities of the countries and terri-
tories in question, was to undertake the programming procedures
at the same time and in a manner complementary to those car-
ried out for the seventh EDF. However, for all OCTs these amounts
were included in the IPs of the seventh EDF, although they were
accounted for under the sixth EDF, except for the British OCTs.

15. Similarly, the Netherlands OCTs wrongly included in the IPs
of the sixth EDF an amount of ECU 1,1 million coming from
unused fifth EDF Stabex amounts and reallocated to the program-
mable funds of the fifth EDF (12).

16. The allocation for the sixth EDF for St Pierre and Miquelon
was increased by ECU 427 000 by a decision of the Commission
(Chief Authorising Officer). Such a decision should have been
taken by the Council in accordance with Article 147(4) of the
Council Decision for the sixth EDF. IPs were not modified to
include these amounts.

13. The allocation as decided by the Council for the sixth and
seventh EDF differs from the initial proposals of the Commission
(see Table 2).

(7) See Article 2(1)(b) of Internal Agreement (IA) for the sixth EDF (OJ
L 86, 31.3.1986) and Article 2(1)(b) of the IA for the seventh EDF (OJ
L 229, 17.8.1991).

(8) See Article 128 of Council Decision for sixth EDF and article 154(2)

of Council Decision for seventh EDF.

(9) See Article 130(11) of Council Decision for sixth EDF and Articles 5

and 187(2) of Council Decision for the seventh EDF.

(10) Article 147 of Council Decision for sixth EDF and Articles 187 to 190

of Council Decision for the seventh EDF.

Allocation of funds to individual OCTs

17. Allocation of funds to individual OCTs is the responsibility
of the Member States whereby the needs of the least-developed
OCTs have to be particularly taken into account (see paragraph
11(c)). Although the Council Decision for the seventh EDF fore-
sees that the Member States give the Commission a clear indica-
tion of the total programmable financial resources to be allocated

(11) Commission Decision 91/404/EEC of 19 July 1991 (OJ L 222,

10.8.1991).

(12) Council Decision 86/285/EEC (OJ L 175, 1.7.1986).

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to each OCT, this decision does not provide for any information
to be given to the Commission about the parameters used by
Member States for the allocation. At least for the seventh EDF the
Commission should have used the partnership arrangements to
obtain this information, so that it could satisfy itself that particu-
lar attention had been paid to the least-developed OCTs.

21. Though in the case of the sixth EDF commitment of pro-
grammable funds has been reasonably satisfactory with a 100 %
commitment rate at the end of the year 1992 (14), the average dis-
bursement rate at that time, six and a half years after the entry
into force in 1986 of the relevant Council Decision, was only
65 % (90 % at the end of 1997).

18. Upon the Court(cid:146)s request the British authorities indicated
that the distribution of EDF funds to their OCTs was done on the
basis of development needs of the territories concerned, paying
due regard to the need to accord special treatment to the least-
developed OCTs. The French authorities have indicated that the
distribution of funds was based on two criteria (number of inhab-
itants and income per head) to be weighted to take account of
considerations linked to the development strategies and priori-
ties set by each of the OCTs. In the case of the Netherlands OCTs
funds were allocated on the basis of the population of the two
OCTs, which resulted in an arithmetical formula (75 % of avail-
able funds to the Netherlands Antilles and 25 % to Aruba).

19. The allocations of programmable funds to the individual
OCTs as decided upon by the Member States in question and as
entered in the EDF accounts are summarised in Annex 6. As
shown in this annex there are differences between the allocations
for individual OCTs as mentioned in the IPs and those mentioned
in the EDF accounts due to the factors described under para-
graphs 14 and 15. In addition, in the case of Turks and Caicos the
amount mentioned in the IP for the sixth EDF was ECU 1,8 mil-
lion instead of ECU 1,6 million, probably due to an oversight.
These differences led in some cases to reconciliation problems
between the EDF accounts and the IPs which adversely affected
the transparency of the management information for the avail-
ability and use of these funds.

IMPLEMENTATION OF AID

Indicative programmes

20. Execution of the IPs as well as of non-programmable funds
for the OCTs examined is summarised in Annex 3. Implementa-
tion of the IPs has been slow and sometimes cumbersome for
both the sixth and seventh EDF, in particular in relation to the
period mentioned in the Council Decisions in question (13).

(13) Article 127 of Council Decision for the sixth EDF and Article 154(1)
of the Council Decision for the seventh EDF: (cid:145)preferably for a period
of five years...(cid:146).

22. For the seventh EDF, only five OCTs (15) had fully commit-
ted programmable funds six years after the entry into force of the
relevant Council decision. For the others the commitments varied
between 11 % and 93 % of the programmable funds (on average
49 %). The average disbursement rate for all OCTs amounted to
38 % of IPs (16).

23. This is particularly slow, especially for the seventh EDF, tak-
ing into account the introduction of the (cid:145)partnership(cid:146) which
should establish a wideranging dialogue between the Commis-
sion, the Member States and the territorial authorities with the
objective of rendering development cooperation more effective.

24. Reasons for the slow implementation were:

(a) for the Netherlands Antilles, Aruba and the British Virgin
Islands, the IPs for the seventh EDF had been adopted more
than one year (time scale specified in the Council Decision (17))
after the entry into force of the Council Decision;

(b) the complex structure of the Netherlands Antilles, both geo-
graphically and in terms of the distribution of competences
between the main actors in the decision-making process, and
the absence of an overall development concept for the differ-
ent islands which gave rise to numerous projects scattered
both financially and geographically;

(c) shortcomings in the preparation of projects and a lack of
expertise of local authorities, sometimes necessitating a rede-
sign of the project(cid:146)s main components (British Virgin Islands
and Turks and Caicos Islands);

(d) heavy and complicated administrative project management
with two and sometimes three Technical Assistance (TA) con-
tracts in combination with cumbersome communication with
Delegations located at a considerable distance from the OCT
(Anguilla, British Virgin Islands and Turks and Caicos Islands);

(14) Exceptions are French Polynesia and Aruba with commitment rates
of 63 % and 8 % respectively. In the case of Aruba this was due to the
fact that nearly all sixth EDF funds were to be used for one single
project decided upon only in 1993.

(15) Mayotte, St Pierre and Miquelon, Aruba, Turks and Caicos Islands and

British Virgin Islands.

(16) The average disbursement rate for non-programmable aid was 82 %

for the sixth EDF and 54 % for the seventh EDF.
(17) Article 189 of Council Decision for the seventh EDF.

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Allocation of regional funds and amounts committed and paid

Table 3

Allocation

Sixth EDF

Committed

Paid

Allocation

Seventh EDF

Committed

Paid

ECU million

%

ECU million

%

ECU million

%

ECU million

%

ECU million

%

ECU million

%

French OCTs
Netherlands OCTs
British OCTs
Reserve
All OCTs

Total

4,1
4,1
1,5
0,3
N/A

41
41
15
3
(cid:151)

10,0

100

1,4
1,9
0,5
N/A
1,3

5,1

33
46
33
(cid:151)
(cid:151)

50

1,2
0,8
0,5
N/A
1,1

3,6

28
20
33
(cid:151)
(cid:151)

36

5,4
4,0
2,1
N/A
N/A

47
35
18
(cid:151)
(cid:151)

11,5

100

3,6
2,0
0,2
(cid:151)
3,3

9,1

67
50
10
(cid:151)
(cid:151)

79

1,6
0,7
0,2
(cid:151)
3,1

5,6

30
18
10
(cid:151)
(cid:151)

49

Source: OLAS-accounts by country, situation by 31.12.1997.

(e) heavy administrative EDF procedures and sometimes slow
reactions of the Commission in respect of project appraisals
and financing proposals; delays were exacerbated by the Com-
mission(cid:146)s laborious procedural framework with its resident
adviser, Delegation and central services.

Regional funds

29. As a result the intended priority for regional cooperation has
proved very difficult to achieve as:

(a) commitment and disbursement rates for the sixth EDF and

seventh EDF have been very low;

(b) no proposals have been made for focal sectors and for regional
cooperation under the seventh EDF (French Polynesia and
New Caledonia);

25. The Council Decision for the seventh EDF highlights the par-
ticular importance and high priority which should be given to
regional cooperation efforts and mentions the obligation to include
in the IPs proposals for regional programmes and projects (18).

(c) no regional projects involving both British and Netherlands
OCTs and neighbouring ACP countries in the Caribbean region
nor between Mayotte and the ACP countries in the Indian
Ocean region have been implemented;

26. Funds for regional cooperation constitute programmable
funds allocated by the Commission to the three groups of OCTs.
In some cases the IPs include regional allocations, in others they
do not.

27. Funds available for these purposes have increased from ECU
10 million for the sixth EDF to ECU 11,5 million for the seventh
EDF and have been allocated, committed and disbursed as indi-
cated in Table 3.

(d) although the IPs for the Netherlands Antilles, Aruba, Anguilla,
the British Virgin Islands and the Turks and Caicos Islands
contained preliminary orientations for sub-regional and
regional cooperation, neither a regional dimension for use of
funds, nor a regional policy or strategy has been developed.
This has led to a situation where most of the funds have been
spent on trade promotion and tourism activities, mainly in
the form of attendance/appearance at trade fairs and semi-
nars. Similar activities were also financed from IP resources
although regional funds were still available.

28. The intentions and expectations of the Commission and the
Council in relation to regional cooperation were never sufficiently
clarified. Funds were allocated without any of the parties con-
cerned having a clear idea about the specific objectives to be pur-
sued or the way in which the funds would be used.

(18) See Articles 4 and 188(2) (e).

30. Particular reasons for the slow implementation of regional
cooperation are insufficient knowledge and a lack of commitment
at the level of the territorial authorities, as well as the generally
complicated management structure of regional projects (too many
partners often geographically separated). More specifically there
is an apparent unwillingness of the two main Pacific OCTs to
nominate a common regional authorising officer and a common
regional coordinator. Neither is there an appropriate discussion
forum for regional cooperation between Caribbean OCTS.

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Information on the use of regional funds is not readily acces-
31.
sible from the current financial system: the funds are allocated at
the level of the three Member States, but the commitment of
funds is recorded at the level of either individual OCTs or at a
global level, or is recorded at the level of an ACP State if the funds
are being used together with ACP regional funds for a regional
project managed by the Delegation in that ACP State, or if activi-
ties for OCTs are organised in that State (e.g. seminars).

35. These shortcomings have seriously reduced the effectiveness
of the financial aid to OCTs and have resulted, inter alia, in delay-
ing project inputs and outputs, and in total or partial failure to
achieve objectives. Some projects have been abandoned or have
undergone major changes. The following examples are given to
illustrate the problems encountered.

Non-programmable funds

32.
In addition to the (national and regional) programmable
funds, additional resources may be allocated to the OCTs by way
of non-programmable funds managed exclusively by the Com-
mission. The most important are: risk capital and interest subsi-
dies (19), Stabex resources and emergency aid. For Stabex and
emergency aid the same procedures as for the ACP countries
apply; i.e. in case certain events arrive (drop of export revenue or
an emergency situation), the countries become eligible for aid
under certain conditions, so that a request for aid can be made.
As indicated in paragraphs 42 and 52 the utilisation of Stabex
funds has been slow.

Implementation of individual projects and actions

33. The identification, preparation, appraisal, implementation
and monitoring of projects and actions have been examined in
detail as well as their contribution to the development objectives
set by the OCTs.

34. The audit did not reveal any significant irregularities at the
level of the payments for constructions, supplies and services for
the projects. However, for the majority of projects, efficient and
effective implementation has been hampered by deficiencies in
the appraisal, preparation and monitoring of the aid operations.
The most significant deficiencies are:

(a) use of incomplete or unreliable data in project documenta-

tion;

(b) absence of economic/social/financial indicators to measure
the project(cid:146)s achievements and the extent to which the objec-
tives have been met;

(c)

insufficient monitoring of project implementation;

(d) absence of ex post evaluations.

36.
In New Caledonia the implementation of projects has gener-
ally speaking been satisfactory, as they did fit into the concentra-
tion sectors of the IP, they contributed to the economic and social
development of the OCT and their sustainability was ensured.

37. However, in this OCT a ECU 2,6 million project (20 % of the
IP) to finance, mainly in the form of loans, the start-up of eco-
nomically viable activities by young agricultural producers had
failed, with only ECU 50 000 disbursed five years after the financ-
ing decision was taken. This was mainly due to an unrealistic
project conception.

38. For an ECU 8 million project in French Polynesia (61 % of
the IP) described as (cid:145)l(cid:146)assainissement de la zone d(cid:146)Outumaoro(cid:146) the
financing proposal could not be prepared until the end of 1997
because a number of issues concerning tariffs, real estate, water
purification and the management structure of the project remained
unsettled although these problems were scheduled to be resolved
in the second half-year of 1992 (20). Part of the delay was due to
lengthy discussions between the Commission and the authorities
of French Polynesia.

39. Also in French Polynesia five years after approval of a ECU
7 million project for the building of five fishing vessels, to which
the EDF contributed ECU 3,16 million (24 % of the IP), only two
vessels had been delivered. This was the result of a lack of experi-
ence of the shipbuilder, which was awarded the contract in spite
of doubts (21) about its technical and financial capacity.

40. For the same project the financing arrangements laid down
in the Financing Agreement requested the territory to assure
complementary financing: the initially foreseen loan to be con-
tracted by the beneficiaries of the project was replaced by a lease
contract between the beneficiaries and an investment company,
thus leading to a change in the ownership of the vessels, contrary
to the stipulations of the financing agreement.

(19) The Court(cid:146)s examination of risk capital operations managed by the
European Investment Bank focused on those implemented in New
Caledonia. Related audit observations are given in the Court(cid:146)s Special
report on risk capital operations (OJ C 389, 14.12.1998, p. 44).

(20) See indicative calendar annexed to the seventh EDF IP.
(21) Expressed, inter alia, by the tender evaluation committee which had
proposed a shipyard that had constructed fishing vessels under an
earlier phase of the programme.

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29.9.1999

41. The main objective of a pearl research project in French
Polynesia with an EDF subvention of ECU 1,15 million (8 % of the
IP) is to improve the quality of the pearls. However, the Financing
Agreement lacked an appropriate indicator for quality improve-
ment. The local authorities could not indicate what has been the
impact of the project on high-quality pearl production. Moreover
the planned extension of improved cultivation techniques has
been extremely limited as a result of logistical problems having
been severely underestimated.

47. On St Eustatius the EDF contributed to the extension of the
airport(cid:146)s runway with ECU 2 million (10 % of the IP). The deci-
sion to extend the runway was based on unreliable and unrealistic
forecasts, provided by the local authorities. Furthermore, the
works were, in particular for the terminal, badly executed, which
remained unnoticed by the Commission(cid:146)s Delegation, so that no
remedial action has been taken.

42. Also in French Polynesia, part of the non-programmable aid
concerns the transfer of ECU 4,85 million of Stabex funds to
compensate for the weakness of the copra market. Of this amount,
ECU 900 000 made available in 1995 had not been used till the
(cid:145)Framework of mutual obligations(cid:146) presented by the territorial
authorities to the Commission in 1993 was signed in March 1998.

In Mayotte, one of the least developed OCTs, the funds of the
43.
sixth and seventh EDF have been successfully used (rates for com-
mitment and disbursement of funds above 95 % and 80 % respec-
tively) for the upgrading of infrastructure in the electricity and
water sectors which are of vital importance for the country(cid:146)s
development.

In the Netherlands Antilles the use of funds is scattered both
44.
geographically and financially over more than 100 contracts
which show immense differences in terms of contractual condi-
tions and obligations, making financial management difficult.
There is a tendency for contracts to be extended as long as there
are funds available, without the need for such extensions being
critically assessed by the territorial authorities and the services of
the Commission.

45. Also in the Netherlands Antilles, the contractual provisions
concerning progress reporting, accountant(cid:146)s reports to be pro-
duced and obligations in the area of administrative and financial
management have generally not been respected by the contract-
ing parties and not followed up by the Delegation.

46. Only 10 % of the available funds under the seventh EDF had
been committed by the Netherlands Antilles in the concentration
sectors at the end of 1997, whereas it was anticipated that they
would absorb at least 70 % of the funds. This is due to one big
cofinanced project (22) that the Commission had to abandon, as
after five years of negotiations no agreement could be reached
between the Commission and the Netherlands.

48. For the Netherlands Antilles(cid:146) Tourism Development Pro-
gramme (ECU 19,15 million of which ECU 13,35 million is sixth
EDF or 64 % of the IP) and its Business Development Scheme
(BDS) (ECU 5,5 million or 26 % of the IP), it was not possible to
assess to what extent the general objectives of the Financing
Agreement had been achieved, because the necessary information
to measure the impact of the projects had not been collected by
any of the stakeholders. In cases where revenue was foreseen in
the Tourism Project, the destination of revenues was not regulated
by the contract. Moreover, the financial sustainability of the BDS
was not ensured as the intended financial mechanism (revolving
fund) was in reality not operational. Also for the BDS funds have
been used for overheads which were not eligible according to the
Financing Agreement. These funds should be recovered.

49.
In Aruba the EDF aid under both the sixth and seventh EDF
was concentrated on the airport extension (ECU 9,35 million)
(90 % of IP for sixth EDF and 39 % of IP for seventh EDF). This
project, for which the request was made in 1990, only started to
be executed in 1994. Once started, it has been successfully imple-
mented and well-monitored.

50.
Implementation of EDF aid in Anguilla, British Virgin Islands
and Turks and Caicos Islands has suffered from shortcomings
such as unclear definition of project objectives, inaccurate data in
project documentation, delays in implementation and absence of
evaluations.

In the British Virgin Islands a ECU 2,5 million project (100 %
51.
of the IP) to finance the construction of a learning resource centre
at the existing community college is being severely delayed because
the locally recruited and financed consultant has performed inad-
equately as far as the design and tender documentation for the
project are concerned and, in addition, there has been no proper
consultation with the Commission.

(22) Cofinancing by the EDF together with other donors is occasionally
practiced. In by far the most EDF financed projects there is no other
donor involved.

52.
In the years 1993 to 1996 the Falkland Islands, which did
not benefit from any programmable funds under the seventh EDF,
received an allocation of ECU 5 million of Stabex funds to com-
pensate for the low return on the sales of wool. Of this amount

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C 276/9

only ECU 1,5 million has been made available for use by the OCT
and less than ECU 1 million has been disbursed. The inability of
both the Falkland Islands Government and the Commission to
ensure that the available funds were quickly used would appear to
indicate that there was no urgent need for these funds (23).

In most of the OCTs visited there have been shortcomings
58.
in the monitoring activities of the Commission. However, this can
to a great extent be explained by the fact that in most cases a
single Commission official with some administrative support is
responsible for the implementation of projects and actions for a
number of OCTs spread over a sometimes vast geographic area.

53. ECU 300 000 were allocated under the sixth and seventh
EDF to the French Antarctic for ornithological research on an
uninhabited island (St Paul Islands). As this aid had no develop-
ment purpose the support has now been withdrawn.

59. Central services have not played an active role. Information
available in the Commission(cid:146)s files in respect of projects was lim-
ited and the Court has found little evidence of remedial action
being initiated by these services in order to address problems
related to the implementation of the aid operations.

54. Article 234 of the Council Decision for the seventh EDF
introduced the notion of partnership between the Commission,
the Member State responsible for a country or territory and the
relevant local authorities. According to Article 235, (cid:145)Partnership
shall cover the programming, preparation, financing, monitoring
and evaluation of operations carried out by the Community under
this Decision, and any problem arising in relations between the
OCT and the Community(cid:146).

60. The local administrations which are not used to the EDF
environment have to use only occasionally the EDF rules which
they find complicated (e.g. tender procedures). In respect of cofi-
nancing, the local rules and the EDF rules have to be applied
simultaneously. The communication between the local adminis-
tration and the Commission is cumbersome in the (justified)
absence of an on-the-spot delegation or agency which otherwise
could have assisted the local administration.

55. However, apart from two meetings related to the program-
ming of aid actions in certain French OCTs, the (four) meetings
held after the IPs had been established concentrated on expand-
ing the scope of the financial, technical and commercial aid to
OCTs and on the mid-term revision of the Association decision.
In spite of the apparent problems in the implementation of the
Territorial and Regional Indicative Programmes, the meetings did
not deal with monitoring and evaluation of aid actions.

Monitoring and evaluation

56. Although Member States concerned are responsible for allo-
cating the programmable EDF funds (see paragraph 3), the imple-
mentation of the programmes is the responsibility of the Com-
mission and the OCTs jointly. The Member States having thus
been relieved of responsibility for the implementation of the indi-
vidual projects supported by the EDF had only very limited infor-
mation available about their content and execution.

61. The present structure, based on the LomØ Conventions and
the Council Decisions on the OCTs, leads obviously to a dilemma:
adequate monitoring requires more resources to be devoted by
the Commission but this would not be cost effective given the
relatively small amounts of aid involved. This can be compared
with the management of EDF aid in (certain) ACP states where
much larger amounts have to be managed with comparatively
fewer resources. A solution of this problem can only be found
through a fundamental change of the management structure by
allocating more responsibilities for the implementation and moni-
toring of the actions to the Member States concerned.

62. Both the Decisions (24) for the sixth and seventh EDF state
that evaluations are carried out in respect of the development
operations in OCTs by both the authorities of the OCTs and the
Community, with the objective of improving the effectiveness of
the development operations in progress and those to be put in
place in the future. No such evaluation activities appear to have
been carried out.

CONCLUSION

57. This situation leaves the Commission with a responsibility
for monitoring the projects. This responsibility lies in first instance
with its representatives in the OCTs (usually a resident adviser
with an administrative assistant) working under the hierarchical
responsibility of a Commission Delegate.

63.
In most of the OCTs the level of economic development is
high and similar to that of some of the Member States of the
European Union, and goes far beyond the level of the ACP States
(paragraphs 7 and 8).

(23) See also the report of the UK National Audit Office on the Dependent

(24) Article 154 of the Council Decision for the sixth EDF and Articles

Territories (cid:150) 30 May 1997, page 65.

226 and 227 of the Council Decision for the seventh EDF.

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Official Journal of the European Communities

29.9.1999

64. The level of disbursements of programmable funds made
available under the sixth (ECU 63,5 million) and seventh EDF
(ECU 86 million) has been low in most of the OCTs visited, taken
into account that intervention sectors and several projects had
already been properly identified at the level of the IPs. The intro-
duction of the (cid:145)partnership(cid:146) with the seventh EDF has not led to a
significant improvement (paragraphs 20 to 24).

on results. It also shows significant differences between OCTs,
which reflect differences in the degree of commitment of the ter-
ritorial authorities to the implementation of the IPs. Due to the
absence of economic/social/financial indicators and ex post evalu-
ations the effectiveness of the aid operations is difficult to mea-
sure. In a number of cases the contribution of the operation to
the development of the OCT has been weak (paragraphs 34 to
53).

65. A clear role should be identified for the Commission in the
allocation of programmable funds to individual OCTs.

66. For programmable aid made available to the OCTs and that
for regional projects the financial information system is not trans-
parent and shows discrepancies between the EDF accounts and
the IPs (paragraphs 14 to 16 and 31).

67. Funds were allocated for regional cooperation without the
Council, the Commission and the authorities concerned having a
clear idea about the specific objectives to be pursued or the way
in which the funds would be used. Consequently, regional coop-
eration encountered serious problems to achieve its priorities. In
the case of the Netherlands and British OCTs most of the limited
regional funds spent have been used to finance the participation
of individual OCTs in their trade promotion and tourism fairs
(paragraphs 29 to 30).

68. The implementation of individual projects has been ham-
pered by deficiencies in appraisal, preparation and monitoring as
well as by procedures which are more focused on formalities than

69. Monitoring activities and intervention by the Commission in
both the OCTs and at central level have not been sufficient to lead
to a more efficient and effective implementation of the aid opera-
tions (paragraphs 58, 59 and 62).

70. The administrative burden for the local administration is
high: for comparatively small amounts procedures have to be
applied which appear in certain cases (e.g. tender procedures in
the OCT context) complicated and cumbersome for administra-
tions which lack experience in these procedures as they are to be
applied only occasionally. Moreover in many cases EDF projects
form part of a wider programme, cofinanced with those Member
States with which the respective OCTs have a special link, leading
to different parallel procedures (paragraph 60).

71. Consideration should be given to changing the management
structure for aid to the OCTs so as to give the main responsibility
for implementation and monitoring to the Member States con-
cerned, perhaps by analogy with another Community instrument.
The main aims of the aid and the manner in which the aid is man-
aged and executed should, in any case, be reviewed.

The present report was adopted by the Court of Auditors in Luxembourg at its meeting of 15 July 1999.

For the Court of Auditors

In the absence of Jan O. KARLSSON

President of the Court

Patrick EVERARD

Member of the Court

29.9.1999

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Official Journal of the European Communities

C 276/11

ANNEX 1

OBJECTIVES ON OCTs AS INCLUDED IN COUNCIL DECISIONS

Article 1 of the Council Decision for the sixth EDF stipulates:

(cid:145)The aim of this Decision is to facilitate the economic, cultural and social development and to strengthen the
economic structures of the countries and territories listed in Annex I, in particular by developing trade, eco-
nomic relations and agricultural and industrial cooperation between the Community and those countries and
territories, by helping to safeguard the interests of those among them whose economy depends to a consider-
able extent on the export of commodities and by affording financial aid and technical cooperation.(cid:146)

The Council Decision for the seventh EDF stipulates the main objectives in its Articles 1 to 6 as follows:

(cid:145)Article 1

The aim of this Decision is to promote and accelerate the economic, cultural and social development and to
strengthen the economic structures of the OCT listed in Annex I.

Article 2

The Community shall provide support for the OCT(cid:146)s efforts to achieve comprehensive development based on
their cultural and social values, their human capacities, their natural resources and their economic potential in
order to promote the OCT(cid:146)s social, cultural and economic progress and the well-being of their populations
through the satisfaction of their basic needs, the recognition of the role of women and the enhancement of
people(cid:146)s capacities, with respect for their dignity.

Such development shall be based on a sustainable balance between economic objectives, the rational manage-
ment of the environment and the enhancement of natural and human resources.

Article 3

Cooperation shall be directed towards development centred on man, the main protagonist and beneficiary of
development, which thus entails respect for, and promotion of, all human rights. Cooperation operations shall
thus be conceived in accordance with the positive approach, where respect for human rights is recognised as
a basic factor of real development and where cooperation is conceived as a contribution to the promotion of
these rights.

The role and potential of initiatives taken by individuals and groups shall also be recognised and fostered in
order to achieve in practice real participation of the population in the development process.

C 276/12

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Official Journal of the European Communities

29.9.1999

Article 4

The Community and the OCT shall give special importance and high priority to regional cooperation and
integration. In this context, the Community shall offer effective support for the OCT(cid:146)s efforts to organise them-
selves into regional groupings and to step up their cooperation at regional and inter-regional level with a view
to promoting a more just and more balanced international economic order.

Article 5

The Community acknowledges the need to accord special treatment to the least-developed OCT and to take
account of the specific difficulties confronting them. It shall pay special attention to improving the living con-
ditions of the poorest sections of the population.

Cooperation shall comprise, inter alia, special treatment when determining the volume of financial resources
and the conditions attached thereto in order to enable the least-developed OCT to overcome structural and
other obstacles to their development.

Article 6

Within the scope of their respective responsibilities, the authorities participating in the partnership framework
referred to in Article 10 shall examine periodically the results of the implementation thereof and provide any
necessary impetus and opinions for the attainment of the objectives of this Decision.

Any questions that might directly hamper the effective attainment of the objectives of this Decision may be
raised in the context of this procedure.(cid:146)

29.9.1999

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Official Journal of the European Communities

C 276/13

ANNEX 2

THE TWENTY OCTS

British OCTs

Anguilla
Cayman Islands
Falkland Islands
South Georgia and South Sandwich Islands
Montserrat
Pitcairn Island
St Helena and Dependencies
British Antarctic Territory
British Indian Ocean Territories
Turks and Caicos Islands
British Virgin Islands

French OCTs

Collectivities

Mayotte
St Pierre and Miquelon

Territories

New Caledonia
French Polynesia
French Southern and Antarctic Lands
Wallis and Futuna Islands

Netherlands OCTs

Aruba
Netherlands Antilles (Bonaire, Cura(cid:231)ao, St Martin, Saba, St Eustatius)

Country with special relations with Denmark

Greenland

C 276/14

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Official Journal of the European Communities

29.9.1999

SUMMARY OF COMMITMENTS AND PAYMENTS PER OCT IN ECU MILLION AND AS A PERCENTAGE OF THE IP

ANNEX 3

Sixth EDF

(at 31.12.1992)

(at 31.12.1997)

Seventh EDF

(at 31.12.1997)

Committed

%

Paid

%

Committed

%

Paid

%

Committed

%

Paid

%

Mayotte
Programmable
Non-programmable

New Caledonia
Programmable
Non-programmable

French Polynesia
Programmable
Non-programmable

St Pierre and Miquelon
Programmable
Non-programmable

Southern and Antarctic lands
Programmable
Non-programmable

Wallis and Futuna
Programmable
Non-programmable

Aruba
Programmable
Non-programmable

Netherlands Antilles
Programmable
Non-programmable

Anguilla
Programmable
Non-programmable

Cayman Islands
Programmable
Non-programmable

Falkland Islands
Programmable
Non-programmable

Montserrat
Programmable
Non-programmable

St Helena
Programmable
Non-programmable

Turks and Caicos
Programmable
Non-programmable

British Virgin Islands
Programmable
Non-programmable

4,25 100

3,86

91

7,84 100

6,01

77

5,22

63

3,17

39

2,60 100

1,60

62

3,24 100

2,83

87

4,49
95
1,15 N/A
5,64

7,83 100
4,30 N/A
12,13

7,55
92
7,51 N/A

15,06

3,00
88
0,03 N/A
3,03

0,30 100
(cid:151) (cid:151)

0,30

3,30

88
(cid:151) (cid:151)

3,30

4,47
94
1,15 100
5,62

7,81
4,05
11,86

99
94

5,51
67
7,51 100

13,02

3,00

88
(cid:151) 0

3,00

0,27

90
(cid:151) (cid:151)

0,27

3,19

85
(cid:151) (cid:151)

3,19

0,51

8

0,28

4

6,62
95
3,29 N/A
9,91

19,59

92

5,02

24

1,80 100

0,75

41

1,50 100

1,489

99

0,70 100

0,50

71

2,00 100

1,34

67

1,40 100

1,28

91

1,60 100

1,59 100

1,50 100

0,88

58

20,29

97
1,48 N/A

21,77

99
1,79
1,50 N/A
3,30

1,49
99
0,50 N/A
1,99

0,70 100
0,49 N/A
1,19

2,00 100
2,23 N/A
4,23

1,40 100
(cid:151) (cid:151)

1,40

98
1,70
0,52 N/A
2,22

1,50 100
1,43 N/A
2,93

5,72
82
3,29 100
9,01

13,18
0,85
14,03

63
57

93
1,68
1,50 100
3,18

1,49 100
0,50 100
1,99

0,66
94
0,49 100
1,15

2,00 100
2,23 100
4,23

1,39
(cid:151)
1,39

1,65
0,15
1,80

99

95
29

1,50 100
1,43 100
2,93

6,63
99
3,38 N/A
10,01

8,99
73
13,2 N/A

22,19

4,67
35
8,21 N/A

12,88

3,000 100
0,036 N/A
3,036

5,44
81
3,38 100
8,82

7,53
6,58
14,11

3,56
6,14
9,70

60
50

27
75

3,00 100
0

(cid:151)
3,00

0,03

11
(cid:151) (cid:151)

0,03

0,03

1
(cid:151) (cid:151)

0,03

3,21
70
0,09 N/A
3,30

7,55 100
0,34 N/A
7,89

10,24
45
13,93 N/A
24,17

93
2,68
0,23 N/A
2,91

(cid:151) N/A
1,28 N/A
1,28

(cid:151) N/A
5,69 N/A
5,69

0,66
17
0,58 N/A
1,24

1,21
50
0,05 N/A
1,26

3,89 100
0,82 N/A
4,71

2,40 100
1,61 N/A
4,01

2,14
47
0,09 100
2,23

4,29
0,09
4,38

3,90
2,93
6,83

1,82
(cid:151)
1,82

57
26

17
27

63
0

(cid:151) N/A
45

0,58
0,58

(cid:151) N/A
5,69 100
5,69

0,017
0,009
0,019

0,85
0,04
0,89

0,32
0,57
0,89

0,04
1,22
1,26

0,4
2

36
80

8
70

1,7
76

Source: DG VIII (cid:151) OLAS (cid:151) Livre des comptes par pays.
NB: (1) Non-programmable aid comprises aid given outside the IP, such as Stabex, Sysmin and Emergency aid.

(2) N/A: not applicable as there are no prior allocation of funds.

29.9.1999

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Official Journal of the European Communities

C 276/15

SUMMARY OF PER CAPITA GDP AND EDF AID FOR OCTS AND A NUMBER OF ACP STATES

ANNEX 4

Population

GDP per capita/year
(purchasing power parity)
(in USD)

Amount of programmable aid
(7th EDF)
per capita/five year period (in ECU)

OCTs

Cayman Islands
Aruba
St Pierre and Miquelon
British Virgin Islands
Netherland Antilles
New Caledonia
French Polynesia
Anguilla
Turks and Caicos
Montserrat
Wallis and Futuna
Mayotte
St Helena

ACP States

Barbados
Gabon
Papua New Guinea
Ivory Coast
Haiti
Madagascar
Angola
Burkina Faso
Mozambique
Tchad
Ethiopia

36 000
68 000
7 000
13 000
211 000
191 000
233 000
11 000
15 000
13 000
15 000
105 000
7 000

258 000
1 190 000
4 496 000
15 000 000
6 611 000
14 061 000
10 548 000
10 891 000
18 165 000
7 166 000
58 732 000

23 800
21 000
11 000
10 200
9 800
8 000
8 000
7 400
6 400
4 360
2 000
600

N/A

10 300
5 400
2 400
1 620
1 000
880
800
740
670
600
430

(cid:151) (1)

111,40
428,57
184,62
107,70
65,45
56,22
263,64
260,00
300,00
306,67
63,81
342,86

21,31
25,13
10,28
7,45
17,01
9,46
10,90
13,71
9,39
15,39
3,64

(1) No allocation under the seventh EDF.
N/A: not available.
Source: ODCI-Gov/CIA-action/factbook: most of the data relate to 1995; sometimes 1996 information was given.

C 276/16

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Official Journal of the European Communities

29.9.1999

AMOUNTS OF AID TO OCTS GIVEN BY MEMBER STATES (1)

ANNEX 5

1991-1996

1993-1997

1994-1999

ECU million

British OCT (2)

Anguilla
Cayman Islands
Falkland Islands
South Georgia and South Sandwich Islands
Montserrat
Pitcairn Island
St Helena and Dependencies
British Antarctic Territory
British Indian Ocean Territory
Turks and Caicos Islands
British Virgin Islands

French OCTs (3)
Collectivities:
Mayotte (4)
St Pierre et Miquelon

Territoires:
New Caldonia
French Polynesia
French Southern and Antarctic Lands
Wallis and Futuna Islands (4)

16,0
0,4
4,1
(cid:151)
40,3
0,9
80,0
(cid:151)
1,2
56,6
8,8
208,3

76,7
16,5

284,3
229,8
2,4
8,8
618,5

Netherlands OCTs (5)
Aruba
Netherlands Antilles (Bonaire, Cura(cid:231)ao, St Martin, Saba, St Eustatius)

Country with special relations with Denmark
Greenland

117,7
427,4
545,1

(1) It is not known what elements the different Member States include as (cid:145)aid(cid:146) in the figures they presented to the Court. These figures may

not be comparable between Member States.

(2) Source: Report National Audit Office HC 13-30.5.1997.
(3) Source: Cour des comptes fran(cid:231)aise (cid:151) SecrØtariat d(cid:146)(cid:201)tat (cid:224) l(cid:146)Outre-Mer.
(4) These OCTs receive further 293,36 Mio Euro over the period 1995-2000.
(5) Source: Algemene Rekenkamer (cid:151) OECD.

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SUMMARY OF ALLOCATIONS OF PROGRAMMABLE FUNDS

ANNEX 6

Sixth EDF

Seventh EDF

(ECU million)

Indicative
programme

EDF accounts

Indicative
programme

EDF accounts

French OCTs
New Caledonia
Mayotte
French Polynesia
St Pierre and Miquelon
French Southern and Antarctic Lands
Wallis and Futuna

Sub-total

Netherlands OCTs
Netherlands Antilles
Aruba

Sub-total

British OCTs
Anguilla
Cayman Islands
Falkland Islands
South Georgia and South Sandwich Islands
Montserrat
Pitcairn
St Helena and Dependencies
British Antarctic Territory
British Indian Ocean Territory
Turks and Caicos
British Virgin Islands

Sub-total

Total

7,85
4,25
8,25
2,60
0,30
3,25

7,85
4,75
8,25
3,43
0,30
3,75

26,50

28,33

20,70
6,90

27,60

1,80
1,50
0,70
(cid:151)
2,00
(cid:151)
1,40
(cid:151)
(cid:151)
1,80
1,50

10,70

64,80

20,93
6,97

27,90

1,80
1,50
0,70
(cid:151)
2,00
(cid:151)
1,40
(cid:151)
(cid:151)
1,73
1,50

10,63

66,86

12,50
7,20
13,10
3,40
0,30
5,10

41,60

23,77
7,93

31,70

3,02
(cid:151)
(cid:151)
(cid:151)
4,03
(cid:151)
2,52
(cid:151)
(cid:151)
4,03
2,52

16,12

89,42

12,50
6,70
13,10
3,00
0,30
4,60

40,20

22,72
7,58

30,30

3,02
(cid:151)
(cid:151)
(cid:151)
4,03
(cid:151)
2,52
(cid:151)
(cid:151)
3,90
2,52

15,99

86,49

Note: Greenland not mentioned in the table as it did not receive any aid.

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REPLIES OF THE COMMISSION

SUMMARY

Financial aid is granted to the overseas countries and territories (OCTs) under the sixth and seventh EDFs in
accordance with the unanimously adopted Council Decisions of 30 June 1986 (OJ L 175, 1.7.1986) and 25
July 1991 (OJ L 263, 19.9.1991) on the association of the overseas countries and territories with the European
Community (Association Decision).

As regards the OCTs(cid:146) economic development, the Council, while favouring their special status with the Mem-
ber State to which they are linked, has wanted them to benefit from the same instruments as the African, Carib-
bean and Pacific (ACP) States.

The French, British and Dutch OCTs, though not Greenland (a Danish OCT), receive EU financial aid which
should be viewed in the light of the following considerations:

(cid:151) the Association Decision setting out the rules for granting development aid must be approved unani-

mously by the Council;

(cid:151) the OCT(cid:146)s status depends on the Member State to which it is linked: France, the Netherlands or the United

Kingdom;

(cid:151) the political relationship between the OCT and the State to which it is linked varies considerably;

(cid:151) the OCTs receive more bilateral aid from the Member State to which they are linked than Community aid,
which is considered additional; this sometimes explains why certain projects are selected in the indicative
programmes;

(cid:151) the OCTs are not sovereign entities, although some of them enjoy a certain degree of autonomy from the

Member State to which they are linked;

(cid:151) finally, the various OCTs are really diverse and have their individual features, especially as regards their

stage of development.

The Council decides, unanimously, on the amount of aid to be allocated to the OCTs. Because of their status
and special relationship with the European Union, the Council allocates more aid to them than to the ACP
States. The Commission aims to be as impartial as possible and proposes to the Member States to which the
OCTs are linked the total resources to be allocated. After a discussion, these Member States decide on the
breakdown for each group of OCTs (French, British and Dutch). The allocation for each OCT is then deter-
mined by the Member State to which they are linked.

The Commission also ensures that the EDF(cid:146)s requirements as regards programming and the preparation of
projects or programmes are strictly applied. These requirements may sometimes lead to further delays. More-
over, the programming rules for the seventh EDF include provisions for the Commission to be directly involved
in the preparation of the indicative programmes. These provisions also stipulate that all the Member States are
parties to the decision-making process following the signature of the indicative programme. However, the
Commission does its best in administering the aid to the OCTs, given the limited funds and resources available
and the remote and insular location of the OCTs.

The Commission considers that its financial management information system provides all the necessary infor-
mation. The method of accounting for regional funds under the sixth and seventh EDFs for OCTs is similar to
that used for other regional funds under those EDFs.

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Comparison between ACP States and the OCTs is neither appropriate nor desired either by the Commission
or by the OCTs themselves. The successive Association decisions differ appreciably from the corresponding
LomØ Conventions. The criterion of per capita revenue is certainly not the only one to be taken into consid-
eration.

The Commission has also initiated a review procedure with the OCTs and the Member States which could lead
to a change in the (cid:145)OCT 2000(cid:146) management methods (1). The main responsibility for management and imple-
mentation could be entrusted increasingly to local operators.

(1) The status of OCTs associated with the EC and options for (cid:145)OCT 2000(cid:146) (COM (1999) 163 final).

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INTRODUCTION

General

3. At a more general level, the fifteen Member States of the Euro-
pean Union are fully involved in the programming of OCT funds
and the project decisions through the EDF committee, which
examines each financing proposal and gives its opinion.

ALLOCATION OF FUNDS

Context of aid to OCTs

6, 7, 8. The status of the OCTs as regards cooperation and other
fields covered by their association with the EU is not comparable
to that of the ACP countries. This difference in status is reflected
in the successive Association decisions adopted by the Council.
Moreover, it is a political demand of the OCTs themselves.

9. The amounts to be allocated to the indicative programmes are
decided in a more general framework than on the basis of the
GNP criterion alone. According to the Council decision, they must
serve these territories(cid:146) economic, cultural and social development.

The programming of aid

Allocation to groups of OCTs

13. The discrepancy noted by the Court between the Council(cid:146)s
decisions on the EDF and the Commission(cid:146)s proposals is due to
the special procedure followed for allocating funds to the OCTs.
The Council decides on the total budget. After making a distinc-
tion between programmable and non-programmable funds, the
Commission proposes a breakdown by group of OCTs on the
basis of various parameters agreed with the three Member States
concerned. The three Member States may adjust these proposals
for each group of OCTs. The final decision is taken by the Coun-
cil. Finally each of the Member States concerned distributes the
previously negotiated amount between its OCTs in accordance
with its own criteria and priorities.

15. Council Decision 86/285/EEC adopted in June 1986 reallo-
cated the unexpended balance of the fifth EDF/Stabex to the fifth
EDF. ECU 1,1 million was allocated to the Dutch OCTs. These
extra funds were added to the indicative programme of the sixth
EDF for the Netherlands Antilles and Aruba.

16. The decision to increase the allocation for Saint-Pierre and
Miquelon was taken in order to help this territory to overcome
the serious economic problem resulting from the fishing areas
dispute with Canada. After the local economy collapsed, the
Commission, at the request of France, did all it could to mobilise
the unused balances from previous EDFs. The urgency and grav-
ity of the situation called for special procedures which would
bring effective and rapid relief to a devastated economy.

Allocation of funds to individual OCTs

17. The Commission proposes to the three Member States that
the overall allocation be divided into three in line with various
objective criteria. The three Member States negotiate amongst
themselves and the Council takes the final decision; each Member
State then distributes its funds in line with its specific criteria. The
Member States inform the Commission of their decision on the
breakdown of funds between the OCTs, but do not have to give
reasons. The Commission has no control over this process. Up to
now, the partnership has above all provided a forum for debating
common problems of general interest.

19. Unlike the Court, the Commission is of the opinion that the
accounting arrangements for these operations is transparent as
regards the use of the funds. It does not consider that there is a
need for any reconciliation between the EDF accounts and the
indicative programmes since the indicative programme is not an
account but a document describing in general terms the way it is
proposed to use the EDF.

The transcription error of ECU 0,2 million noted by the Court
(Turks and Caicos) did not have any financial repercussions for
the European Union.

IMPLEMENTATION OF AID

Indicative programmes

14. The Commission(cid:146)s decision to transfer ECU 3,415 million of
unused funds under the sixth EDF to the OCTs has been reflected
in the accounts. Reference is made to these amounts in the IPs set-
ting up the programming of the seventh EDF. The amounts have,
however, never been transferred from the sixth to the seventh
EDF in the accounts, since there has been no Council decision to
do so.

20 to 23. The rules of implementation set out in the Associa-
tion decisions (Part Two, Title III, Chapter IV (sixth EDF) and Part
Three, Title III, Chapter V (seventh EDF)) must be observed. The
Commission is obliged to comply. The Commission is aware of
certain delays and has already made a number of adjustments to
such aspects as the starting and closing dates for projects now
contained in the financing agreements. The commitment rates

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also depend on the recipients(cid:146) absorption capacity. Differences
between the OCTs as well as between groups of OCTs must be
taken into account.

Despite these difficulties, the Commission endeavours to establish
a dialogue and promote cooperation between OCTs, overseas
departments and the ACP; projects are only one means to this
end.

24. The Commission would provide the following explanations
for the five cases noted by the Court in which procedures were
slow:

(a) the Commission treats the programming exercise strictly and
seriously; this explains the length of negotiations with the
OCTs;

(b) the Commission has often deplored this lack of an overall
strategic vision; however, these are local constraints which
have to be taken into account;

(c) because of the requirements laid down in the association deci-
sion for preparation and documentation, the recipients often
find it difficult to reply, leading to delays; the Commission
recognises that the procedures are long and complex and is
endeavouring to simplify them;

(d) because of the low level of EDF funds available, some projects
do indeed have to be cofinanced (with a contribution from
the recipient or the Member State concerned); this explains
the large number of intermediaries;

(e) delays may arise because of the actual structure of the delega-
tions or offices in charge. However, the Commission often
faces limitations as regards human resources, the administra-
tive budgets of the delegations or offices and the mission bud-
gets. The current structure of the delegations and offices in
the Caribbean, which are still subject to restrictions, is a good
example in this respect. Despite that, every step is taken to
ensure that potential beneficiaries can make full use of the aid
schemes proposed.

Regional funds

25. The Commission makes a point of generating synergy
between territorial and regional programmes even though these
programmes are negotiated separately. The programming of the
territorial funds is a priority for the OCTs. The regional funds are
considered afterwards.

28. Generally speaking, regional cooperation merely reflects the
degree to which participants wish to cooperate. Regional coop-
eration is extremely difficult to introduce. Apart from the fact that
being an island does not promote a culture of cooperation, there
are other explanations such as the geographical isolation of the
recipients, differences of language and culture and sometimes a
certain reluctance outside or even within these territories.

29. The Commission would point out the following:

(a) Regional cooperation is extremely difficult to introduce for

the reasons set out at 28.

(b) Generally speaking, differences in status and in the develop-
ment objectives of OCTs in the same region, regardless of
whether they belong to the same group, do not facilitate
regional cooperation.

In the Pacific in particular, the considerable physical distance
between the two French territories means that the sense of
belonging to the same regional entity is very relative. The
political sense of belonging to a regional grouping may extend
beyond the Community framework to regional organisations
such as the Pacific Forum or the South Pacific Community.

(c) The Commission does all it can to develop regional coopera-
tion between the ACP and the OCTs. However, it takes time
to break down reluctance in the OCTs themselves, misunder-
standings and cultural and language barriers. The OCTs are
not sovereign states, while the ACP States are. In the case of
the OCTs, only the Member State to which they are linked is
authorised to handle cooperation of this type.

(d) To develop a strategy, the Commission and the OCTs must
share an overall vision; the Commission can hardly impose its
own. The only unifying factor seems to be the promotion of
regional tourism.

30. The Commission is of the opinion that regional cooperation
has advanced; however, this is a vast project which must be gauged
over the long term in relation to the initial situation.

31. The method of accounting for regional funds under the sixth
and seventh EDF for OCTs is similar to that for other regional
funds within those EDFs.

The total allocation for OCT regional projects is indeed booked
globally (plan 2 class 1). However, separate memorandum accounts
in plan 0 class 3 and 4 are used to record the breakdown by
region of the total OCT regional funds.

The commitment for a regional project is recorded as any other
primary commitment (plan 2 class 2). The association of the
project to an individual OCT or to a region depends on the nature

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of the project. In the case of a regional OCT project the account-
ing system automatically creates additional entries in plan 0 class
4 and 3 to reflect the drawing-down of lines of credit made avail-
able on a regional basis. Information on the use of regional funds
is hence readily available.

The choice of the Fiji shipyard was strictly in line with EDF pro-
cedures. The last two ships will be delivered to the territory in
May and June 1999.

Non-programmable funds

40. The Court is right to point out that the territory of French
Polynesia has not complied with its obligations as regards the pro-
vision of additional financing laid down in the financing agree-
ment.

32. The utilisation of Stabex funds has indeed been relatively
slow because of the desire for sound management and efficiency
or difficulties resulting from the geographical position of the
OCTs receiving the aid (see paragraphs 42 and 52 below).

41. The objective of the project in French Polynesia was to
improve the quality of the pearls. Nevertheless, it is very tricky to
determine indicators in the financing agreement for this research
project objective. However, an ex post evaluation of the impact
and the results is planned.

Implementation of individual projects and actions

34. The Commission welcomes the Court(cid:146)s positive assessment
of the absence of irregularities in the management of Community
funds by the OCTs. As for the four specific comments, the fol-
lowing constraints should be borne in mind:

(a) the inadequacy of resources available on the spot (local or
other), the absence of data in other institutions (IMF, World
Bank, etc.) and the special relationship between the OCTs and
the Member State to which they are linked; the Commission
uses the data available, which are usually provided by the
recipient;

(b) in some cases, the proportion of Community finance is small

as the project is cofinanced;

(c) and (d) an excessive workload and insufficient staff and funds

may also affect the projects.

36 and 37. Like the Court, the Commission recognises the use-
fulness and effectiveness of the projects in New Caledonia even if
one of them (1/5 of the indicative programme) suffered from
planning faults.

38. The delays in preparing the Outoumaoro/French Polynesia
project are due to the slowness of the local authorities to satisfy
the Commission(cid:146)s conditions and quality requirements. This
financing proposal is now being finalised.

39.
It should be pointed out that, when awarding contracts, the
Commission insists that the general terms are strictly observed.
The local tender committee had planned to award the contract to
a Polynesian shipyard on the basis of criteria which were not laid
down in the call for tender.

42. The Framework of Mutual Obligations was signed in March
1998 despite being presented in 1993. The time-lag between pre-
sentation and signature of the document was due to a request by
the French Polynesian authorities for an audit of previous opera-
tions before finalising the Framework(cid:146)s provisions. This audit was
not completed until November 1997.

43. The Commission appreciates the Court(cid:146)s positive assessment
of the management of funds in Mayotte.

44. The Commission is trying to concentrate aid on a maximum
of two sectors in the Netherlands Antilles. It is also trying to per-
suade the OCTs to concentrate this aid geographically even though
the geographic dispersion of the islands is one of the features of
the Netherlands Antilles and has an appreciable impact. The vol-
ume of bilateral aid should also be taken into account. As regards
the extension of contracts, the Commission will ensure that a
stricter examination takes place first.

46. The Court is referring to the abandonment of the technical
school project in Sint Maarten (ECU 8 000 000). This project was
abandoned at the Commission(cid:146)s initiative, to the great displeasure
of the island and federal authorities, because, after more than five
years of repeated contacts and reminders from the Commission,
the OCT concerned had not managed to provide the minimum
level of information required to allow the project to start (actual
intentions of the local authorities, choice of language for tuition,
sectoral studies, etc.). Moreover, it was increasingly evident to the
Commission that the basic data put forward in support of this
project had changed (in particular the population data).

47. As regards the extension of the airport runway at St Eusta-
tius, the forecasts were imprecise and had been difficult to pro-
duce. The Commission therefore admits that it was over-optimistic
in this case.

As regards the terminal, the project was indeed badly executed (by
the Netherlands Antilles authorities).

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The Commission representatives have since pointed out these
shortcomings to the local authorities. Solutions have now been
applied to remedy the situation.

Monitoring and evaluation

48. As regards the Business Development Scheme (BDS), some
of the stipulations contained in the financing agreement lacked
precision. The Commission ordered an additional support mis-
sion during execution of the project. After this mission, recom-
mendations were made to the parties concerned which concluded
that some administrative costs should be met by the project.

The Commission does not therefore consider that the costs
incurred need to be recovered.

49. The Commission appreciates the Court(cid:146)s favourable com-
ments about the project in Aruba.

56 to 59. Primary responsibility for development, including the
use of EC aid, lies with the beneficiary. This is a basic principle of
the agreements with the OCTs. It is accurate to state that limited
staff resources made it difficult for the Commission to monitor
and readjust the aid actions, although it would not be correct to
conclude that no such work was done; on the contrary, the Com-
mission departments have done considerable work to facilitate
and improve implementation.

61. The Commission wishes to continue to devolve more respon-
sibility and apply the principle of subsidiarity. However, it wishes
to assign responsibility to the OCTs rather than to the Member
States to which they are linked. Issues such as the transfer of
responsibility to the OCTs have been addressed in the delibera-
tions about the Commission(cid:146)s discussion paper on the next Asso-
ciation decision, commonly referred to as OCT 2000. The approach
advocated by the Commission would certainly tend towards
greater decentralisation and subsidiarity.

51. The problems encountered with the local consultant are
typical of the difficulties facing the Commission when imple-
menting aid in accordance with the provisions of the Association
decision on the use of local resources.

62. As the Court points out, the Commission and the OCTs are
jointly responsible for evaluation. For the Commission(cid:146)s part,
because of competing priorities for human resources, it has not
been possible to ensure that the systematic evaluation envisaged
by the Council Decisions is undertaken.

52. There is a need for compensation to offset the low prices
fetched by wool produced in the Falkland Islands. The local
authorities too wanted this aid badly. The geographical and socio-
economic background makes achievement of the project tricky
since it is very difficult to launch a project, and respect EDF rules
during implementation, with local authorities with limited means,
communication difficulties due to the distance involved and a
relatively slack local market.

53. The French authorities exercised their powers to distribute
EDF OCT funds by allocating ECU 300 000 to the French South-
ern and Antarctic Territories. In view of the problems which this
caused the EDF Committee, the Commission has asked the French
authorities not to allocate EDF funds to this OCT when the 8th
EDF is distributed.

54 and 55. So far, the partnership meetings have been used to
discuss common problems of general interest (commercial aspects,
for example, and the implementation of programmes in general).
As regards the programming, only the formal side has been car-
ried out (signature of the Territorial Indicative Programme).

The Commission has bilateral contacts with the OCTs through
the delegations or offices. The problems of bilateral cooperation
are addressed within this framework alone and not multilaterally.

CONCLUSION

63. The status of the OCTs as regards cooperation and EU aid
schemes is not comparable to that of the ACP countries. This dif-
ference in status is reflected in the Association Decisions adopted
by the Council.

64. The utilisation rate for appropriations may be low, but it is
closely linked to the recipients(cid:146) absorption capacity and the bilat-
eral aid granted by the Member State concerned. Nevertheless, the
Commission does all it can to ensure that beneficiaries can make
full use of the aid schemes proposed, taking account of the con-
straints of the Association decision and the human resources
available.

65. A new type of Commission involvement in the distribution
of funds as suggested by the Court must be examined in the light
of the following: the principle of subsidiarity, the additionality of
Community aid and the cofinancing of projects for a greater con-
sistency of operations. In future, the Commission, in agreement
with the recipients and the Member States concerned, intends to
propose a number of criteria to lead to a more objective distribu-
tion of funds between the OCTs. The Commission discussion
paper OCT 2000 has dealt with these proposals.

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66. The Commission considers that its financial management
information system provides the necessary information. The
method of accounting for regional funds under the sixth and sev-
enth EDF for OCTs is similar to that used for other regional funds
under those EDFs. As to supposed discrepancies between the EDF
accounts and the indicative programme (IP), the Commission does
not consider there is a need for any reconciliation since the IP is
not an account but a document describing in general terms the
way it is proposed to use the EDF.

69. As the Court itself recognises, the human resource implica-
tions of monitoring projects and actions over a sometimes vast
geographic area, whether by Commission staff on the spot or at
central level, are considerable. The reflection launched by the
Commission (see paragraph 71 below) has taken this into account
in advocating an approach based on the principles of partnership
and ownership. This type of decentralisation could be imple-
mented through first reaching a global agreement on the develop-
ment of the OCT, then day-to-day project management at the
local level, followed up by ex post evaluation.

67. Regional cooperation is difficult to put into effect (see para-
graphs 25 to 30), but the Commission tries to generate synergies
between its various operations in the areas concerned. For example,
the regional programme for Caribbean OCTs has been carefully
coordinated with the regional programme for Caribbean ACP
States. One project in the tourism sector also aimed for regional
cooperation between the Dutch OCTs (Netherlands Antilles and
Aruba), with some success.

68. The Commission has strict quality requirements for the
preparation of projects and appraisals are usually demanded at
the end of the project. Commitment rates in the territories depend
to a large extent on the recipient(cid:146)s absorption capacity, which dif-
fers from territory to territory.

The contribution which a project makes to the development of a
territory or country is relative to the recipients degree of develop-
ment.

70. The Commission recognises that the local authorities will
find some of the administrative procedures cumbersome; in its
OCT 2000 discussion paper, it undertakes to remedy this state of
affairs.

71. The Commission, the OCTs and the Member States to which
they are linked have begun a general review (OCT 2000) of coop-
eration links between the three partners. A number of future
policy options will be set out in a Commission communication,
which, as a basis for discussion, will identify the principles to be
contained in a Commission proposal in the next few months.