REPORT FROM THE COMMISSION TO THE COUNCIL on the five yearly review of the multiannual financial guidelines for managing the assets of the ECSC in liquidation and, on completion of the liquidation, the Assets of the Research Fund for Coal and Steel July 2012
Date: 2012-10-17
Institutions: European Commission
Subjects: ECSC, financial management, fund (EU), research, validation of expenditure

EUROPEAN 
COMMISSION 

Brussels, 17.10.2012  
COM(2012) 594 final 

REPORT FROM THE COMMISSION TO THE COUNCIL 

on the five yearly review of the multiannual financial guidelines for managing the assets 
of the ECSC in liquidation and, on completion of the liquidation, the Assets of the 
Research Fund for Coal and Steel 

July 2012 

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Introduction 

Council  Decision  2003/77/EC  of  1  February  2003  lays  down  multiannual  financial 
guidelines for managing the assets of the ECSC in liquidation and, on completion of the 
liquidation, the Assets of the Research Fund for Coal and Steal (financial guidelines)1.  

Article 2 of this Council Decision states that the Commission shall reassess the operation 
and  effectiveness  of  the  financial  guidelines  every  five  years  and  shall  propose 
amendments if appropriate. 

Following  the  first  review  undertaken  in  2007,  the  Council  Decision  was  amended  on 
15 September 2008 (See Council Decision 2008/750/EC2). The amendments were largely 
of a technical nature and more specifically, concerned clarifications of certain definitions, 
namely the maturity concept of a bond, which was refined to cover the definition used in 
the  case  of  asset-backed  securities  (ABS),  the  definition  of  government  issued  or 
government guaranteed securities and the definition of "debt" issued by banks. The rules 
for  sale  and  repurchase  operations  were  brought  in  line  with  market  standards.  In 
addition,  certain  rating-related  provisions  were  clarified  and  the  maximum  maturity 
permitted was extended by six months to take account of the changing issuance pattern of 
EU  Member  States.  Finally,  some  accounting  provisions  were  updated  to  reflect  the 
move to internationally accepted accounting rules for the whole Commission. 

This  report  sets  out  the  assessment  of  the  operation  and  effectiveness  of  the  financial 
guidelines for the five-year period 2008 – 2012. 

Operation and effectiveness of the financial guidelines in the five-year period 2008 – 
2012 

According  to  Council  Decision  2003/77/EC,  as  amended  by  Council  Decision 
2008/750/EC,  the  Commission  shall  manage  the  assets  of  the  ECSC  in  liquidation  so 
"that  funds  are  available  as  and  when  needed,  while  still  generating  the  highest  return 
available,  consistent  with  maintaining  a  high  degree  of  security  and  stability  over  the 
long-term." (point 3 of the Annex to the Council Decision 2003/77/EC) 

In view of these objectives, the financial guidelines have worked well during the 5-years 
period  2008  –  2012,  despite  a  challenging  market  environment  related  to  the  global 
financial and debt crisis.  

Despite  the  significant  deterioration  of  the  financial  markets,  no  defaults  were 
experienced  in  the  assets  under  management  (as  of  June  2012)  and,  furthermore,  the 
return of the portfolio was satisfactory. In particular, during the period between 1 January 
2008 and 30 June 2012, the portfolio provided a cumulative return of 19.5% or an annual 
average of 4% from a high quality/low risk portfolio. Details on the composition of the 
portfolio assets are provided in the Annex.  

1 
2 

OJ L 29, 5.2.2003, p. 25. 
Council  Decision  2008/750/EC  of  15  September  2008  amending  Decision  2003/77/EC  laying 
down multiannual financial guidelines for managing the assets of the ECSC in liquidation and, on 
completion  of  the  liquidation,  the  Assets  of  the  Research  Fund  for  Coal  and  Steel  (OJ  L  255, 
23.9.2008, p. 28).  

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Thus,  the  capital  of  the  portfolio  was  not  only  preserved  but  augmented.  The  market 
value of the portfolio at 30 June 2012 stood at EUR 1.74 billion whereas at 31 December 
2007 it stood at EUR 1.46 billion.  

In the period under review, the portfolio received contributions from new Member States 
in the order of EUR 152.28 million while it provided a total of EUR 229 million to be 
used for continuation of research in the sectors related to the coal and steel industry, as 
foreseen in the Council Decision 2003/77/EC. 

During  the  assessment  period,  the  existing  financial  guidelines  provided  an  effective 
basis  for  a  prudent  asset  and  risk  management  framework  which  is  continuously  being 
reviewed and adjusted to market developments and industry standards.  

The  adherence  to  the  risk  management  framework  of  the  Commission  is  monitored 
continuously  by  a  dedicated  risk  management  function  which  is  independent  from  the 
asset managers and reports directly to senior management.  

In  addition  to  the  existing  risk  monitoring  and  control  framework,  risk  and  asset 
management systems and procedures are subject to regular internal and external audits. 
No issues have been raised by private external auditors relating to the management of the 
fund  and  the  approach  to  managing  the  impact  of  the  crisis.  In  addition  to  the  private 
external  auditors  the  management  of  the  ECSC  i.L.  is  also  regularly  audited  by  the 
European  Court  of  Auditors.  These  reports  contain  no  recommendation  concerning  the 
Financial Guidelines of the ECSC i.L. 

Conclusion 

the  current  financial  guidelines.  Together  with 

On  the  basis  of  the  above,  the  Commission  is  of  the  opinion  that  there  is  no  need  to 
the  Commission's  risk 
change 
management framework which is continuously being reviewed and adjusted as required, 
the  current  financial  guidelines  have  worked  satisfactorily  during  the  period  under 
review. The portfolio achieved a positive overall return that compares favourably with its 
market benchmark and has exhibited security and stability over the long-term.  

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ANNEX 

Annex 1.a - Portfolio Structure as of 30.06.12 

Company Code: ECSC 

a) PORTFOLIO STRUCTURE AS OF 30/06/12 

Portfolio 
Bonds 
Subtotal Bonds 
Cash (See table c) 
TOTAL 

Market Value 
w/o accrued interests 
1,454,273,591 
1,454,273,591 
262,339,281 
1,716,612,872

Market Value 
with accrued interests 
1,476,771,277 
1,476,771,277 
262,339,281 
1,739,110,558 

30/06/2012 

85% 
85% 
15% 
100%

b) PORTFOLIO DURATION 

Modified Duration 

(*) bond part only 

c) CASH STRUCTURE 

Money market Deposits 
Accrued Interests 
Nostro Accounts* 
TOTAL 

Current 30/06/12 
(2.62*) 

2.24  

Current 30/06/12 
261,800,000 
209,468 
329,813 

262,339,281  

Annex 1.b - Portfolio Structure as of 31.12.08 

a) PORTFOLIO STRUCTURE AS OF 31/12/08 

Portfolio 
Bonds 
Subtotal Bonds 
Cash (See table c) 
TOTAL 

Market Value 
w/o accrued interests 
1,431,863,320 
1,431,863,320 
106,935,595 
1,538,798,915

Market Value 
with accrued interests 
1,463,674,511 
1,463,674,511 
106,935,595 
1,570,610,106 

31/12/2008 

93% 
93% 
7% 
100%

b) PORTFOLIO DURATION 

Modified Duration 

(*) bond part only 

c) CASH STRUCTURE 

Money market Deposits 
Accrued Interests 
Nostro Accounts* 
TOTAL 

Current 31/12/08 
(3.99*) 

3.72  

Current 31/12/08 
100,600,000 
243,897 
6,091,697 
106,935,595  

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Annex 2.a - Bond Portfolio Structure as per 30.06.2012 

Bond Portfolio Structure by Maturity, Rating and Industry
Company Code: ECSC: 30/06/12

Bond Portfolio Structure by Maturity

13% 

27%

8%

15%

37% 

Bond Portfolio Structure by Rating

1%  2% 

12%

10%

14%

61%

<1 Y

1-3 Y

3-5 Y

5-7 Y

7 Y +

AAA

AA

A

BBB
BB 
B

Bond Portfolio Structure by Industry group

8%

13%

10% 

Sovereign

Multinational organizations

Other public issuer 

Banks  and  Financial
institutions 

69%

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Annex 2.b - Bond Portfolio Structure as per 31.12.2008 

Bond Portfolio Structure by Maturity, Rating and Industry

Company Code: ECSC; 31/12/08

Bond Portfolio Structure by Maturity

27% 

19%

22%

12%

20%

Bond Portfolio Structure by Rating

1%  0%

0%

11% 

16%

72%

<1 Y

1-3 Y

3-5 Y

5-7 Y

7 Y +

AAA

AA

A
BBB

BB

B

Bond Portfolio Structure by Industry group

31%

Sovereign

42%

Multinational organizations

Other public issuer

Banks  and  Financial 
institutions 

21% 

6% 

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