Documents considered by the Committee on 7 November - European Scrutiny Committee Contents


15 Financial information on the European Development Fund

(a)

(34085)

12391/12

COM(12) 386

(b)

(34373)

15521/12

COM(12) 610


Commission Communication: Financial information on the European Development Fund



Commission Communication: Estimate of European Development Fund commitments, payments and contributions to be paid by Member States for 2012, 2013 and 2014

Legal base
Documents originated(a) 10 July 2012; (b) 24 October 2012
Deposited in Parliament(a) 12 July 2012; (b) 29 October 2012
DepartmentInternational Development
Basis of considerationEM of 1 November 2012
Previous Committee ReportNone; but see (34085) 12391/12: HC 86-xiii (2012-13), chapter 8 (17 October 2012)
Discussion in CouncilTo be determined
Committee's assessmentPolitically important
Committee's decisionCleared; further information requested

Background

15.1 The European Development Fund (EDF) is the main instrument for delivering EU assistance for development cooperation under the Cotonou Agreement with the African, Caribbean and Pacific (ACP) States and for financing EU cooperation with the Overseas Countries and Territories (OCT). The EDF is funded outside the EU budget by the EU Member States on the basis of specific contribution keys. Each EDF is concluded for a multi-annual period. The 10th EDF Internal Agreement, establishing the resources of the 10th EDF and their share in broad sub-categories, covers the period 2008-2013, and includes provisions on implementation and financial monitoring.

15.2 In accordance with Article 7(3) of the Internal Agreement[39] and Articles 57(3) and (4) of the 10th EDF Financial Regulation,[40] the Commission presents estimates of commitments, payments and contributions for the period 2012-2013, taking into account the forecasts of the European Investment Bank (EIB) concerning the Investment Facility.[41]

Commission Communication 12391/12

15.3 This document sets out the financial implementation of the 8th-10th EDFs for 2011 and the forecasts of implementation for 2012-2014.

15.4 The Commission noted that Member States contribute funds directly to the EIB for the instruments which it manages under the 9th and 10th EDFs (the Investment Facility[42] and interest-rate subsidies).

15.5 The Commission said that:

—  it and the EIB had updated their commitment and payment forecasts for 2012 and 2013 for each of the ACP countries and the OCTs;

—  the payment forecasts in particular had been compiled with the aim of helping the Member States to assess as accurately as possible the amounts they needed to earmark in their national budgets while ensuring that sufficient financial resources were available for the EDF to avoid liquidity problems; and that

—  in accordance with Article 7 of the Internal Agreement on the 10th EDF and Article 57(5) of the Financial Regulation, the estimates provided would be updated in the October 2012 communication (document (b)).

15.6 The general trend in commitments and payments, including projections for 2012-2013 (Commission and EIB) were set out graphically.

15.7 The Commission said that, at year end 2011, around 63% of the 10th EDF had been committed and that they were "on track to meet [their] target to commit the 10th EDF before the end of 2013."


FINANCIAL FORECASTS FOR 2012-2014

15.8 The Commission provided an update based on its latest forecasts:
€ million
2012
2013
2014
Commitments

Commission

EIB


3,400

622


4,200

636


3,750

685

Payments

Commission

EIB


3,103

435


3,400

406


3,400

545

Contributions

Commission

EIB


2,600

280


3,300

250


3,400

520

FINANCIAL IMPLEMENTATION FORECASTS FOR 2012 AND 2013

15.9 The Commission's new forecasts were set out in Annexes 1-3 of the Communication.

15.10 The Commission noted that:

—  the Member States' contributions to the EDF for 2012 were decided by the Council in October 2011, at €3600 million for the Commission and €280 million for the EIB;

—  the new 2012 forecasts confirmed the EIB's treasury needs of €280 million;

—  due to lower than forecasted payments in 2011 and a considerable cash balance carried over from 2010, it was appropriate to reduce its request to €2600 million;

—  the new ceiling proposed for the Member States' contributions in 2013 amounted to €3,300 million for the Commission and €250 million for the EIB.

and concluded thus:

"It should be stressed that these figures are a preliminary forecast and must be treated with caution. The Commission and the EIB will make more reliable forecasts after the summer. They will be presented in the October communication."

15.11 The Parliamentary Under-Secretary at the Department for International Development (Ms Lynne Featherstone) began her Explanatory Memorandum of 17 September 2012 by noting that, due to lower than forecasted payments in 2011 and a considerable cash balance carried over from 2010, the Commission has revised the amount of Member State contributions to the EDF called for in 2012 from €3.88 billion to €2.88 billion, and in 2013 from €4.05 billion to €3.55 billion; and says that alongside other Member States, the Government has expressed its dissatisfaction with the late notification of this revised financial information and is pursuing the Commission for further explanation as to the reasons for this significant underspend.

15.12 The Minister then said:

—  the Commission's revised figures pose a significant underspend of the UK contribution to the EDF in 2012/13;

—  the UK had expressed its extreme dissatisfaction with the Commission's late communication of the revised financial information which adversely affected her Department's own budgeting process;

—  the UK had expressed further dissatisfaction with the Commission's poor forecasting which it found unacceptable;

—  the UK had requested an explanation of the reasons for this significant underspend, and registered the need for the Commission to deepen its accountability and produce accurate and timely forecasts in future to allow the UK and other Member States to credibly forecast and accurately plan their budgets;

—  she was pressing the Commission to provide concrete proposals to improve its forecasting and the timing of passing information to Member States;

15.13 The Minister then said that the Commission's response thus far had highlighted that this underspend was predominantly due to: a large cash balance carried over from 2010; lower disbursements on a large number of budget support programmes in 2011; and several delayed payments to large infrastructure project contracts. Lower disbursements on budget support programmes have been caused by poor country beneficiary performance where benchmark and eligibility criteria had not been met. Delayed payments to infrastructure projects amounting to approximately £56 million were due to delays in launching calls for proposals and calls for tenders, as well as cases where financial guarantees were not received from contractors. Delays to project implementation, problems in cooperation with implementing agencies and delayed signature of delegation agreements have also impacted on payment.

15.14 She then commented:

"While some of these represent acceptable reasons for delayed disbursements, we cannot accept the late notification of these underspends to Member States. The UK would like to see a proposal of how an acceleration of budget disbursement might be achieved to rectify the slippage. We are working with other Member States to deliver a clear, firm message to the Commission that they must deepen accountability and provide more reliable and regular forecasts in future so that Member States can in turn, better plan and forecast their own budgets. The Commission must be better at spotting and analysing trends in spend and should inform Member States promptly of any significant change in forecasts. We aim to write a joint letter with other Member States clearly and firmly reiterating these points and will follow up on any response from the Commission."

15.15 The Minister then turned to the financial implications, describing the impact on the UK's contribution to the EDF in financial year 2012/13 as "considerable", and continuing as follows:

"Our forecasted figures now show an underspend of £173,907,965. In financial year 2013/14 our forecasted figures also indicate an underspend of £73,050,252. DFID's budget lines for the EDF will be adjusted accordingly whilst taking into account possible exchange rate fluctuation. We will be reallocating the unspent resources to policy priorities where financial pressures are emerging, to ensure that this underspend does not impact negatively on overall UK ODA levels."

15.16 Finally, the Minister said that she would provide a new Explanatory Memorandum on "the annual October Communication which will outline the latest revised EDF financial figures and forecasts for future years".

Our assessment

15.17 This was the first time that the Commission had produced these figures in a Communication; we therefore had no way of knowing whether the disturbing picture painted was typical or an aberration. As the Minister said, some of the reasons for late disbursements were reasonable; for example, there is no point in a system that is (properly) linked to beneficiary country performance if failure to meet benchmarks and eligibility criteria has no adverse consequences. However, the figures were substantial — downward revisions of €1 billion in 2012 and €500 million in 2013 — and, in the Minister's words, had considerable implications for Member States' national budgets. And there was no evident good reason for the delay in providing the revised figures. Even now, the Commission was saying that they are no better than "a preliminary forecast" and "must be treated with caution."

15.18 The Minister said that she had expressed extreme dissatisfaction with the Commission's late communication of the revised financial information; requested an explanation of the reasons for this significant underspend; and was pressing the Commission to provide concrete proposals to improve its forecasting and the timing of passing information to Member States.

15.19 In addition to a proposal on how faster budget disbursement might be achieved to rectify the slippage, the Minister also said that she was working with other Member States to deliver a clear, firm message to the Commission that it must: deepen accountability; provide more reliable and regular forecasts in future; be better at spotting and analysing expenditure trends; and inform Member States promptly of any significant change in forecasts.

15.20 We therefore asked the Minister, when she submitted the October Communication for scrutiny, to include a copy of the proposed joint letter with other Member States "clearly and firmly reiterating these points" and to know what response she had received from the Commission.

15.21 In the meantime, we retained the document under scrutiny.

15.22 Given the implications for the Department for International Development's budgeting process, we also drew this chapter of our Report to the attention of the International Development Committee.[43]

The further Commission Communication

15.23 This Communication provides estimates of commitments, payments and contributions for the period 2012-2014, and updates forecasts given in the Commission's July 2012 Communication.

15.24 The final amount of €2.88 billion for Member State contributions to the EDF called for in 2012 is unchanged from the July Communication. The Commission has revised down the forecast for 2013 from €3.55 billion to €3.35 billion; and the 2014 total overall ceiling from €3.92 billion to €3.61 billion.

The Government's view

15.25 In her Explanatory Memorandum of 1 November 2012, the Parliamentary Under-Secretary of State at the Department for International Development (Ms Lynne Featherstone) recalls that the earlier Communication highlighted significant underspend in the EDF for 2012 amounting to a reduction in Member States' contributions of €1 billion, and that, at the time, the UK and other Member States expressed their dissatisfaction with the late notification of the revised financial information; and says:

"We are pleased to note that in the October Communication the forecasts for the 2013 annual amount and 2014 ceiling amount are not significantly different from those presented in July, but we continue to pursue the Commission for concrete proposals to improve its forecasting and the timing of passing information to Member States."

15.26 The Minister then notes that:

—  the Commission's latest forecasts show a €200 million, or 5.6%, reduction in 2013 total Member State contributions from the preliminary forecasts received in July;

—  the 2014 overall ceiling has also been reduced by €310 million, or 7.9% reduction;

—   "the UK share of these changes is within acceptable bounds for DFID's EDF budget and forecasts will be adjusted accordingly";

—  the Commission has requested total Member State contributions of €3.35 billion for 2013, of which the UK share is €491 million;

—  the 2014 total overall ceiling is set at €3.61 billion.

15.27 Turning to the matter of dissatisfaction with the Commission's poor forecasting and the UK's and other Member States' request for a full written explanation of the under-spend and how EDF forecasts are made, the Minister says:

—  the Commission provided the ACP Working Group with a written response on 22 October which highlighted that the underspend was predominantly due to a large cash balance carried over from 2010 and lower disbursements on a large number of budget support programmes in 2011 and 2012;

—  the Commission has said that it will in future try to avoid changes to the amount of Member States' contributions during the given current year but rather adjust them for following years;

—  she is still working with other Member States "to deliver a clear, firm message to the Commission that it must deepen accountability and provide more reliable and regular forecasts in future so that Member States can in turn, better plan and forecast their own budgets;

—  the Commission must be better at spotting and analysing trends in spend and should inform Member States promptly of any significant change in forecasts;

—  she would also like to see "a proposal of how an acceleration of budget disbursement might be achieved to rectify the slippage reported in the July Communication";

—  it is still the intention to write a joint letter with other Member States clearly and firmly reiterating these points.

15.28 The Minister then notes that:

—  future EDF contributions have not changed significantly from the Commission's July Communication and are therefore in line with DFID's current budget forecasts;

—  the UK's forecast 2013 annual contribution is €491 million, the first instalment of which is expected to be €287 million;

—  however, as reported to the Committee in September, over the full 2012/13 financial year there has been a significant EDF underspend of £174 million in DFID's accounts. DFID's budget lines for the EDF in financial year 2012/13 have been adjusted to take account of this and to reallocate the unspent resources to other policy priorities;

—  in financial year 2013/14, her Department's "forecasted figures indicate an EDF under-spend of £73 million and a similar process of reallocation of this underspend will take place to ensure that overall UK ODA levels are not negatively impacted."

15.29 The Minister then:

—  recalls the Committee's outstanding requests for further information arising from the earlier Commission Communication, says that she is following up on these points and will update the Committee shortly on progress;

—  notes that, in line with the commitments given in the 10th EDF Financial Regulation, the Council must decide on the 2013 annual amount of Member State contributions and the ceiling for the 2014 annual amount of Member State contributions by 15 November 2012;

—  requests the Committee to clear these documents in order to enable the Government to meet the UK's commitments under the EDF Internal Agreement and Financial Regulations.

Conclusion

15.30 In these circumstances we are content to clear both documents.

15.31 However, there appears to have been no progress since the first Commission Communication appeared in July with regard to communicating collectively and formally to the Commission what Member States want and need in future, nor any response from the Commission to Member States' comments thus far other than something that adds nothing to what was already known and a vague aspiration (see the second tiret of paragraph 14.27 above).

15.32 We remain interested in the promised collective letter, setting out what Member States expect in future, and the Commission response. We look forward to hearing from the Minister when the first of these documents has been agreed, with a copy of it and her assessment of the extent to which it meets her desiderata.

15.33 In the meantime, given the continuing implications for the Department for International Development's budgeting process, we are again drawing this chapter of our Report to the attention of the International Development Committee.





39   Internal Agreement between the Representatives of the Governments of the Member States, meeting within the Council, on the financing of Community aid under the multiannual financial framework for the period 2008-13 in accordance with the ACP-EC Partnership Agreement and on the allocation of financial assistance for the Overseas Countries and Territories to which Part Four of the EC Treaty applies, OJ L 247, 9 September 2006, p.32. Back

40   Council Regulation (EC) No 215/2008 of 18 February 2008 on the Financial Regulation applicable to the 10th European Development Fund. Back

41   The European Investment Bank (EIB) is the EU Bank. Its shareholders are the 27 Member States of the Union, which have jointly subscribed its capital. The EIB's Board of Governors is composed of the Finance Ministers of these States. The EIB's role is to provide long-term finance in support of investment projects. Back

42   The ACP Investment Facility, as defined in the ACP-EU Partnership Agreement signed in June 2000 in Cotonou, Benin, for a period of 20 years, and revised in 2005 and 2010; and the OCT Investment Facility, as defined in the Overseas Association Decision signed in 2001 for a duration of 12 years, and revised in 2007. Described by the EIB as "a revolving fund which meets the financing needs of investment projects in the regions with a broad range of flexible risk-bearing instruments", further information is available at http://www.eib.org/projects/regions/acp/index.htm. Back

43   See headnote: (34085) 12391/12: HC 86-xiii (2012-13), chapter 8 (17 October 2012). Back


 
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Prepared 16 November 2012