Preliminary draft supplementary and amending budget No 4 to the budget for 2002 - Statement of revenue and expenditure by section - Section III - Commission
Date: 2002-07-24
Institutions: Directorate-General for Budget, European Commission
Subjects: Afghanistan, EU aid, aid programme, amending budget, budget, domestic market, preliminary draft EC budget, supplementary budget













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52002SC0851

Preliminary draft supplementary and amending budget No 4 to the budget for 2002 - Statement of revenue and expenditure by section - Section III - Commission  /* SEC/2002/0851 final */  









PRELIMINARY DRAFT SUPPLEMENTARY AND AMENDING BUDGET No 4 TO THE BUDGET FOR 2002 - STATEMENT OF REVENUE AND EXPENDITURE BY SECTION - Section III - Commission(presented by the Commission)Having regard to:- Article 78 of the Treaty establishing the European Coal and Steel Community,- Article 272 of the Treaty establishing the European Community,- Article 177 of the Treaty establishing the European Atomic Energy Community,- Article 15 of the Financial Regulation of 21 December 1977 applicable to the general budget of the European Communities, [1] as last amended by Regulation No 762/2001 [2] of 9 April 2001,[1]   OJ L 356, 31.12.1977, p.1.[2]   OJ L 111, 20.04.2001, p. 1.The European Commission hereby presents to the budgetary authority the draft supplementary and amending budget No 4 to the 2002 budget for the reasons set out in the explanatory memorandum.***TABLE OF CONTENTSEXPLANATORY MEMORANDUM1 Support to the second recovery programme in Afghanistan1.1 Political developments1.2 Current Programme situation1.2.1 Progress to mid-20021.2.2 Components of the Recovery and Reconstruction Assistance (initial tranche)1.2.3 Humanitarian aid1.2.4 Support from other donors1.3 EC Office in Kabul and aid coordination1.4 Asia projects in the commitment pipeline1.5 Proposed Programme under the SAB funds1.5.1 Human and Social Capital (EUR19 million)1.5.2 Good Governance and Institutional Reform (EUR37 million)1.5.3 Physical Reconstruction (EUR11 million).1.5.4 Payment appropriations2 Mise en oeuvre et développement du marché intérieurSUMMARY TABLE - Effect of the SAB on the financial perspectiveSTATEMENT OF REVENUE AND EXPENDITURE BY SECTIONSection III - CommissionEXPLANATORY MEMORANDUMThis Preliminary Draft Supplementary and Amending Budget (PDSAB) No 4/2002 contains the following elements in section III - Commission:- The mobilisation of the remaining margin under the ceiling of the financial perspective heading 4, in favour of the aid to Afghanistan;- The modification of the remarks of a budget line dedicated to the internal market, in order to fund actions in the field of customs.Following the events of September 11th, and the subsequent developments, the European Union has committed itself to actively participate to the financial efforts in favour of Afghanistan and the neighbouring region. It has played a major role, hosting the Bonn Conference, which provided the blue print for Afghanistan's future, and has declared its clear support for the long term reconstruction effort.The Budgetary Authority already decided during the conciliation meeting at the Budget Council of 21 November 2002 to "leave a margin of EUR 70 million in Heading 4 to cover further needs in this area in 2002 (and) await more accurate estimates of these needs from the Commission".The Budgetary Authority has conditioned the use of this margin to the fulfilment of specific requirements, whose respect must be confirmed by the Commission. In particular, the Commission should demonstrate that appropriations already entered under the budget lines for Asia and for humanitarian aid are spent properly, whilst evaluating support given by other donors with respect to their commitments made in Tokyo (January 2002). Moreover, the Commission should ensure that the new appropriations could be spent in an efficient way to help the Afghan people.The Commission considers that the conditions stated above are met, and therefore presents this Preliminary Draft Supplementary and Amending budget. All the elements and justifications are included in the present proposal. In addition to this PDSAB and in accordance with the conclusions of the conciliation meeting held on 21st November 2001, the Commission presented separately a proposal to transfer EUR 35 million from the emergency aid reserve to the humanitarian aid credits, also in favour of Afghanistan. The budget authority approved the request on 22 July for an amount of EUR 25 million. This brings the total EC funding for 2002 (including this PDSAB) up to EUR 250 million.1. Support to the second recovery programme in Afghanistan1.1 Political developmentsWith the conclusion of the Loya Jirga at the end of June, the political reform process entered its second stage. The 6-month 'Afghan Interim Authority' (AIA) installed after the Bonn/Petersberg agreement has now been replaced by the 'Afghan Islamic Transitional Authority'. The new government is broader-based (and includes one woman among its members). The overwhelming election of president Karzai gives him renewed authority. Success and survival of the government will depend internally on a fragile coalition that supports Karzai. Internationally, continued assistance will remain essential for the transition to a viable, stable and democratic state. Respect of the Bonn process should remain the yardstick with successful conduct of the general elections scheduled for mid 2004 as the medium term objective. The EU continues to be present through its Special representative. The recent confirmation of Mr Vendrell as a successor to EUSR Klaiber - coinciding with the start of the second phase of the political stabilisation process - should be taken as an opportunity to consolidate the EU's political presence in Afghanistan as well as strenghtening progress on the path of respect of human rights and overall development.1.2 Current Programme situationThe table below summarises the 2002 resources made available or programmed:Recovery and Reconstruction   //  Budget EUR millionRapid Reaction Mechanism (RRM)  //  5.9Aid to Uprooted People Programme (B7-302)  //  24Food Security Programme (B7-20)   //  30Initial Recovery Programme (B7-300)   //  57.5Migration / Reintegration Programme Grant (JAI)  //  3Total Recovery and Reconstruction   //  120.4ECHO  //  35Total EC 2002 assistance up to June  //  155.4Second Recovery Programme (B7-300) = PDSAB 4/2002  //  70Total EC assistance if SAB is approved  //  225.4 [3][3]   Another 25 MEUR has been approved by the budgetary authority through a transfer from the emergency aid reserve to the humanitarian aid line. This brings the total EC funding for 2002 up to 250 MEUR.1.2.1 Progress to mid-2002(1) EUR 73.24 million is contracted and in implementation, including a EUR22 million "Aid to Uprooted People" contract.(2) EUR 47.19 million is in preparation, the bulk of which will be contracted by end July.(3) EUR 5.9 million from the Rapid Reaction Mechanism have been committed.1.2.2 Components of the Recovery and Reconstruction Assistance (initial tranche)1.2.2.1 Rural Development and Food Security85% of the population is based in rural areas and most refugees/Internally Displaced People (IDPs) originate from rural areas. The support to rural livelihoods and the search for alternatives to poppy production has led to a substantial share of the funds (EUR 66 million) been allocated to rural areas. Funds are drawn from different programmes/instruments as follows:- The Aid to Uprooted People Programme focuses on preventing new displacements of populations and on helping IDPs and returnees to reintegrate in their region of origin or to settle in new areas. Activities primarily focus on restoring agricultural production, improving basic services such as primary health care services and assisting returns from the Afghan refugee camps in Iran and Pakistan. The programme will be implemented through a consortium of NGOs and a EUR 22 million contract for rural economic and social infrastructure is expected to be signed by June.- Under the Food Security Programme, EUR 8 million are being provided for seeds, tools and fertilisers delivered through the NGO/Euronaid system. An additional EUR 6 million is being contracted with the Food and Agriculture Organisation for a Seed Multiplication Programme to be implemented with the government.- Using funds from both the Food Security and Initial Recovery Programmes, a EUR 28 million tranche has been allocated for community based development projects in rural areas. The objective is to recover the asset base of these rural communities and to provide alternative income generation opportunities. Interventions will focus on rehabilitation of productive infrastructure and the injection of capital in the local economy through employment creation would kick start entire communities and provide an incentive to falling back on poppy cultivation.1.2.2.2 Support to Public AdministrationEUR 20 million have been allocated from the Initial Recovery Programme to support the Interim Administration. Funds will be used to finance: (a) recurrent costs such as salaries while the state revenue collection system and budget is being re-established, and (b) supplies and works for the reestablishment and rehabilitation of government and municipal offices throughout the country, and (c) support to the Emercency Loja Jirga (3.7 MEUR) .The Commission has also allocated EUR 5.9 million in 2002 through the Rapid Reaction Mechanism (RRM). The RRM funding for 2002 has been committed for development of institutional capacity building at national and provincial levels.Support is also extended through the RRM to the development of Afghan media including the creation of a local newspaper and distribution network and training and access for local journalists (EUR 525,000).1.2.2.3 Mine ActionEUR 10 million will be provided from the Initial recovery Programme to continue mine action activities in what is the most mined country in the world.1.2.2.4 Urban infrastructureEUR 7 million from the Initial Recovery Programme will be used to address the serious urban problems of water supply, waste management and other municipal activities. Interventions are expected to benefit women in particular, through labour saving and provision of facilities for women. The focus is on kick-starting developmental activities and ensuring the local municipal structures are strengthened, as they will be the key to sustainable urban services delivery in the long term. The initial priority is basic infrastructure repair such as drains and culverts to prevent health hazards.Under the Rapid Reaction Mechanism, the EC is financing emergency rehabilitation projects to essential public infrastructure in Kabul (EUR 500,000).1.2.2.5 Support to studies and aid co-ordinationThe National Development Framework presented by AIA last April is the basis for more detailed sectoral strategies to be developed in the near future. A comprehensive management information system will also need to be put in place to allow effective monitoring. EUR 5 million have been allocated from the Initial Recovery Programme to assist in the formulation of sectoral strategies and fund the functioning and expansion of AIMS (Aid Information Monitoring System). This will help not only in guiding donor (including EC) support but also in empowering the newly created Afghanistan Assistance Coordination Authority (AACA) to do its co-ordination work.1.2.2.6 Support to return of Afghan DiasporaThe Directorate-General Justice and Home Affaires has earmarked 3 MEUR to fund activities for the return of the Afghan Diaspora. Call for proposals are currently being received.1.2.3 Humanitarian aidECHO has been providing humanitarian relief in Afghanistan since 1990. About 570MEUR have been spent between 1990 and 2001, with 100MEUR in 2001 alone. 35MEUR is currently available for the region in 2002, with an additional 35MEUR earmarked from the 2002 emergency reserve. Financing goes to the most vulnerable groups, victims of the Narhin earthquake and refugees, internally displaced people and returnees. Funds are channelled through NGO partners, the UNHCR and the Red Cross.1.2.4 Support from other donorsThe information received so far indicates that Member States have allocated about 525MEUR of the 600MEUR pledged for reconstruction at Tokyo. The difference between figures can be explained by a number of factors, including differences in timeframes and inclusion or not of humanitarian assistance. In most cases, the difference between "pledged" and "allocated" amounts is 10% or less.Concerning other donors, the information available includes:* US has doubled its contribution from the US$ 396 million pledged at Tokyo. These funds will be allocated essentially to security, although substantial US involvement is also expected in Food Security.* The World Bank has already committed US$ 110 million in grants (US$ 100 million over and above the pledged amount). The further US$ 500 million available over 3 years are expected to have a 50% grant component and 50% loan from the International Development Agency.* Assistance by the Asian Development Bank has been delayed so far due to internal programming problems, but a US$ 50 million grant is to be made available in 2002.* India has released the US$ 100 million pledged for 2002.* Pakistan has committed its US$ 100 million pledge to the rehabilitation of regional link roads.1.3 EC Office in Kabul and aid coordinationThe EC Office in Kabul has now been functioning since March 2002 and, despite the numerous practical and logistical difficulties, has managed to increase its operational capacity rapidly over the past few months.Effective co-ordination mechanisms and close involvement of the Transitional Authority are pivotal to the good performance of the programme. This was clearly understood by the administration who put in place a strong Afghanistan Assistance Coordination Authority (AACA). The EC plays and will continue to play a very active role within the AACA activities, including reporting on its programmes.At the more macro level, the EC plays an active role alongside other stakeholders in the Implementation Group and Afghanistan Support Group, as well as in their gradual transition to a Consultative Group dialogue mechanism.Separately to the government/donor coordination, the EC coordinates and reports weekly on its assistance to the EU Heads of Mission in Kabul as well as cooperating closely (including with regular reporting and strategy discussions) with the EU High Representative office with whom it has built a close and very fruitful cooperation.1.4 Asia projects in the commitment pipelineAvailable appropriations on B7-300 (financial and technical cooperation with Asian developing countries) is 318.4MEUR. The actual pipeline of projects close to maturity (including the 70MEUR for Afghanistan) is 408MEUR. 111,1 mio EUR  (35%) have already been committed (mid of June).On B7-301 (political, economic and cultural cooperation with Asian developing countries) a pipeline of EUR 89 mio is ready for commitment, compared to EUR 82,2 mio available appropriations. 13% has yet been commited.On B7-302 (aid to uprooted people in Asian countries), EUR 36 mio out of EUR 50,3 mio available have been commited (72%).&gt;TABLE POSITION&gt;1.5 Proposed Programme under the SAB fundsThere is now an urgency to obtain further funds for the following reasons:(1) In view of the many pressing needs in Afghanistan, and in order to reinforce peace and stability within the country, further donor financing is essential;(2) In particular, the funding available to cover the needs of recurrent public expenditure budget is expected to run out in October; Despite further donor commitment, there is still a substantial financing gap;(3) The first programme for recovery/reconstruction will have been fully contracted by the end of July 2002.In view of the considerable needs and, in particular of the recurrent budget financing gap, it is essential that the implementation of the new programme starts in autumn 2002 at the latest. Preparation on a number of foreseen components is already under way and it is expected that, out of the total 70MEUR, contracts worth 50MEUR will be concluded before the end of 2002.The indicative breakdown proposed for the EUR70 million is as below. The reinforcement concerns line B7-300, Financial and technical ccoperation with Asian developing countries.&gt;TABLE POSITION&gt;1.5.1 Human and Social Capital (EUR19 million)The support to the health sector has two prongs. The first is directed at building capacity in the Ministry of Public Health (MoPH) and assisting it in developing a sustainable health policy. The second, involving the bulk of the funds, will seek to ensure continued delivery of essential health services. This will involve funding NGO operations but through a new mechanism: NGOs will operate within the MoPH policy framework as service providers and will deliver standard an "Essential Health Service Package" (EHSP) in consolidated geographical areas. The EHSP concerns mainly mother and child healthcare and will therefore make a particular contribution to strengthening the rights of women.In the area of social protection, support will be provided to vulnerable groups, in particular: (i) street children - and through them widows - in Kabul. The programme is being designed in conjunction with the AIA and would use NGOs for implementation, (ii) people with disabilities in selected urban and rural areas. Both interventions will include support to develop a national policy and legislative framework. Both interventions are also likely to improve gender awareness in Afghanistan.Lastly, the EC will finance support to civil society and media. On civil society, EC support will be directed to projects across the country for good governance, representation of women and other disadvantaged groups and human rights. On media, the focus will be on financing a nation-wide distribution network, a media centre in Kabul and continued broadcasting of key radio programmes.1.5.2 Good Governance and Institutional Reform (EUR37 million)Support to Public Administration: This comprises EC support to the budget (EUR30 million) for bridge financing of the recurrent budget through the World Bank's Afghan Reconstruction Trust Fund. Expenditure covered will include the salaries of civil servants in key sectors (health, food security, infrastructure and police).Public Administration Reform: The objective of this component is to support the revival of a public administration at central and local level able to resume the delivery of essential public goods and ensure the respect of the Rule of Law. The EC support will target human resource development and the creation of efficient institutional structures.1.5.3 Physical Reconstruction (EUR11 million).Support to Economic Infrastructure: The Afghan authorities have agreed to the EC focusing on Kabul electricity and the Kabul-Jalalabad-Turkham Road.The electricity project is key to regenerating and making more secure the most war damaged parts of Kabul (districts 6 and 7) by providing electricity to 60,000 households, schools and hospitals and installing over 180 kms of street lighting. The EC would cooperate with the German KfW agency on implementation of these programmes in Kabul. This intervention will have a strong impact on the level of economic activity in Kabul, in particular for micro and small scale enterprises.The Kabul-Jalalabad-Turkham Road involves emergency repair in 2002 while the technical designs are being prepared. Full reconstruction will take place in 2003. Co-financing with Sweden and the government is foreseen. Benefits from the rehabilitation are expected to include lower transport costs and shorter travel times.1.5.4 Payment appropriationsThe second tranche of the Recovery and Reconstruction Programme is expected to lead to fast delivery and payments: 50 million out of the 70 million commitments are expected to be awarded as contracts or subsidies before the end of the year. Yet the Commission is not asking additional payment appropriations. This is explained by a lower than expected level of payments in the ongoing Asia programmes, in particular due to delays incurred with the India and Pakistan projects.2 Implementation and development of the internal marketBudget heading B5-3001 - Implementation and development of the internal market - covers the costs of consultation, studies, various grants, awareness-promoting and training materials arising from measures to complete the internal market and measures in the field of taxation.It is proposed that the remarks relating to this heading be amended in line with the PDB 2003 to include the following measures in the customs field: binding tariff information (BTI), evaluation of the content and terminological update of the BTI database, including diffusion of BTI to operators, update of the European Customs Inventory of Chemical Substances (ECICS).These measures are intended to reduce fraud, ensure internal competitiveness and increase Community added value in the globalisation process. They were decided after the preliminary draft budget 2002 had been presented to the budgetary authority.The intention is to award a contract for services in the field of binding tariff information (BTI) in 2002 and to launch a feasibility study with a view to transferring responsibility for updating the European Customs Inventory of Chemical Substances (ECICS) to the Joint Research Centre.&gt;TABLE POSITION&gt;STATEMENT OF REVENUE AND EXPENDITURE BY SECTIONSection III - CommissionPART BSUBSECTION B5CONSUMER PROTECTION, INTERNAL MARKET, INDUSTRY AND TRANS-EUROPEAN NETWORKSTITLE B5-3INTERNAL MARKETCHAPTER B5-30 - STRATEGIC IMPLEMENTING MEASURESArticle B5-300 Strategic programme on the internal marketItem B5-3001  Implementation and development of the internal market&gt;TABLE POSITION&gt;Modify the remarks as follows:(second paragraph)This appropriation is also intended to cover expenditure arising in the field of taxation and customs via the following measures:(new bullet)- customs: binding tariff information (BTI), evaluation of the content and terminological update of the BTI database, including diffusion of BTI to operators, update of the European Customs Inventory of Chemical Substances (ECICS)SUBSECTION B7EXTERNAL ACTIONSTITLE B7-3COOPERATION WITH DEVELOPING COUNTRIES IN ASIA, LATIN AMERICA AND SOUTHERN AFRICA, INCLUDING SOUTH AFRICACHAPTER B7-30 COOPERATION WITH ASIAN DEVELOPING COUNTRIESArticle B7-300 Financial and technical cooperation with Asian developing countries&gt;TABLE POSITION&gt;