15 Financial information on the European
Development Fund
(a)
(34085)
12391/12
COM(12) 386
(b)
(34373)
15521/12
COM(12) 610
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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
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Legal base |
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Documents originated | (a) 10 July 2012; (b) 24 October 2012
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Deposited in Parliament | (a) 12 July 2012; (b) 29 October 2012
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Department | International Development
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Basis of consideration | EM of 1 November 2012
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Previous Committee Report | None; but see (34085) 12391/12: HC 86-xiii (2012-13), chapter 8 (17 October 2012)
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Discussion in Council | To be determined
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Committee's assessment | Politically important
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Committee's decision | Cleared; further information requested
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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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