Select Committee on European Union Fortieth Report


Letter from the Chairman to Gareth Thomas MP, Parliamentary Under-Secretary of State, Department for International Development

  Thank you for your Explanatory Memorandum dated 7 April which Sub-Committee C considered at its meeting on 27 April. The Sub-Committee cleared the document from scrutiny.

  We would like to thank you for the particularly well-written and clear explanation of the proposal to be found in the Explanatory Memorandum which proved very helpful in our scrutiny of the document.

  We wish to receive, in due course, further information on the decisions taken by the Commission in relation to the allocations to particular ACP countries and regions. In particular, how will the €300 million allocated to the African Peace Facility be allocated? Will that amount be specifically set aside from one of the three main funding areas (to be spent as and when required), or will it be taken in separate amounts from allocations to the relevant countries and regions (so that only a specified amount from the APF could be spent in each)? As we are currently conducting an inquiry into the EU's Strategy for Africa, detailed answers to these questions, if available, would be extremely helpful.

  Finally, we note that under the 9th EDF there was a conditional €1 billion euros, partly used to finance the Water Facility. Will there be a similar sum set aside under the 10th EDF?

28 April 2006

Letter from Gareth Thomas MP to the Chairman

  Thank you for your letter of 28 April 2006 responding to my Explanatory Memorandum dated 7 April and informing me that the Committee met on 27 April and cleared the document from scrutiny. You asked for further information in due course about three issues: the allocations between countries; the African Peace Facility; and a conditional funding tranche. I would also like to take this opportunity to update you on negotiations of the Multiannual Financial Framework (MAFF) and the other EDF 10 implementing documents. You will be aware that the House of Commons European Scrutiny Committee also cleared the document in April and asked to be kept informed about managerial and budgetisation issues in particular. This letter also covers those issues for your information.

  The Commission has yet to finalise the allocations to individual ACP countries and regions. They presented the EDF Committee on 17 May with provisional allocations, but stressed that this information is sensitive and should not be shared with the partner countries. The indications are however that Africa will receive a slightly higher share of the funds compared to EDF 9 (90.6%) while the Caribbean and the Pacific regions will receive slightly lower shares. On the basis of this information around 90% of the baseline allocation funds are likely to go to Low-income Countries.

  The €300 million (£208.2 million) earmarked for the African Peace Facility will be allocated using the same procedure as under EDF 9. The allocation process is triggered by a request to the European Commission from the African Union or the relevant sub-regional organisation for support for a particular operation. Once the Commission is satisfied with the proposal, they seek political approval to support the mission from the EU Council of Ministers—usually via the Political and Security Committee. Assuming approval is granted, the EDF Committee is asked to approve a financing proposal. The €300 million is included under the heading of Intra-ACP cooperation. An additional €300 million has been set aside in a Reserve under that heading in case the Council decides during the review of the Peace Facility envisaged for 2010 to provide a further €300 million for 2011-2013 from the 10th EDF.

  As you rightly noted, the 9th EDF included a conditional €1 billion, half of which is being used to fund the Water Facility. Member States made the release of the funds to the Commission conditional on improved performance of the EDF. There is no similar "conditional" funding under the 10th EDF. However, Member States are able to increase their contributions to the 10th EDF on an individual and voluntary basis, thereby providing a continuing incentive to the Commission to improve the EDF's performance.

  On 17 May the Committee of Ambassadors (COREPER) agreed the MAFF. The overall amount of direct financial assistance for the ACP countries will be €23,966 million (£16,637.2 million). The Overseas Countries and Territories (OCTs) will be allocated €316 million (£219.4 million) of which €286 million (£198.5 million) in grants. An additional €430 million (£298.5 million) will be for administrative costs. This gives a total of €24, 712 million (£17,155.1 million). This breaks down between the €22,682 million (£15,745.9 million) agreed by the December 2005 European Council and €2,030 million (£1,409.2 million) in own resources for loans to be provided by the European Investment Bank (EIB) of which €2,000 million is for ACP countries and €30 million for the OCTs.

  The €21,966 million (£15,248.8 million) grant funding available to ACP countries (€22,682 million, minus OCT and administrative costs) will be divided as follows:

    —  €17,766 million (£12,333.2 million) is for national and regional indicative programmes (80.9%);

    —  €2,700 million (£1,874.3 million) is for intra-ACP and inter-regional programmes (12.3%);

    —  €1,500 million (£1,041.3 million) will finance the Cotonou Investment Facility, managed by the EIB (6.8%).

  Compared to the Commission's original proposal, there is a slight increase in the share going to the intra-ACP and inter-regional envelope at the expense of national and regional programmes. This is partly because of the funding for the Africa Peace Facility as set out above.

  The UK and other Member States removed any reference to possible future budgetisation. Managerial issues remain unfinalised, reflecting the continuing negotiations on the Development Instrument with the European Parliament. The MAFF was agreed by Council as an "A" point shortly before the ACP-EC Council of Ministers meeting in Papua New Guinea on 1-2 June where it was agreed by the ACP countries.

  During the latter stages of the MAFF negotiations, the Commission requested that Member States agree to decommit any unspent funds from the 9th EDF and transfer them to the Reserve of the 10th EDF. The Government supports this idea providing that adequate safeguards are in place for the use of the money including agreement by unanimity of their use. In the event, the proposal was not approved. Instead, COREPER agreed a Statement noting that "Based on the performance review in 2010 and a proposal by the Commission, the Council of the European Union will consider a decision by unanimity on the transfer of any funds de-committed from ACP projects funded out of the 9th and previous EDFs into the reserves of the 10th EDF." This does not affect the sunset clause, and all funds from the 9th EDF still need to be committed by the end of 2007. Underspends may occur on some projects and so the Government believes that it is useful to retain the possible option of rolling over these funds to the 10th EDF. At the Council meeting in Papua New Guinea, the ACP highlighted costs related to the implementation of Economic Partnership Agreements and structural adjustment as priority areas for any rolled over funds.

  On 28 June COREPER agreed the Internal Agreement on Financing following several months of negotiation. It is set to be formally signed at the 17 July GAERC. The document sets out the operational modalities for MAFF. The Government secured a number of changes to the original Commission text to reflect development best practice. Discussions on the Financial Regulation and the Implementation Regulation linked to the Internal Agreement on financing have not started. I attach a copy of the texts agreed by COREPER on 17 May and 28 June. Relevant documents will be submitted to Parliament later in the year for ratification.

6 July 2006

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