(1)

Regulation (EU, Euratom) 2022/2434 of the European Parliament and of the Council (2) introduces the diversified funding strategy as a single funding method for the implementation of borrowing and debt management operations carried out by the Commission into Regulation (EU, Euratom) 2018/1046 (the ‘Financial Regulation’). After the entry into force of Regulation (EU, Euratom) 2022/2434 the diversified funding strategy is to apply to programmes of financial assistance for which the basic acts enter into force on or after 9 November 2022.

(2)

The Commission should establish the necessary arrangements for the implementation of the diversified funding strategy. The application of the diversified funding strategy requires the adoption of a set of rules to determine the allocation of respective costs to the relevant financial assistance programmes. which should ensure that all costs incurred by the Union that relate to financial assistance are to be charged to the beneficiary.

(3)

The methodology for allocating costs related to the implementation of the diversified funding strategy under NextGenerationEU (NGEU) has been established by Commission Implementing Decision (EU) 2021/1095 (3). It is appropriate to extend these arrangements to borrowing and debt management operations carried out under the diversified funding strategy pursuant to Article 220a of the Financial Regulation.

(4)

The repayment obligations should remain with the beneficiaries of the financial assistance, in compliance with Article 220(5), point (e) of the Financial Regulation and in line with the budgetary principles of sound financial management and equilibrium. All costs should be charged to the beneficiaries based on a single cost allocation methodology that ensures transparent and proportional allocation of costs.

(5)

The cost allocation methodology should ensure that there is no cross-subsidisation of costs by one category of beneficiary by another. Costs of loans should be fully imputed to the beneficiaries of those loans, on the one hand, and costs of non-repayables to the EU Budget, on the other hand, based on actual costs incurred for raising and disbursing the respective share of proceeds to the different beneficiaries. The methodology should cover all the costs incurred by the Union for borrowing and debt management operations, including all administrative costs, and should ensure that different categories of costs be calculated for each disbursement.

(6)

To ensure fair and equal treatment between beneficiaries, the Commission should implement a common and unified methodology for costs, applicable to all type of disbursements (those repaid by the Union budget, and those repaid by beneficiaries), that impute costs to the beneficiaries on the basis of the share of proceeds received.

(7)

This cost calculation and allocation methodology should distinguish between three categories of cost: the cost of funding, the cost of liquidity management and administrative costs. The cost of funding derives from the interest rate and other charges that the Commission must pay on the different instruments issued to finance the disbursements in question. The costs of liquidity management are the costs incurred as a result of amounts issued and held temporarily on liquidity accounts as reserves to meet upcoming payments. This ongoing operational overhead is an intrinsic feature of the diversified funding strategy and should be shared fairly across all beneficiaries. The third cost category are the administrative costs of building the technical and operational capacity to implement a diversified funding strategy and which arise clearly as a result of the implementation of the diversified funding strategy.

(8)

The fair and proportionate attribution of costs shall be conducted via the compartmentalisation of disbursements and related funding instruments into time-periods (hereafter ‘time compartments’). Pre-existing disbursements and related borrowing transactions issued under the diversified funding strategy, that are already assigned to time compartments shall remain unaffected by the addition of disbursements under programmes of financial assistance within the scope of Article 220a of the Financial Regulation. From the start of such loan disbursements onwards, any disbursement funded through the diversified funding strategy, will have its costs calculated and attributed identically. The paramount advantage of this approach is that the cost of funding is the same for all disbursements attributed to the same time-compartment ensuring that borrowings are tailored to disbursement needs.

(9)

It should be ensured that there is no impact on costs distribution for any of the programmes to which the cost allocation methodology would apply. The cost allocation methodology would as of its adoption apply to NGEU borrowings and the loans under Regulation (EU) 2022/2463 of the European Parliament and of the Council (4), which have similar duration and structure. Therefore, it is possible to include them into the same time compartments. If a new programme of financial assistance is established, with a different duration and structure, likely to have an impact on the costs, this methodology should be reviewed as appropriate.

(10)

The calculation of the cost of funding that results from borrowing transactions should be derived from the costs arising from all borrowing operations during the six-month time period around the date of the disbursement. This compartmentalisation of funding costs is needed to ensure that the cost of funding charged to the disbursement is closely linked to the prevailing market rates at the time at which it is made. This approach means that the precise cost of funding is fixed only upon completion of the funding pool at the closure of the six-month time compartment, but indicative prices will be available to loan beneficiaries prior to the final costing. Loan beneficiaries or, for the external assigned revenue under Article 3(1) of Council Regulation (EU) 2020/2094 (5), the EU budget should pay the same charge. This avoids arbitrariness or chance that characterises the traditional back-to-back method where the costs for any particular beneficiary were the terms that could be obtained on the particular day that the borrowing took place.

(11)

Each time compartment should be active during a period of six months starting on 1 January or on 1 July. However, the first time compartment should cover the period from 1 June 2021 until 31 December 2021 as referred to in article 4 of the Decision.

(12)

While the cost of funding may vary between the six-month time compartments because of differences in funding conditions beyond the control of the Commission, the Commission will manage borrowing and debt management operations in order to ensure that each time compartment bears similar maturity profiles to the greatest extent possible.

(13)

The Commission’s funding strategy enables better management of interest rate risk and other financial risks. While interest rates charged to loan beneficiaries will be stable, periodic and marginal recalculation of rates will be necessary when maturing instruments in the funding pool need to be replaced. If warranted, the Commission will develop its capacity to use derivatives such as swaps to manage any remaining interest rate risk and offer the option of fixed interest rate loans to a beneficiary. The costs of this fixed interest rate facility should be borne fully and exclusively by the beneficiary exercising this option.

(14)

The amounts of disbursements in a time compartment should equal the amount of long-term funding instruments attributed to that time compartment. In most cases, the disbursement of proceeds will occur in and be attributed to the same time compartment as the issuance of the long-term funding instruments used to raise the proceeds. However, unforeseen delays in making the disbursement may result in situations where the proceeds of the long-term funding have been raised but cannot be disbursed as initially scheduled. Under this scenario, the disbursement may be delayed from one time compartment to the following time compartment. However, if the funds for these particular funding needs have already been raised and attributed to the previous time compartment, they cannot be used for other needs in this time compartment. Under these circumstances, it should be possible to attribute disbursements to the time compartment to which the funding instruments have been issued. It should equally be possible to attribute long-term funding instruments of the following time compartment to the previous time compartment in case the amount of long-term funding instruments of that time compartment is not sufficient to cover the amount of disbursements.

(15)

The Commission will also need some means to anticipate, in the preceding time compartment, disbursement needs arising early in the life of the next time compartment. To cater for such situations and ensure that the Commission has the resources available on advantageous terms to make disbursements taking place close to the transition between time compartments, the Commission should have the possibility to attribute long-term funding instruments to the following time compartment.

(16)

The ability to manage liquidity of the funding operations by accessing short-term borrowing and holding cash for prudential purposes is a central and defining feature of the diversified funding strategy. This liquidity management will enable the Commission to meet all payment needs and adapt issuance to market conditions. This capacity gives rise to costs raising proceeds through issuance of short-term paper, and holding some proceeds on a temporary basis on a liquidity account in order to guarantee the ability to make all payments on demand. Debt management operations under the diversified funding strategy enable better management of interest rate and other financial risk. They may include the use of derivatives such as swaps to manage interest rate or other financial risks in relation to loans for the beneficiaries, or enter into secured or unsecured money market transactions. Costs incurred in relation to buy backs and/or holding of own bonds for the purposes of liquidity management should be considered as liquidity management costs. This Decision should establish a basis for calculating these liquidity costs and charging them on a fair and equitable basis to all relevant beneficiaries of proceeds over the course of the year in question.

(17)

Higher disbursement needs than the amount of long-term funding instruments allocated to the respective time compartment or interest payments, may result in a liquidity deficit of a time compartment. Lower disbursement needs than the amount of long-term funding instruments allocated to the respective time compartment or redemption payments received in relation to the outstanding disbursements allocated to the compartment may result in a liquidity surplus. Compensating these liquidity surpluses or deficits are unavoidable requirements of the implementation of the diversified funding strategy. These costs should not be borne by the respective time-compartments, but should be isolated and managed as part of a distinct liquidity management overhead. This Decision should establish a mechanism to disentangle costs arising from liquidity deficits or surpluses so that they can be absorbed by the wider funding programme in the form of liquidity management costs. The Commission should use the liquidity management compartment to level any positive or negative cash balances in the time compartments to the total amount of disbursements.

(18)

Implementing the diversified funding strategy requires the acquisition of new capacities needed to obtain the most advantageous access to capital markets and ensure the maintenance of such infrastructure in a continuous and effective manner. This includes the costs needed to maintain liquidity accounts, to acquire capacity to run auctions for EU-bills and bonds and to implement new internal data-processing capacities. Such costs that result directly from the implementation of borrowing and disbursement operations should be treated as overheads that distinguish costs related to the set-up and to the maintenance of borrowing and payment infrastructure. These costs should be captured by the cost of service for administrative overheads.

(19)

The cost of service for administrative overheads combines all administrative costs incurred directly in the implementation of the diversified funding strategy. These costs are to occur either as set-up costs, relating to one-off costs of building operational capacities or as recurring costs, which are unavoidable costs directly attributable to borrowing and debt management operations under the diversified funding strategy and which occur over time. While the recurring costs are regular annual costs charged to the disbursements that take place in a given year, the set-up costs should be imputed as one-off charges.

(20)

Costs related to the set-up and capacity building of these operations have been incurred since 2021 and have already been attributed to beneficiaries of NGEU financial support programmes, through a specific set-up cost overhead. Therefore, the beneficiaries of other programmes of financial assistance within the scope of Article 220a of the Financial Regulation, should not bear costs related to this previous capacity building but only future expenditure related to the maintenance of this infrastructure. The share of administrative costs of programmes of financial assistance within the scope of Article 220a of the Financial Regulation, other than NGEU, should therefore be restricted to recurring costs, and be treated as any beneficiary of the diversified funding strategy.

(21)

Administrative costs included in the cost of service for administrative overheads should be confined to a closed list of eligible costs, which are directly related to the diversified funding strategy. Contractual fees for recruitment of external consultant staff are added to the list of eligible administrative expenditure following agreements reached in the context of the Annual Budget for 2023. The extension of the list of eligible administrative expenditures has been communicated to Member States authorities prior to the adoption of this Decision. Aggregate cost of service for administrative overheads represents a very limited share of aggregate costs from diversified funding strategy operations.

(22)

The ex post invoicing process is designed to ensure that costs are recovered in the following year and until the moment costs are no longer generated by borrowing, debt and payment management operations under the diversified funding strategy.

(23)

Exceptionally for the financial assistance loans to Ukraine granted under Regulation (EU) 2022/2463, the Union might bear the cost of interests and administrative costs related to the borrowing and lending in accordance with Article 17 of Regulation (EU) 2022/2463. The necessary resources would be provided by contributions from the Member States in accordance with Article 5(1) of Regulation (EU) 2022/2463. The invoicing of those costs should therefore be aligned with the invoicing of costs in respect to disbursements as external assigned revenue under Article 3(1) of Regulation (EU) 2020/2094 and be grouped per quarter of the year.

(24)

The Commission should issue a confirmation notice concerning each disbursement, including non-repayable support within the meaning of Article 2(2)(a) and (c) of Regulation (EU) 2020/2094, repayable support to Members States within the meaning of Article 2(2)(b) of Regulation (EU) 2020/2094, and loans to a Member State or third country under programmes of financial assistance within the scope of Article 220a of the Financial Regulation.

(25)

Loans under the diversified funding strategy are to be implemented on standard financial terms (maturity and repayment profile) for each disbursement. For non-repayable support, the confirmation notice should be the main supporting element determining these financial terms for the EU Budget. The confirmation notice is to determine the claim for cost based on its financial terms. These terms should include the date of disbursement, the amount of financial support, the date of cost of funding payments and the maturity date. The confirmation notice constitutes the essential basis underpinning the EU’s budgetary planning, financial circuits and accounting for non-repayable support.

(26)

Appropriate references in the loan agreements will clarify that the costs of disbursements are determined by the application of the methodology set forth by this Decision.

(27)

This Decision should apply to all borrowing transactions and disbursements under the NGEU programme, including those that have occurred prior to its entry into force.