Communication from the Commission to the Council and the European Parliament - Evolution of budget execution of the Structural Funds, in particular outstanding commitments (R.A.L.)
Date: 2002-09-20
Institutions: European Commission
Subjects: EU programme, Structural Funds, commitment of expenditure, coordination of financing, implementation of the budget, payment appropriation, validation of expenditure

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 20.09.2002
COM(2002) 528 final

COMMUNICATION FROM THE COMMISSION
TO THE COUNCIL AND THE EUROPEAN PARLIAMENT

Evolution of budget execution of the Structural Funds, in particular outstanding
commitments (R.A.L.)

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL AND THE
EUROPEAN PARLIAMENT

Evolution of budget execution of the Structural Funds, in particular outstanding
commitments (R.A.L.)

TABLE OF CONTENTS

1.

2.

2.1.

2.2.

2.3.

Summary ...................................................................................................................... 3

Trend in outstanding commitments.............................................................................. 7

Pre-1994 programming periods ................................................................................... 7

1994-99 programming period ...................................................................................... 7

2000-06 programming period ...................................................................................... 9

2.3.1. Commitments ............................................................................................................... 9

2.3.2.

Payments .................................................................................................................... 10

2.3.3.

Trend in commitments outstanding in 2000-06 ......................................................... 11

2.3.4.

Total commitments outstanding at the end of the year .............................................. 12

2.3.5. Outstanding commitments for 2000-06 during each budget year.............................. 13

2.3.6.

Scenarios for atypical trends in payments.................................................................. 14

2.4.

Conclusion on the trend in outstanding commitments............................................... 15

3.

4.

5.

6.

6.1.

6.2.

6.3.

6.4.

6.5.

6.6.

6.7.

7.

8.

Budget management of payment appropriations ....................................................... 16

“Sunset clause” for automatic decommitments ......................................................... 17

Improving the forecasts.............................................................................................. 18

Analysis of reasons for the slow start-up of 2000-06 programmes ........................... 20

Cumbersome procedures............................................................................................ 20

Overlap of two programming periods ........................................................................ 21

Payments between the first date of eligibility of expenditure and the submission of
the programme complements ..................................................................................... 22

Better financial management and inspection ............................................................. 23

Date of declaration of expenditure incurred............................................................... 23

Unforeseen circumstances.......................................................................................... 23

Capacity to absorb funds............................................................................................ 24

“N+2” : Measures taken and planned by the Commission ........................................ 24

Conclusions................................................................................................................ 25

2

1.

SUMMARY

Execution  of  the  payment  appropriations  for  the  Structural  Funds  was  at  a  low  level  in  the
2000 and 2001 budgets because the responsible authorities in the Member States did not send
in payment  claims equal  to  the  financial  resources  allocated  to  them  and  did  not  meet  their
own forecasts for the volume of such claims. The rate of execution of appropriations in 2002,
up  to  31 August  2002,  is  once  more  below  Commission  forecasts.  This  worrying  finding
raises  questions  about  the  reliability  of  the  budget  forecasts,  about  delays  in  the
implementation on the ground of the programmes financed by the Structural Funds, and about
the consequent growth in commitments outstanding. The Commission has undertaken an in-
depth analysis of these questions.

For 2002, the Commission again expects an under-execution of the payment appropriations,
in  particular  because  of  the  Member  States’  delays  in  auditing  the  final  expenditure
declarations  for  the  1994-99  period,  and  in  view  of  the  level  of  the  payment  claims  so  far
received  for  the  2000-2006  period.  The  final  out-turn  for  the  new  programmes  is  still
uncertain, as budgetary execution may be concentrated towards the end of the year. However,
the outlook for the old programmes is already worrying. By 31 August 2002, the Commission
had received only a few final payment claims, and most of these are not accompanied by the
documents, such as the audit certificates, which are necessary before payment can be made. It
is therefore apparent that the Member States have not respected the dead-line for presentation
of  their  claims,  which  is  set  in  the  regulation  at  six  months  after  implementation  of  the
programmes (in principle 30 June 2002).

If this under-execution does materialise:

(cid:1)  the carry-over should be proposed of most of the unused appropriations of the period 1994-
99, which may reach several billion €. The outstanding commitments (known as the French
acronym ‘RAL’) at the end of 2002 will be increased by this amount, but will fall to the
expected level by end-2003;

(cid:1)  the unused appropriations for the 2000-2006 period, which may be about 2 billion €, will
lead to an increase the RAL at the end of 2002. This increase is expected, according to the
suppositions explained in this Communication, to be whittled down over the years 2003 to
2006.

This communication explains:

(cid:1)  the expected evolution of the  ‘RAL’  over the  rest of the 2000-2006 programming period
(EU-15),  based  on  the  execution  rates  recorded  in  budget  years  2000  and  2001  and  the
assumption that spending should reach a steady level in 2004;

(cid:1)  the factors preventing reliable forecasting of annual payments, and the measures taken by

the Commission to improve reliability;

(cid:1)  an initial analysis of why programmes got off to a slower start than anticipated in the 2000-

2006 period;

(cid:1)  why programme management is so complex, and the steps undertaken by the Commission,
in  particular  in  the  area  of  simplification,  to  help  the  Member  States  to  overcome  any
obstacles to implementing their programmes.

3

Overlapping of two programming periods in 2000 and 2001

The  Commission's  analysis,  together  with  information  from  the  Member  States,  shows  that
the  low  execution  rate  for  payment  appropriations  was  due  in  particular  to  the  fact  that  in
2000 and 2001 the new programming period overlapped with the previous one. At the same
time there was a change between the two periods in the way the Community funding was paid
out.

The cut-off date for the eligibility of most payments in the 1994-99 programming period was
31 December  2001.  Since  programme  implementation  was  running  a  little  late,  Member
States concentrated their efforts and financial resources on completing on-going operations so
as not to lose too much of their funding at the moment of programme closure.

The national financial resources which had to be mobilised for this purpose were substantial.
In addition to the € 41.7 billion in outstanding commitments under the Community budget on
31 December  1999,  there  were  considerable  "hidden"  outstanding  commitments  at  national
level,  due  to  the  difference  between  the  advances  received  from  the  Commission  and  the
payments made to final beneficiaries. Furthermore, the Member States had to pre-finance the
last  10%  of  appropriations  for  each  programme,  which  were  reimbursable  only  after  the
Commission had accepted their requests for final payments.

The  administrative  and  financial  constraints  connected  with  completion  of  the  1994-99
programmes  contributed  largely  to  the  delays  in  starting  up  programmes  for  the  2000-06
period.  In  particular,  Member  States  took  very  little  advantage  of  the  provision  allowing
spending  under  most  programmes  to  be  eligible  as  of  1 January  2000  even  though
programmes were adopted at a much later date.

Unlike  in  the  1994-99  period,  when  the  Commission  paid  out  advances  in  anticipation  of
payments on the ground, the rules for the 2000-2006 period stipulate that the Commission can
provide only  a single advance of 7% for each programme, after which it reimburses the  co-
financing of the payments made by the final beneficiaries.

Outstanding  commitments:  a  normal  consequence  of  the  way  projects  are  financially
managed

At a given moment the outstanding commitments comprise all the commitments approved but
not yet paid but which would normally be paid in the future. It represents a future charge on
the Community budget.

There  is  always  a  delay  between  the  launching  of  an  aid  measure  and  the  first  payments,
especially  in the case of  infrastructure projects.  The  necessary  procedures  include  a  call  for
expressions of interest, appraisal of the applications for assistance, the decisions granting the
assistance,  calls  for  tender  and  awarding  of  contracts  before  work  can  start.  After  that,
payments need to be made, declared, checked, and certified by the paying authority before the
Commission  is  sent  an  intermediate  payment  claim.  The  length  of  these  procedures  varies
according to the project and according to the administrative systems in the Member States.

The existence of outstanding commitments is therefore normal in the financial management of
economic development projects.

Moreover,  at  the  beginning  of  each  year  the  outstanding  commitments  are  automatically
increased by around 30 billion Euros. this is because the commitments made in respect of the

4

present year are added to the outstanding commitments of the previous year. The outstanding
commitments reduce subsequently as and when payments are made.

The payment appropriations were considerably over-estimated by the Member States

The dip in payments by the Commission caused by the above two factors1 was not taken into
account by the  Member  States, which notified payment  forecasts  to  the  Commission  in
2001  that  turned  out  to  be  about  50%  higher  than  actual  payments.  Because  most
programmes were adopted at the end of 2000 and the beginning of 2001, the Commission was
expecting a massive wave of requests for co-financing of the payments made since the start of
2000, and had no reason to doubt these forecasts.

The expenditure forecasts notified by the Member States for 2002 and 2003 are again greater
than  the  amounts  entered  in  the  2002  budget  and  the  2003  preliminary  draft  budget,  but  it
seems already probable that these forecasts are once more too high.

Given  the  under-execution  of  2000-2006  programmes  at  mid-2002  compared  with  the
financial perspective, the Commission has been looking at the probable evolution of payments
throughout the programming period. On the likely assumption that the Member States will try
to make maximum use of the deadlines allowed in the Regulations for the financial execution
of programmes while avoiding automatic decommitments under the "N+2" rule2, and in light
of  the  longer  period  allowed  in  the  rules  for  payments  as  compared  with  commitments
(11 years  and  7 years  respectively),  it  is  foreseeable  that  annual  payments  will  rise  to  a
steady level of about € 27 billion a year between 2004 and 2007 and that final payments
will be made in 2009 and 2010.

In  practice,  it  is  likely  that  the  level  of  annual  payments  will  be  a  little  higher  than  this
minimalist  assumption,  but  without  exceeding  the  € 30  billion  provided  for  in  the  financial
perspective. The result will be a rising level of outstanding commitments towards the end of
the  period,  peaking  at  between  € 55  and  € 64  billion  in  2006.  This  figure,  which  is  the
consequence of the rule allowing two years after the end of each budget year for consumption
of that year's commitments, will be reduced to an insignificant amount in 2010 even if funds
are considerably under-utilised, because of decommitments under the "N+2" rule.

The major impact of the N+2 rule

The risk of losing funds under the "N+2" rule imposes an annual discipline on Member States
to  make  progress  on  their  programmes  at  a  sufficient  and  steady  rate,  instead  of  revealing
significant delays at the end of the programming period only, as was the case in the past.

This  rule  will  come  into  play  for  the  first  time  at  the  end  of  2002,  and  the  risk  of
decommitment  already  looms  for  a  small  number  of  programmes.  The  Commission  has
alerted  the  Member  States  concerned  so  that  they  can  take  corrective  measures.  It  is  not
expected that losses will reach the high decommitment levels currently foreseen on closure of
the 1994-99 period.

1

2

Overlapping of two programme periods and the changed method of paying Community cofinance
A rule introduced for the new programming period 2000-2006 which stipulates that any sum approved
by the Union for a programme and which has not given rise, by the end of the 2 subsequent years, to a
payment claim in respect of expenditure carried out on the ground is automatically de-committed. (Art.
31.2 of Regulation 1260/1999)

5

                                                
Commission  staff  are  present  at  the  meetings  of  the  Monitoring  Committees  for  each
programme and they noted that operations under most programmes were committed in 2001
in sufficient volume to ensure a normal rate of execution over the years to come.

Simplification

In  order  to  encourage  the  execution  of  programmes  within  the  allowed  deadlines,  the
Commission  has  started  working  in  partnership  with  the  Member  States  to  simplify
procedures  for  implementing  the  Structural  Funds,  both  within  the  Commission  and  within
the relevant national and regional departments. The aim is to make programme management
more  dynamic  and  to  ensure  more  rapid  and  effective  implementation  of  funds,  since
implementation procedures are often  perceived as particularly onerous and disproportionate.
The measures to simplify Commission procedures will be presented at an informal meeting of
Ministers - to be held on 7 October 2002, to which representatives of EP committees will be
invited.

Commission action plan

The implementation of the Structural Funds is the responsibility of the Member States.

However the Commission makes a firm commitment to achieving  the  goals of the  cohesion
policy,  and  in  particular  to  translating  Structural  Fund  programmes  into  concrete  results  on
the ground within the time limits set, while at the same time ensuring sound management of
Community funds. It is proposing therefore:

(cid:1)  to continue its initiatives to simplify procedures; it will submit its proposals for 2000-2006,
under the existing rules, to the informal meeting of Ministers to be held on 7 October 2002,
and will pursue its ideas for subsequent programming periods in a conference to be held in
the first few months of 2003;

(cid:1)  to  complete  the  major  part  of  negotiations  on  programmes  for  the  candidate  countries
before the date of their accession, in order to facilitate a timely start-up and to put to good
use the experience of the present Member States by simplifying their implementation;

(cid:1)  to  alert  Member  States  regularly  and  in  good  time  about  programmes  in  danger  of
decommitment  under  the  "N+2"  rule,  and  to  help  Member  States  find  solutions  to  the
obstacles encountered in implementing programmes;

(cid:1)  to  maintain  the  ‘N+2’  rule  so  that  its  effectiveness  in  imposing  discipline  on  the
programme  managers  can  be  properly  judged,  and  to  apply  this  rule  in  line  with  the
detailed rules set out in the its decision of 27 May 20023;

(cid:1)  to  promote  best  practice  in  forecasting  expenditure  at  programme  level  so  that  forward
estimates  can  be  made  more  realistic  and  reliable  and  the  risks  of  decommitment  can  be
better assessed;

(cid:1)  to examine the possibility of penalties for submitting late and/or unrealistic forecasts;

(cid:1)  to present to the Budgetary Authority each  autumn an qualified  analysis  and  appraisal of

expenditure forecasts.

3

C(2002)1942

6

                                                
(cid:1)  to  close  all  programmes  and  projects  still  open  from  before  1994  by  the  end  of  2002,
except those suspended for judicial reasons, and close most programmes from the 1994-99
period before the end of 2003.

2.

TREND IN OUTSTANDING COMMITMENTS

The  Commission  and  the  Member  States  implement  the  Structural  Funds  together  in
partnership,  in accordance  with  Council  Regulations  adopted  in  agreement  with  Parliament.
The effectiveness of this implementation can be assessed only by measuring actual progress
in the light of what the Regulations require.

The  same  principle  applies  to  evaluating  the  effectiveness  of  budget  management  and  the
trend in the balance of outstanding commitments.

2.1.

Pre-1994 programming periods

As the following graph shows, the Commission has reduced the number of files still open to a
few  particularly  contentious  cases  and  matters  still  before  the  courts.  Outstanding
commitments at 30 June 2002 amounted to € 370 million, or 0.6% of the financial allocation
for 1989-93. By the end of 2002 it should be down to a few files which cannot be closed until
legal proceedings have been completed.

Graph 1 : Outstanding commitments at the end of each year from pre-1994 periods (€ billion)

Outstanding commitments from pre-1994 periods, at the end of each 
year (€ billion)

20.000

15.000

10.000

5.000

0

1993

1994

1995

1996

1997

1998

1999

2000

2001

2.2.

1994-99 programming period

At 30 June 2002 outstanding commitments amounted to €158 billion, or 9.9% of the financial
allocation for the period, which is allowed under the rules.

The Regulation governing the 1994-99 programming period4 stipulates that some 10% of the
amounts committed to programmes  may not be paid  until  the  final  request  for  payment  has
been  received  and  the  final  implementation  report  and  the  statement  of  assurance  from  the
independent  supervisory  authority  approved.  Since  the  deadline  for  financial  execution  of
most  of  the  programmes  is  31  December  2001,  in  theory  the  Member  States  still  have  the

4

Article 21(4) of Regulation (EEC) No 4253/88.

7

                                                
following six months in which to submit these documents, i.e. until 30 June 2002. They must
in any case do so by 31 March 20035. If the necessary documents have not been transmitted
by that date, the Commission must decommit the balance of the commitment.

The  Commission  is  allowed  to  extend  the  deadline  for  financial  execution  at  the  reasoned
request  of  Member  States.  It  granted  longer  deadlines  only  in  cases  of  force  majeure  or
similar circumstances or if the Commission had made a mistake. These longer deadlines did
not  extend  beyond  30  September  2002  and  were  granted  for  less  than  10%  of  the
programmes, representing some 3% of committed funds.

The rules also stipulate that if a project is suspended for judicial reasons,  the corresponding
part of the programme concerned can be partially  signed off.  Further,  the Commission is to
refuse  to  pay  amounts  for  which  it  has  not  received  all  the  necessary  information  or
assurances.

When the preliminary draft budgets for 2002 and 2003 were being prepared, the Commission
estimated that half the commitments still outstanding at 31 December 2001 would be paid in
2002 and the other half in 2003, except for about 10%, which would be either paid at a later
date  or  de-committed.  However,  most  of  the  Member  States  are  announcing  a  delay  in
forwarding  requests  for  final  payment,  in  particular  because  of  the  time  needed  for  the
statement of assurance to be drawn up by the independent service, this being the first time this
has been required. Although the Commission has taken steps to process requests as quickly as
possible, there is nevertheless a risk that there will be a flood of payment requests during the
last  months,  with  more  than  a  thousand  programmes  to  be  cleared.  Accordingly,  the
appropriations earmarked for these programmes will probably to be under-executed in 2002,
and this could, where relevant, lead to appropriations being carried  over to the 2003  budget
year.

Moreover, the Commission will not know the total amount of the requests for final payment
before the 31 March 2003 deadline: under-execution of the funds available within the 1994-
99 programmes will result in de-commitments and this will reduce the amounts to be paid in
2003  commensurately.  The  Member  States  forecasts  could  lead  to  under-utilisation  of  the
programme  funds  amounting to about  €3.5  billion  and  moreover  the  2003  preliminary  draft
budget was based on the premise that programmes would be under-executed by €2 billion.It
should be noted that final payment claims for part of the funds for this period, relating to the
1994-96 commitments for Objective 2 programmes, were due by 30 June 1999. Most of the
Member States did not meet this deadline. The 31 March 2003 final deadline for submission
of documents also applies to these programmes. Formal notice was nevertheless served on the
Member States to submit their final requests before the end of September 2002.

The following graph shows the impact on the 2000-2004 budgets of the closure rules for the
1994-99  period.  It  should  be  noted  that  the  outstanding  commitments  for  this  period  were
reduced by 70% between the end of 1999 and the end of 2001. As stated above, it is probable
that the appropriations for the 2002 year will be under-spent, but it is still difficult to assess by
how  much.  This  probable  under-execution  has  therefore  not  been  taken  into  account  in  the
graph. In any case, the “RAL” at the end of 2003 will be kept to its forecast level, either by
decommitments or by payments charged to the carryovers to 2003.

5

Article  52(5)  of  Regulation  (EC)  No  1260/1999;  Commission  guidelines  on  the  closure  of  1994-99
programmes, 9.9.1999 (SEC(1999) 1316).

8

                                                
Graph 2: Payment of commitments outstanding under the 1994-99 programmes

Period prior to 2000: outstanding commitments (end of year) in € billion

50

40

30

20

10

0

1999

2000

2001

2002

2003

2004

Budget and revised forecasts

Financial perspectives

2.3.

2000-06 programming period

This analysis of outstanding commitments for 2000-06 is based on the situation in mid-2002,
taking account of the effect of the delays in the adoption of some programmes in relation to
the Agenda 2000 forecasts and the late start to the financial execution of programmes.

2.3.1. Commitments

Although the Structural Fund Regulation requires commitments to be programmed in seven,
normally  equal,  annual  instalments,  the  Financial  Regulation  and  the  inter-institutional
agreement allow for the appropriations for the 2000 budget year to be transferred to the 2001
budget  year or,  alternatively,  for the 2000  instalment to be  reprogrammed over the  2002-06
budget  years  in  the  event  of  delays  in  the  adoption  of  the  programmes,  in  particular  if
negotiations overran the five-month period allowed by Regulation (EC) No 1260/1999. For a
considerable  number  of  programmes,  this  period  was  not  long  enough  to  negotiate
programmes  of  adequate  quality that  met the  requirements  of  the  new  Regulation  regarding
indicators  and  gave  guarantees  of  sound  financial  management  and  supervision.  The
commitments  under 
in  2001  using  carried-over
appropriations  amounted  to  €8 226  million,  and  the  part  of  the  first  annual  instalment
reprogrammed  over  the  2002-06  budget  years  was  €6 153  million.  These  margins  of
flexibility only  apply  to  the  first  instalment  and  can  no  longer  be  applied  to  the  subsequent
annual  instalments,  which  are  committed  automatically  before  30  April  each  year.  The
commitment  profile  is thus  known. Taking  account  of the transitional  arrangements  and  the
allocation of the performance reserve in 2004, it is as follows:

the  first  annual 

instalment  made 

9

Graph 3 : Trend in commitments under the new programmes

New programmes: annual commitments  (€ billion)

40

35

30

25

20

15

10

5

0

2000

2001

2002

2003

2004

2005

2006

2.3.2.

Payments

Normally, the final eligibility date for payments is 31 December 2008, and requests for final
payment of 5% of Community assistance must be submitted by 30 June 20096.

The following graph shows the payments made in 2000 and 2001, the 2002 budgeted amount
and the expected trend in payments between 2003 and 2010.

It is still difficult to predict the actual spend in 2002, as claims are concentrated towards the
end of the year. The following graph does not take account of the present under-execution.

For  the  years  2003  to  2010,  it  is  assumed  that  the  execution  of  projects  is  spread  regularly
over  the  remaining  period,  irrespective  of  the  Community’s  commitments..  This  trend  is
based on the assumption that Member States will take full advantage of the time available for
executing the funds. The Commission also supposes that, on average, the Member States will
avoid the risk of de-commitment under the "N+2" rule7, which sets a two-year deadline after
the budget year concerned for execution of each annual instalment, including the last ones for
which this risk is at its highest8. It should be noted that the period for executing payments as
laid down in the rules and implemented by the Member States can last up to ten years.

6

7

8

Article 32(4) of Regulation (EC) No 1260/1999.
Article 31.2 of Regulation 1260/1999
Under this hypothesis, payments would be above the level needed to avoid applying ‘N+2’ up to and
including 2005

10

                                                
Graph 4: Trend in payments under the new programmes

ANNUAL PAYMENTS UNDER THE NEW PROGRAMMES
(€ billion)

35
30

25
20
15
10

5
0

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Actual and foreseeable payments

Financial perspectives

According  to  this  central  assumption,  payments  would  amount  to  around  €27,5  billion  per
year  from  2004  to  2007,  leaving  a  safety  margin  compared  with  the  amount  implicit  in  the
2000-2006 financial perspective, which is approximately €30 billion.

2.3.3.

Trend in commitments outstanding in 2000-06

The  next  table  shows  the  trend  in  commitments  outstanding  in  2000-06,  following  on  from
Graphs 3 and 4. Outstanding commitments arise because commitments are spread over seven
years and payments over ten years. Under the above assumption that execution will be spread
over the maximum period allowed, while avoiding de-commitment under the "N+2" rule, the
commitments outstanding at the end of the year will gradually increase to €64 billion in 2006,
and  will  fall  back  to  a  marginal  remaining  balance  in  2010.  This  balance  represents  the
projects suspended under legal or administrative proceedings.

It is important to note that the increase in the amount of outstanding commitments at the end
of  the  period  is  entirely  due  to  the  time  allowed  for  financial  execution  under  the  legal
provisions.  Outstanding  commitments  worth  €64  billion  at  the  end  of  2006  represent  two
years of commitments and two months of payment requests received but not yet paid. These
outstanding commitments will be absorbed by the payments made in 2007 and 2008, except
for the part to be absorbed in 2009 and 2010 by final payment requests, which is not subject
to de-commitment under the "N+2" rule.

11

Graph 5: Outstanding commitments under the new programmes

Commitments outstanding at the end of the year: new period 2002-06
(€ billion)

70

60

50

40

30

20

10

0

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Budget execution of payment appropriations for all programming periods

Aggregating the data on payment of commitments outstanding at 31 December 1999 and on
the  financial  execution  of  the  2000-06  programming  period,  the  payment  profile  between
2000 and 2010 under the Structural Funds is as follows:

Graph 6: Total payments under the Structural Funds

Total payments compared to the financial perspectives
(€ billion)

35

30

25

20

15

10

5

0

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

paym ents

Financial perspectives

2.3.4.

Total commitments outstanding at the end of the year

The following graph shows the expected trend in total commitments outstanding at the end of
the year for 1999 to 2010 for both the 1994-99 and 2000-06 programming periods.

12

Graph 7: Total commitments outstanding under the Structural Funds (at the end of the year)

Total outstanding commitments at the end of the year ( € billion)

70

60

50

40

30

20

10

0
1999

Outstanding
commitments 2000-
2006
Outstanding
commitments before
2000

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2.3.5. Outstanding commitments for 2000-06 during each budget year

According  to  the  Regulations,  each  annual  instalment  of  the  2000-06  programmes  must  be
committed no later than 30 April, and is added to the outstanding commitments from the end
of the previous budget year. Consequently, the outstanding commitments at the beginning of
the budget year are some €30 billion higher than they were at the end of the previous one, and
then fall back to the expected level by the end of the year. The following graph illustrates this
phenomenon,  which  will  temporarily  bring  the  maximum  outstanding  commitment  level  to
€ 91 billion in 2006.

Graph 8: Trend in outstanding commitments for 2000-06 during each budget year

Outstanding commitments from 2000-06 at the beginning and end of the 
year (€ billion)

100

90

80

70

60

50

40

30

20

10

0
April
00

Dec
00

April
01

Dec
01

April
02

Dec
02

April
03

Dec
03

April
04

Dec
04

April
05

Dec
05

April
06

Dec
06

April
07

Dec
07

April
08

Dec
08

April
09

Dec
09

April
10

Dec
10

13

2.3.6.

Scenarios for atypical trends in payments

Starting from the central assumption which has just been stated, we can explore the possible
impact of two extreme scenarios, both of which are more theoretical than probable.

2.3.6.1. The delays in execution are made good during 2003 and 2004.

If all the payments initially  expected in 2000 and 2001 but not requested were  added  to the
payments expected in 2003 and 2004, the financial perspective would indeed  be  overrun  by
some €6 billion, as Graph 9 shows. However, none of the Member States are expecting any
such surges in implementation of programmes. Under this scenario, payments would exceed
the  annual  commitment  instalment,  to  fall  back  to  a  lower  level  afterwards,  which  seems
rather  unlikely.  At  any  rate,  the  inter-institutional  agreement  allows  the  Commission  to
propose  to  the  budgetary  authority  each  year  an  adjustment  of  the  ceiling  on  payments  to
bring it into line with implementing conditions. The Commission will examine the  situation
before the beginning  of each  budget procedure and  submit any  proposal  which  might prove
necessary in the light of the state of payments.

Graph 9: Trend in payments in the event that the initial under-execution is made good in 2003
and 2004

TREND IN PAYMENTS IF UNDER-EXECUTION IS MADE GOOD IN 2003 AND 
2004

40

30

20

10

0

TREND IN PAYMENTS IF DELAYS ARE
MADE GOOD

FINANCIAL PERSPECTIVES

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2.3.6.2. Outstanding commitments are cut back by automatic decommitments due to constant

under-utilisation of payment appropriations for 2000-06.

If the Member States fail to implement their programmes at a rate which allows them to avoid
decommitments under the "N+2" rule, the outstanding commitments could exceed the levels
shown in  Graph  5  only  to  subside  quickly  to  a  modest  amount  in  2010,  under  the  effect  of
automatic  decommitments.  Graph  10  shows  this  phenomenon,  assuming  that  payments
between  2002  and  2006  remain  constantly  under  €20  billion.  In  these  circumstances,  the
"sunset clause" of the "N+2" rule would cap outstanding commitments at around €80 billion9.

9

This  worst-case  scenario  supposes  that  every  programme  behaves  identically  in  financial  terms.  In
reality, some programmes will be implemented more rapidly and others more slowly. Their respective
payments or decommitments will reduce the ‘RAL’ commesurately.

14

                                                
Graph 10: Capping the outstanding commitments under the automatic decommitment rule

Outstanding commitments from 2000-06 at the end of the  year (€ billion)

100

80

60

40

20

0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

2.4.

Conclusion on the trend in outstanding commitments

While the "normal" evolution of outstanding commitments during the remaining years shown
in  Graph  7  is  certainly  an  estimate,  it  is  nonetheless  based  on  the  likely  behaviour  of  the
authorities responsible for executing assistance, which would spread their claims evenly over
the  time  still  available  for  implementing  programmes  while  avoiding  throughout  the  period
any loss of funds under the "N+2" rule. This graph illustrates the assumption that the level of
payments  is  exactly  what  is  needed  to  avoid  decommitment  under  the  "N+2"  rule  while
stabilising the annual payments throughout the period. The Member States can be expected to
give  themselves  a  safety  margin  around  this  central  assumption,  and  annual  payments
between 2004 and 2006 are likely to be slightly more than the €27,5 billion estimated under
the  central  assumption.  This  would  remain  compatible  with  the  financial  perspective  up  to
€30 billion. The commitments outstanding at the end 2006 would then amount to between €55
and €64 billion.

The  factors  described  in  the  first  part  of  this  paper  and  the  profile  of  outstanding
commitments  shown  in  Graph  7  require  the  payment  schedules  initially  programmed  in  the
financial  perspective  to  be  updated.  The  payment  profile  established  in  the  financial
perspective and reflected in the first budgets was too optimistic.

It must be  acknowledged that  the  full  impact  of  the  new  payment  system  was  probably  not
accurately measured when the financial perspective and the new Structural Fund Regulations
were  being  prepared.  It  should  be  remembered  that  the  new  system  is  now  based  on  the
reimbursement  of  expenditure  actually  paid  by  the  final  beneficiary,  except  for  the  initial
advance  payment,  and  thus  differs  radically  from  the  previous  system,  which  was  based  on
successive advances in line with progress in implementation. In other words, we moved from
an ex-ante to an ex-post payment system. But the financial perspective was essentially drawn
up mechanically on the basis of previous experience. This conforms moreover with the logic
of  the  financial  perspective,  which  aims  to  ensure  that  there  are  enough  payment
appropriations, but where the ceiling on payments is not intended as an expenditure objective.

Without denying the difficulties encountered in implementing the programmes, which will be
dealt with below, in particular the fact that absorbing appropriations from the previous period
has  taken  precedence  over  launching  the  programmes  for  the  new  period,  the  amount  of

15

payments  in  the  financial  perspective  should  not  be  taken  as  a  benchmark  against  which  to
measure  the  performance  of  the  Structural  Funds.  In  the  absence  of  reliable  information,  in
particular regarding the Member States' forecasts, and an adequate overview of the impact of
the  new  system,  the  first  budgets  for  the  period  were  drawn  up  to  match  the  ceiling  in  the
financial perspective too closely.

In  relation  to  the  new  payment  profile  as  described  in  Graph  6,  the  following  risks  can  be
identified:

(cid:1)  The actual amount of utilisation of payment appropriations in 2002, which may be lower
than  supposed  in  the  above  graphs,  owing  to  a  slower  start  to  the  2000-06  programmes
than  anticipated  by  the  Commission  and,  above  all,  much  slower  than  anticipated  by  the
Member States, together with later than expected submission of requests for final payments
under the 1994-99 period.

(cid:1)  A slightly higher level of payments over the period 2003 to 2006. However, the only way
the financial perspective might be slightly overshot during 2004 to 2006 is if the delay in
implementation is made good very rapidly. While the possibility of a surge in requests for
payments  in  one  or  another  budget  year  cannot  be  excluded,  it  is  unlikely  to  have  much
effect  at  budget  level  because  it  is  more  probable  that  Member  States  will  experience
surges and dips in different years.

(cid:1)  A level of  payments  comparable  to  what the Member States expected in  2002 and  2003,
i.e. respectively €5 billion and €8 billion higher than expected by the Commission. Given
the experience of repeated overestimates by the Member States, this eventuality should be
seen as rather unlikely

3.

BUDGET MANAGEMENT OF PAYMENT APPROPRIATIONS

Faced  with  the  these  uncertainties,  recourse  to  the  Budgetary  Amendment  (BA)  instrument
must not be excluded, either to reinforce or reduce the appropriations available depending on
the execution. This is of course only relevant in case of a substantial difference compared to
the budget voted.

For 2002,  an  under-execution  of  payment  credits  is  foreseen,  concerning  essentially  the  old
programmes, appropriations of which must to a large extent be carried over to the following
year in order to close the programmes. The Commission took note of the Declaration annexed
to  the  minutes  of  the  meeting  of  the  Budget  Council  of  19  July  concerning  an  anticipated
budgetisation by amending letter of the possible positive balance of the 2002 year. However,
the  limits  of  this  updating  of  payment  needs  should  be  recognised,  insofar  as  the  forecasts
transmitted by the Member States suffer a large margin of uncertainty and taking into account
the concentration of the receipt of payment requests at the end of the year.

For  the  2003  financial  year,  there  might  be  a  risk  of  an  increase  in  applications  for
reimbursement for the new programmes in relation to the payment appropriations allocated to
this  end  in  the  preliminary  draft  budget.  The  Commission  considers,  however,  that  it  is  too
early  to  give  a  valid  judgement  on  this  hypothesis  in  view  of  the  uncertainties  surrounding
payment  forecasts.  Conversely,  if  applications  for  reimbursement  should  in  fact  increase
substantially, the Commission will submit a SAB during the 2003 financial year if required,
which  it  may  do  thanks  to  the  margin  below  the  ceiling  for  payment  appropriations.  Once
again, the Commission has taken note of the statement attached to the minutes of the meeting
of the Budget Council on 19 July 2002 regarding this possible Amending Budget.

16

4.

“SUNSET CLAUSE” FOR AUTOMATIC DECOMMITMENTS

In the worst-case scenario, i.e. payment applications well below the estimates for the central
scenario,  outstanding  commitments  would  nevertheless  be  limited  by  application  of  the
“N+2” rule, and payments to be made by the Commission after 2006 could not be greater than
the amounts forecast under the “normal” hypothesis.

At  present  it  is  impossible  to  determine  the  risk  of  substantial  decommitments  under  the
“N+2”  rule.  The  Member  States  have  had  to  cope  with  two  challenges  simultaneously:
making  up  the  delays  in  implementing  the  1994-99  programmes  before  the  final  eligibility
deadline of 31 December 2001, and starting the 2000-06 programming early enough to avoid
the  first  de-commitments  under  the  “N+2”  rule  at  the  end  of  the  2002  and  2003  financial
years. It is to be hoped that the Member States will abide by the  discipline  imposed by this
rule, of which they are continually reminded by the Commission, to ensure that programmes
are implemented at a rate sufficient to avoid a loss of funding on these deadlines.

The risk of de-commitment under the “N+2” rule at the end of 2002 differs by Member State,
region  and  fund,  but  remains  fairly  limited  bearing  in  mind  delays  in  the  adoption  of  the
programmes and the payment on account which covers almost half of the first instalment of
the commitment. In Austria and Germany, for instance, all Objective 1 programmes bar one
have already achieved a level of payments high enough to preclude de-commitment, while a
number  of  programmes  in  Italy  and  the  UK  are  at  a  clear  risk  of  de-commitment.  At  the
present  moment  in  time,  however,  the  Commission  does  not  predict  any  significant  loss  of
appropriations at the end of 2002, except perhaps in Italy.

The  highest  risk  is  at  the  end  of  2003,  when  the  rule  will  apply  to  all  programmes,  in
particular with regard to a number of Objective 2 programmes.

As regards the implementation of the automatic de-commitment rule, the Commission would
like to recall the Communication recently adopted to explain the rules for the application of
this rule (Communication C(2002)1942 adopted on 27 May 2002). The rule is to be applied
programme  by  programme  and  fund  by  fund,  taking  into  account  all  applications  for
payments sent to the Commission by 31 December of the year “N+2” at the latest. Hence not
only will payments be taken into account, but also eligible applications for payments sent by
the Member States within that deadline.

On  this  basis,  and  bearing  in  mind  any  exemptions  provided  for  in  the  Regulation  (such  as
judicial  suspensions),  the  Commission  will  propose  a  net  reduction  of  the  Community
assistance to a Member State, which will be invited to submit a new financing plan. This will
allow  Member  States  to  choose  how  to  deal  with  the  impact  of  the  reduction  in  financial
assistance.  In  effect,  the  automatic  decommitment  rule  applies  to  Community  commitments
but  does  not  directly  impact  on  individual  operations  in  progress.  In  the  absence  of
participation  by  a  Member  State,  the  Commission  will  take  the  decision  itself.  Once  the
decision to reduce Community financing has been adopted, decommitment will be carried out
automatically. Under the timetable presented by the Commission in its Communication, these
operations should be implemented during the first half of “N+3”,  and hence some time will
elapse before the decommitment shows up in the accounts.

Under the Structural Funds Regulation, the Commission must inform the Member States that
there is a risk of automatic decommitment. For the year 2000, the Commission sent a warning
letter to the Member States in November 2001, followed by a second in July 2002. It intends

17

to  write  again  at  the  beginning  of  the  autumn.  The  Commission  undertakes  to  transmit  this
information on regions at risk to the budgetary authority.

5.

IMPROVING THE FORECASTS

A precise forecast of Structural Funds payments is difficult due to the extremely decentralised
nature of the operations being financed. The measures are managed by numerous intermediate
organisations. The  national and  regional  authorities  scarcely  have  any  control  over  the  time
taken for decisions to be made by selection bodies on the projects to be financed, or decisions
by  the  various  advisory  bodies,  as  these  involve  partnership  between  numerous  social  and
economic actors. Forecasts are even more difficult for the initial years of a new programming
period.

For the past few years, under SEM 2000, the Commission has asked Member States to give
their forecasts by fund and by objective. This informal cooperation has been transformed into
a  legal  obligation  for  the  new  programmes10.  From  2001,  for  the  2000-06  programming
period,  the  Commission  called  for  forecasts  by  fund  and  by  programme.  This  initiative,
involving a  greater  number  of  participants  in  future,  aims  to  improve  forecasts  and  identify
the  programmes  at  risk  under  the  “N+2”  rule.  In  2001  the  Member  States  transmitted
incomplete  information  which  also  turned  out  to  contain  major  overestimates:  the
appropriations  entered  in  the  budget  were  insufficient  to  meet  the  Member  States’  declared
requirements, including the need to make advance payments, but execution ultimately turned
out to be much lower11.

The experience of recent years has shown that most of the Member States overestimate their
forecasts.  Moreover,  the  quality  of  forecasts  submitted  by  each  Member  State  is  not
consistent, which makes them more difficult to interpret. In absolute terms, however, much of
this  overestimation  is  down  to  just  a  few  Member  States.  In  2001,  three  Member  States
accounted for 85% of the total overestimate as shown below.

10

11

Article 32(7) of Regulation (EC) No 1260/1999.
Some examples of explanations received from the Member States: Germany: some regions feared that
the Commission would reduce payments in line with their forecasts in the event of insufficient budget
resources; Italy: forecast modelled on the Berlin profile rather than an analysis by programme; Spain:
national-level  estimate,  without  analysis  by  programme;  Belgium:  forecast  of  payments  by  final
beneficiaries  up  to  31 December,  not  of  applications  send  to  the  Commission  up  to  31 October  for
payment  by  31 December;  UK:  communicates  amounts  sufficient  to  avoid  any  decommitment  under
n+2,  irrespective  of  reality  on  the  ground;  Ireland:  difficult  forecast  in  initial  year  of  programming
period.

18

                                                
Graph 11: Overestimates of national payment forecasts in 2001

OVERESTIMATE OF NATIONAL FORECASTS IN 2001 
COMPARED TO IMPLEMENTATION
(€ Million)

3500

3000

2500

2000

1500

1000

500

0

-500

AT

BE

DE

DK

ES

FI

FR

GR

IE

IT

LU

NL

PT

SE

UK

In  2002,  the  Commission  specified  the  criteria  to  be  used  in  producing  the  forecasts  and
announced that they would be placed at the disposal of the budgetary authority, not just as a
total but broken down by Member State as well. Forecasts by fund and by programme were
received  from all the Member States.  France  had the  biggest  delay,  sending  its  forecasts  on
1 July 2002. At that point forecasts had still not been received for earlier  French and  Italian
programmes, which Member States have been invited to submit for the last time in 2002.

The Member States’  forecasts  for  2002 and 2003 are 15% higher than the 2002 budget  and
PDB  2003.  For  the  old  programmes,  forecasts  seem  to  point  to  larger  than  expected  de-
commitments  (but  it  is  impossible  to  draw  definitive  conclusions  in  the  absence  of  the
forecasts  from  France  and  confirmation  of  those  for  Italy).  For  the  new  programmes,  the
cumulative  forecasts  exceed  available  appropriations  by  slightly  more  than  25%,  especially
for  2003.  However,  in  the  past,  forecasts  sometimes  exceeded  actual  requirements  by  this
kind of margin. In addition, only  a few programmes post an expenditure forecast that is too
low to avoid de-commitment under the “N+2” rule.

In budgetary terms, it would be desirable in years to come for these forecasts to contribute to
the  establishment  of  future  budgets  and  to  the  management  of  current  budgets.  However,
forecasts  arrive  too  late  to  be  taken  into  account  in  the  preliminary  draft  budget.  The
Commission could therefore present a an appraisal of the forecasts in a SAB in the autumn.

The  Commission  will  work  with  the  Member  States  to  improve  forecasting  techniques.
However, these will remain unpredictable in view of the number of participants  involved in
the  extremely  decentralised  management  of  the  Structural  Funds.  The  Commission  will
appraise the figures communicated by the Member States by comparing them with the profile
of expected total expenditure each year.

The absence of any penalties for manifestly inaccurate forecasts probably does not facilitate
the  forecast  exercise.  It  should  be  recalled  that  penalties  are  provided  for  under  the  rural
development programmes financed from the EAGGF Guarantee Section, in  cases  where the
difference between the budget forecast and execution exceeds 25%. This results in a reduction

19

of payments in the following year, with no automatic reduction in the programme. Clearly this
model  cannot  be  transferred  directly  to  the  Structural  Funds,  especially  since  rural
development  appropriations  are  non-differentiated.  Even  if  overestimating  the  payment
appropriations produces fewer disadvantages in the case of the Structural Funds, thanks to the
differentiated  appropriations,  the  impact  of  forecasts  that  are  systematically  wrong  on  the
management of the Community budget should be considered. Any penalty system should be
based  on  appropriate  regulatory  provisions  and  might  be  worth  exploring  in  the  next  set  of
regulations if forecasts have not improved by then.

6.

ANALYSIS OF REASONS FOR THE SLOW START-UP OF 2000-06 PROGRAMMES

The rate of financial execution  of  programmes differs appreciably  by  Member  State,  region
and fund. A rate of execution of 15% of the total allocation for programmes, inclusive of the
initial  advance,  could  have  been  expected  at  30 June  2002  based  on  assumed  rates  of
payment.  At  that  point,  five  Member  States  had  attained,  or  almost  attained,  this  rate  of
implementation  overall  (Austria  16.6%,  Germany  16.1%,  Portugal  18.5%,  Spain  16.2%,
Ireland 14.4%). Seven Member States  had  not  even  attained  10%,  i.e.  barely  more  than  the
initial  advance  (Belgium,  Denmark,  Italy,  Luxembourg,  Netherlands,  Sweden,  United
Kingdom).

The  rate  of  execution  of  Objective 3  programmes  is  higher  than  average  in  most  Member
States, and that of Objective 1 is around average. Objective 2 programmes show the biggest
delays,  at  9.3%  in  total.  While  the  overall  rate  of  execution  in  Austria  is  16.6%,  it  is  just
11.9%  for  Objective 2  programmes,  well  below  the  24.6%  achieved  for  Objective 3.  The
same  differential  is  evident  in  Germany,  at  10.4%  and  20.0%  respectively,  and  in  the  UK
(7.0% and 15.1%).

There  follows  a  presentation  of  the  main  reasons  for  the  generalised  under-execution  in
relation  to  SEM  2000  expectations,  and  explanations  for  the  delays  experienced  in  some
programmes in comparison with others which are progressing normally.

6.1.

Cumbersome procedures

The  procedures  for  granting  public  funds  are  necessarily  strict,  and  often  seen  as  being
excessively  cumbersome  and  out  of  proportion,  in  particular  where  smaller  subsidies  are
concerned. This red tape is not an inevitable consequence of the Structural Funds provisions.
Article 34(1)  provides  that  in  carrying  out  its  tasks  the  managing  authority  is  to  act  in  full
compliance with the institutional, legal and financial systems of the Member State concerned.
Under Article 3 of Commission Regulation (EC) No 438/2001, Member States’ management
and control systems must be subject to proportionality in relation to the volume of assistance
administered.

Possible  ways  of  alleviating  the  administrative  burden  and  simplifying  the  procedures  for
granting  assistance  must  be  explored  in  collaboration  with  the  Member  States,  in  order  to
identify and promote best practice.

Although  conscious  of  the  need  to  simplify  to  a  maximum  national  and  Community
procedures, while limiting any risk of irregularity, the Commission considers that the delays
in implementing the Structural Funds cannot be ascribed to the Community rules, which are
identical for all Member States and programmes, but often result from the  choices  made  by
the  Member  States  themselves  in  implementing  programmes.  To  support  this  analysis,  the

20

Commission  notes  that  in  June  2002  many  programmes  were  making  normal  progress,  and
only a few demonstrated  a  worrying delay.  The  rate  of  execution  of  financial  commitments
between 2000 and 2002 for ERDF Objective 1 programmes can vary by up to double the rate
within one Member State (e.g. Spain, Germany, between <30% and > 60%).

As far  as ERDF  is concerned,  Sweden  is an  example of good practices.  It  decided  to  avoid
any risk of de-commitment under the “N+2” rule by stepping up the grant of assistance at the
start of the programming period. There  is  great  demand  for  such  assistance  in  Sweden,  and
after  adopting  each  decision  to  grant  aid,  it  issues  regular  reminders  where  no  payment
application  is  made,  and  can  penalise  excessive  delays  in  project  start-up  by  cancelling  the
financial assistance. This contrasts with Belgium, where Objective 1  payments appear set to
be  highest  towards  the  end  of  the  programming  period,  exposing  it  to  the  risk  of  de-
commitment at the start of the period.

In  Germany  and  Austria,  major  commitments  for  the  2000  financial  year  had  already  been
used by 30 June 2002, removing these Member States from the risk of a significant automatic
de-commitment. In Italy, however, the rate of consumption of appropriations in almost all the
programmes gives cause for concern. This has led it to introduce, for the first time, a system
of  close  and  regular  monitoring  of  the  progress  of  each  programme,  and  to  improve  the
efficiency of its administrative management procedures.

An analysis in France, where the low rate of implementation of all programmes is worrying,
cites  the  profusion  of  co-financiers  as  one  of  the  factors  slowing  down  procedures,  as  the
grant  of  the  Community  financing  depends  on  a  decision  by  the  last  co-financier.  But  the
cumbersome  nature  of  national  procedures  and  their  excessive  delays  are  held  primarily
responsible.

In Portugal, the management of rural development measures was bound to be difficult in view
of  the  great  number  of  applications  covering  small  amounts.  19 600  applications  had  to  be
processed for one measure, some involving under € 200.

The most successful programmes try to find simple and effective procedures, proportional to
the sums concerned, and above all a high level of organisation, information and mobilisation,
and  are  based  on  forward  planning  aiming  to  reduce  the  delays  between  each  stage  of
decision-making.  This  is  all  the  more  important  where  the  agreement  of  several  services  is
required  (environment,  culture,  local,  regional  and  national  authorities,  management  and
monitoring committees, etc.).

6.2.

Overlap of two programming periods

2000 and 2001 were not only the first two years in the new programming period, but also the
last  two  years  of  financial  execution  for  the  1994-99  programming  period.  On  top  of
outstanding  commitments  in  the  Community  budget  of  some  10%  of  the  allocation  for  the
latter  period,  at  the  end  of  1999  there  was  a  “hidden”  outstanding  commitment  of  the
difference between the advances  paid  to  the  Member  States  and  their  actual  expenditure  by
that  date.  The  extent  of  delays  in  implementing  programmes  in  the  1994-99  period  was
indicated by the “rebudgetisation” between 1998 and 2000 of € 3.8 billion that had remained
unused  between  1994  and  1997,  and  by  major  reorientations  of  programmes  at  the  end  of
1999, which was the deadline for commitments for projects in the Member States.

There  can  be  little  doubt  that  awaiting  the  legal  and  financial  security  offered  by  the
Commission’s  formal  adoption  of  the  programmes  delayed  start-up  in  some  cases  but  it  is

21

now clear that the main reason for the slow start in the new period was that all levels of the
administration  in  the  Member  States  concentrated  their  efforts  and  budgetary  resources  on
completing  the  programmes  from  the  previous  period  and  delayed  beginning  those  for  the
new period.

At least in certain regions, the effect on payments by the Commission of the switch from the
1994-99 period to that of 2000-06 was decisive. While they had received cash advances up to
1999,  the  Member  States  had  themselves  to  pre-finance  the  final  payment  of  10%  of  the
allocation  for  the  whole  period.  Furthermore,  the  submission  of  final  claims,  and  hence  the
payments, will be delayed by  about six months since the Commission is rightly insisting on
rigorous checks on the final claims.

Under  the  provisions  for  2000-06,  unlike  the  previous  arrangement  of  permanent  advances,
the  Commission  reimburses  the  payments  made  by  beneficiaries,  i.e.  after  the  calls  for
expressions of interest, the consideration of applications, the selection of projects to finance,
the  making  of  grants,  calls  for  tenders,  the  start  of  projects,  payments,  checks  and  the
declaration to the Commission, which has 60 days in which to make the payment. This means
that the first substantial applications for interim payments will not be made until some 12 to
18 months after the programmes have begun.

A dip in payments between mid-2000 and the middle or end of 2002 is a consequence of the
switch  from  one  programming  period  to  another  and  from  one  set  of  arrangements  for
payments to a very different one.

6.3.

Payments between the first date of eligibility of expenditure and the submission
of the programme complements

It is a fact that the procedure for preparing the operational  programmes  and  the SPDs, their
negotiation and adoption by the Commission lasted longer than expected and that the Member
States were often late in submitting a programme complement which was consistent with the
programme adopted.

There  were  also  substantial  delays  in  the  submission  for  approval  by  the  Commission  of
certain aid schemes and major projects to be financed by the programmes.

However, those delays had no impact at all on the first date for the eligibility of expenditure,
which  was  set  by  Article 30  of  Regulation  (EC)  No 1260/1999  at  1 January  2000,  if  not
earlier,  for  most  mainstream  programmes.  The  national  authorities  were  expected  to  take
advantage of this provision, but they did so only rarely. As far as the Commission is aware,
only  Portugal  did  so  to  any  considerable  degree.  Other  Member  States,  for  example  the
United Kingdom, issued calls for proposals only after submitting the programme complement
at mid- or end-2001. As a result, the substantial applications for interim payments expected in
2001  to  reimburse  measures  financed  between  January  2000  and  the  date  when  the
programme  complement  was  notified,  which  is  a  prior  condition  for  payment  by  the
Commission, did not materialise.

Since  most  Member  States  did  not  declare  substantial  expenditure  on  projects  which  had
already  been  decided  on  by  1 January  2000  and  did  not  start  to  consider  applications  for
assistance  until  2001,  it  may  now  be  expected  that,  apart  from  the  payment  of  the  initial
advance  of  7%,  the  rate  of  actual  financial  implementation  of  each  programme  will  remain
modest early in the period, achieve a steady rhythm towards 2003 and be completed in 2008.

22

6.4.

Better financial management and inspection

One  element  which  has  helped  spread  applications  for  payments  over  time  is  the  more
rigorous  financial  management  and  checks  required  to  comply  with  the  new  provisions  of
Regulation (EC) No 1260/1999, including the  obligation  to  establish  a  paying  authority  and
provide  it  with  staff.  Following  the  comments  of  the  Court  of  Auditors  and  the  discharge
authorities about the rate of errors and irregularities in the Structural Funds, the Commission
insisted  on  compliance  with  these  provisions,  and  the  Member  States  took  their  time  in
implementing them.

One  of  the  provisions  making  financial  management  more  rigorous  concerns  the  stricter
application of the rule that  advances of funds to intermediary organisations  are not  eligible.
Recognising the advances as eligible would certainly improve the rate of budget execution but
it  would  also  reduce  the  pressure  for  genuine  implementation  at  the  level  of  the  final
recipients, which is a vital condition if the cohesion policy is going to have an impact.

The Commission had adopted the principle of refusing to reimburse Community co-financing
which  exceeds  the  level  set  in  the  programme  complement,  considering  that  this  ‘front-
loading’  of  Community  part-financing  exposed  it  to  the  risk  that  the  rate  set  would  not  be
respected in the long run, so proportionately reducing the multiplier effect sought. However,
with  the  aim  of  simplification  this  rule  had  been  relaxed,  provided  sufficient  controls  are
applied.

6.5.

Date of declaration of expenditure incurred

A limited number of Member States have adopted the practice of not paying grants for certain
large projects until work has been completed, which correspondingly delays the way progress
on the ground is reflected in budget execution.

Moreover, the advances to project holders are ineligible until the date of their clearance by the
expenditure effectively incurred. However the services of the Commission are examining this
condition  in  order  to  make  this  type  of  advance  eligible  at  the  date  of  payment,  while
respecting the principles of good management and control

6.6.

Unforeseen circumstances

In some cases, delays in certain programmes may be attributed to their special features:

(cid:1)  following  the  collapse  of  the  telecommunications  sector  or  the  lack  of  confidence  in
economic growth (Ireland, Portugal, United Kingdom), the private part-financing planned
was not forthcoming;

(cid:1)  inconsistencies  between  the  planned  rates  of  co-financing  and  the  limits  imposed  by  the

State aid rules (United Kingdom Objective 2);

(cid:1)  uncertainties  caused  by  changes  in  Community  rules  (EAGGF  Guidance  Section/

Fisheries);

(cid:1)  requests from some NGOs were refused  because of  failure  to comply with provisions  on

public tenders from which they were exempted during the previous period.

23

6.7.

Capacity to absorb funds

Besides the fact that the capacity to  absorb the funds  available for 2000-06 was reduced by
the need to co-finance the last two years of payments for the 1994-99 period, the Commission
detected  no  on-going  problems  in  the  absorption  of  assistance,  except  in  some  Objective 2
areas where the fragmentation of assistance and the low rate of co-finance available reduced
interest  from  project  promoters,  certain  programmes  where  private  part-financing  did  not
materialise and in some FIFG programmes.

One factor which reduced the absorption of funds is the limited ability of local authorities to
contribute  to  co-financing.  The  increase  in  Community  resources  over  the  various
programming  periods  has  not  been  reflected  in  an  increase  in  the  national  matching  funds.
Small and medium-sized firms have not shown the interest expected in certain programmes.

7.

“N+2” : MEASURES TAKEN AND PLANNED BY THE COMMISSION

Delays in execution mean that the programmes concerned risk losing funds under the “N+2”
rule.  The  Commission  will  apply  this  rule  in  accordance  with  the  statutory  provisions.
However, in order to avoid this situation, and maximise sums effectively implemented by the
cohesion policy, the Commission :

(cid:1)  Adopted a Communication specifying the implementing rules of “N+2” (Communication

C(2002)1942 adopted 27 may 2002);

(cid:1)  Is working with the Member States to improve the techniques of forecasting by programme

(C.f. Chapter 5)

(cid:1)  Is  keeping  the  senior  authorities  of  the  Member  States  regularly  informed  about  the

progress of the programmes at risk;

(cid:1)  Is working with those responsible to establish the reasons for delays and the solutions to be
adopted, in accordance with the Regulations. Where a programme is unable to achieve the
goals  planned,  the  Commission  will  consider  with  the  Member  State  concerned  how  to
divert the funds at risk from this programme to other more promising purposes;

(cid:1)  Is  looking  at  ways  of  simplifying  procedures  (both  its  own  and  those  of  the  Member
States) to make them more efficient and to bring the administrative burdens on applicants
for aid and the administrations responsible into better balance.

The Commission has begun to consider this point both within its own departments and in the
Consultative Committees of the Funds.  It will present its proposals for the current period to
the informal meeting of Ministers on 7 October 2002 and extend the debate to the post-2006
period  at  a  conference  to  be  held  early  in  2003.  It  has  also  asked  the  Member  States  to
identify  best  practices  in  appraising  applications  for  assistance  so  that  these  can  be  applied
throughout the Union. A number of ideas have already been identified, including making less
rigorous  the  conditions  for  modification  of  programmes  to  improve  their  management,
streamlining  the  procedure  for  mid-term  revision,  and  making  control  procedures  more
proportionate and better co-ordinated.

The Commission will profit from the lessons to be learned from the experiences of the present
Member  States  to  speed  up  and  simplify  the  implementation  of  the  Funds  by  the  candidate

24

countries after accession. It has set itself the target of completing the bulk of the programme
negotiations planned for these countries before accession so that the programmes can start as
soon as allowed by the accession agreements.

8.

CONCLUSIONS

The volume of payments in implementation of programmes for socio-economic development
in  2000-06  was  considerably  overestimated  in  2000  and  2001,  partly  because  of  the  longer
than expected time taken to negotiate programmes; the Member States also made little use of
the provision under which payments as of January 2000 would be eligible. The start of some
programmes was undoubtedly delayed by awaiting the legal and financial security offered by
the  formal  adoption  of  the  programmes  by  the  Commission.  However,  the  Commission
believes  that  the  main  reason  for  budgetary  under-execution  in  2000  and  2001  is  that  the
Member States gave priority to completing projects financed under the programmes for 1994-
99, for which the deadline for eligibility was 31 December 2001, and started the programmes
for 2000-06 late.

Commission  staff  attend  the  meetings  of  the  Monitoring  Committee  for  each  individual
programme  and  found  in  2001  that  the  value  of  the  measures  committed  for  most  of  the
programmes was adequate to ensure a normal rate of execution in the years to come.

2002  is  the  second  year  of  actual  implementation  of  most  programmes,  and  the  payment
appropriations could once again prove greater than  actual  execution: for the period 2000-06
because  of  delays  between  the  start  of  aid  measures  on  the  ground  and  the  declaration  of
payments to the Commission, and for 1994-99 because of the late claims for final payments
due  to  delays  in  the  Member  States  in  checking  the  expenditure  declared  during  the
programming  period.  The  Commission  will  reassess  its  estimate  this  autumn.  Because
decisions  to  grant  assistance  are  highly  decentralised,  any  estimate  of  expenditure  for  the
current and future years is tentative but, with that reservation, the Commission expects budget
execution to follow a fairly regular pattern from 2003 to 2008, with the last payments being
foreseen in 2010.

Because  the  period  for  payments  provided  for  in  the  Regulation  is  longer  than  for
commitments (11 years compared with 7), the Commission expects the amount outstanding at
the  end  of  the  year  to  increase  to  a  peak  of  some  € 55  to  64  billion  in  2006  and  then  fall
virtually  to  zero  in  2010.  This  pattern  is  based  on  the  likely  assumption  that  the  Member
States will make maximum use of  the time allowed for  implementation by Regulation (EC)
No 1260/1999,  while  avoiding  substantial  decommitments  under  the  ‘sunset  clause’  of  the
“N+2” rule.

Even  in  the  event  of  substantial  under-utilisation  of  funds,  the  amount  outstanding  in  2010
will  be  rendered  insignificant  by  decommitments  under  the  “N+2”  rule.  However,  the
Commission  believes  that,  faced  with  the  risk  of  losing  funds  under  that  rule,  the  Member
States  will  seek  to  implement  their  programmes  at  a  rate  adequate  to  ensure  only  limited
losses. It will keep the Member States regularly informed of the programmes at risk.

In  addition  to  the  amount  outstanding  for  2000-06,  there  is  the  amount  for  the  previous
period, which stood at € 17.2 billion at the end of 2001. That will be settled before the end of
2003, on the basis of final payment claims to be notified by 31 March 2003, except for a small
amount relating to cases giving rise to dispute or projects suspended for judicial reasons.

25

A large amount outstanding is an inevitable consequence of the legal provisions governing the
Structural Funds. The discipline imposed by the “N+2” rule should be given an opportunity to
reduce this amount and encourage the Member States to take advantage of the funds available
to them within the time allowed.

The Commission is doing everything it can to help the Member States achieve this goal. It has
begun  a  wide-ranging  consideration  of  ways  to  simplify  procedures  and  will  present  its
proposals to the informal meeting  of Ministers on 7 October 2002. Since  the problems vary
depending  on  the  region,  the  Member  State  and  the  Fund,  it  is  working  with  the  Member
States to identify obstacles and solutions.

There is a real risk that some resources under some funds will be lost by some programmes
because of the application of the “N+2” rule. However, the discipline imposed each  year by
this rule forces the Member States and their regions to pay constant attention to achieving a
satisfactory rate of programme implementation, rather than trying to make up lost time at the
end of the period, as happened in 1994-99. It is better to cancel a few tens of millions of Euro
in 2002 and 2003 than to lose very large sums at the end of the period.

26

ANNEXES : tables for graphs 1 to 10

Graph 1 : Outstanding commitments at the end of each year from pre-1994 periods (€ billion)

RAL pré-94 à la fin de chaque 
année (milliards d'Euros)

%

1993
1994
1995
1996
1997
1998
1999
2000
2001

15.405,70
10.508,00
7.762,60
5.349,46
3.542,32
2.434,95
1.858,37
991,30
532,20

100%
68%
50%
35%
23%
16%
12%
6%
3%

Graph 2: Payment of commitments outstanding under the 1994-99 programmes

Financial perspective

Expected RAL 

Payments
De-commitments

1999

2000

2001

2002

2003

2004

41,2

19,8
0

21,4

8,9
0,1

12,4

5,6
0,2

6,6

Remaining RAL (at the end of the year)

41,2

Actual implementation and budgets assumption

Actual RAL (including pre<94)

41,7

2,4

New commitments (closure of Edinburgh)
Payments
De-commitments (including pre<94)
RAL (end of the year)

2,4  
20
0,7
23,4

5,8
0,4
17,2

6,4

10,8

41,7

1999,2000 and 2001 : actual implementation
2002: implementation plan (budget - 0,9 billion)
2003: PDB
2004: remaining commitments (de-commitments or legal cases)

5,2
0,6

0,8

7,9

2,9

0,7
0,1

0

0,7
2,2
0

Graph 3 : Trend in commitments under the new programmes

1999

2000

2001

2002

2003

2004

2005

2006

Actual implementation 

(after rebudgetisation and carryovers)

Commitments (new programmes)

15,4

38,1

31,1

31,1

31,6

31,9

31,7

Cumulated commitments

0

15,4

53,5

84,6

115,7

147,3

179,2

210,9

2000-01 : actual implementation (with carryovers in 2001)
2002: budget, 2003:PDB (adjusted FP)
2004-06: financial perspective (adjusted FP)

27

 
 
 
 
 
 
 
 
 
 
Graph 4: Trend in payments under the new programmes

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Financial perspective (initial PF)

Payment on account
Reimbursements
TOTAL

Actual implementation 

Payment on account

Reimbursements

TOTAL

Payments covered N-3, N-2 and X% of N-1 (on average)
Payment claimed in Dec N+2 and paid in N+3

8
1,2
9,2

5,9

0

5,9

0

6
13,6
19,6

25,6
25,6

27,6
27,6

30,2
30,2

30,2
30,2

30,2
30,2

7,7

7

0,2

22

14,7

22,2

0

23,1

23,1

0,3

26,7

27

0

27

27

40%

27% 13%

0

27

27

-1%
-0,4

0

27

27

-17%
-5,3

0

23

23

-7%
-3,5

0

11,4

11,4

0

2,6

2,6

2000-01 : actual implementation 
2002: budget, 2003: PDB 
2004-08: Steady State, i.e. 90% of one annual tranche from 2004 to 2007 and 80% in 2008 (N+2 avoided)
2009-2010: final balance (75% in 2009 and 25% in 2010) + 3,5 billion in 2009

Graph 5: Outstanding commitments under the new programmes

Actual implementation 

Commitments

Payments

RAL (fin de l'année)

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

15,4

5,9

9,5

38,1

14,7

32,9

31,1

22,2

41,8

31,1

23,1

49,8

31,6

31,9

31,7

27

27

54,4

59,3

27

64

0

27

37

0

23

14

0

11,4

2,6

0

2,6

0

0

2000-01: actual implementation 
2002: budget, 2003: PDB 
2004-07: FP (for commitments) and steady state (for payments)

Graph 6: Total payments under the Structural Funds

(1994/1999) - source:ANCIENS PROGR.
2000

1999

2001

2002

2003

2004

2005

Financial perspective
Payments
Actual implementation and budgets assumption
Payments

19,8

20

8,9

5,8

5,6

6,4

5,2

7,9

0,7

0,7

(2000/2006) - source: PAYMENTS

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Financial perspective (initial PF)
TOTAL

Actual implementation 

9,2

19,6

25,6

27,6

30,2

30,2

30,2

TOTAL

0

5,9

14,7

22,2

23,1

27

27

27

27

23

11,4

2,6

(1)

(2)

(3)

(4)

for chart

(1)+(3)
(2)+(4)

Financial Perspectives
Payments

29,0
25,9

28,5
20,5

31,2
28,6

32,8
31,0

30,9
27,7

30,2
27,0

30,2
27,0

27,0

23,0

11,4

2,6

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Graph 7: Total commitments outstanding under the Structural Funds (at the end of the year)

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Actual implementation (end of the year)

Old RAL

New RAL

RAL (end of the year)

41,7

0

41,7

23,4

9,5

32,9

17,2

32,9

50,1

10,8

41,8

52,6

2,9

49,8

52,7

0

54,4

54,4

0

59,3

59,3

0

64

64

0

37

37

0

14

14

0

2,6

2,6

0

0

0

2000-01 : actual implementation 
2002: budget, 2003:PDB 
2004-08: FP (for commitments) and steady state (for payments)

Graph 8: Trend in outstanding commitments for 2000-06 during each budget year

99

99
01
00
avril déc avril déc avril

00

01
déc

02
avril

02
déc

03
avril

03
déc

04
avril

04
déc

05
avril

06

05
10
08
déc avril déc avril déc avril déc avril déc avril déc

08

09

09

06

07

07

10

RAL beginning
->end of the year

0

0

0 9,5 39,9 32,9 60,4 41,8 72,9 49,8 81,4 54,4 86,3 59,3

91

64 63,6

37 31,7

14 10,5 2,6

2,6

0

28

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Graph 9: Trend in payments in the event that the initial delays are made good in  2003 and
2004

2000 2001 2002 2003 2004

2005

2006

2007 2008 2009

2010

Financial perspective (initial PF)

Payment on account
Reimbursements
TOTAL

Actual implementation 

Payment on account

Reimbursements

Récupération

TOTAL

8
1,2
9,2

6
13,6
19,6

25,6 27,6
25,6 27,6

30,2
30,2

30,2
30,2

30,2
30,2

5,9

7,7

0

7

0,2

22

0

0,3

0

0

0

0

27,6

29,9

30,2

30,2

18,6

9,2

0

7,9

0

2,6

5,8

5,8

5,9

14,7

22,2 33,4

36,0

30,2

30,2

18,6

9,2

7,9

2,6

2000-01 : actual implementation 
2002: budget
2003-04: financial perspective + catching-up in two-year time of the "backlog" compared to the FP
2005-2010: financial perspective assumption

Graph 10: Capping the outstanding commitments under the automatic decommitment rule

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

31,1

31,1

31,6

31,9

31,7

0

0

0

0

84,6

115,7

147,3

179,2

210,9

210,9

210,9

210,9

19,7

39,8

19,7

59,5

19,7

79,2

19,7

98,9

19,7

27

23

118,6

145,6

168,6

Commitments

Cumulated commtiments

Payments

Cumulated payments

De-commtiments

Cumulated de-commitments

RAL (end of the year)

Payments covered N-3, N-2 and X% of N-1 (on average)
Exceeding the N+2
Claimed in November and December and paid in early N+3
De-committed during the following year

15,4

15,4

5,9

5,9

0

0

38,1

53,5

14,2

20,1

0

0

0

0

0

0

0

0

0

0

9,5

33,4

44,8

56,2

68,1

80,3

11,6

11,6

80,7

11,9

23,5

41,8

-106%
-10,1

4,8

28,3

14

-3,5

3,5

19% -17% -53% -90%
-17,1
6,0

-16,8

-5,4
5,4

5,2
-11,6

5,2
-11,9

5,3
-4,8

11,4

180

0

28,3

2,6

2,6

182,6

0

28,3

0

2000, 2001: implementation
2002-2006: payments maximising the RAL at the beginning of 2006, while keeping a stable instalment of payment (and without automatic decommitments 
before 2006)
2007-2010: central scenario

29