[pic] | COMMISSION OF THE EUROPEAN COMMUNITIES |

Brussels, 19.7.2006

SEC(2006) 977

COMMISSION STAFF WORKING DOCUMENT Technical Annex to the

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL, THE EUROPEAN PARLIAMENT AND THE EUROPEAN COURT OF AUDITORS Annual Report on the Financial Management of the 6th-9th European Development Funds (EDFs) in 2005 {COM(2006) 405 final}

TABLE OF CONTENTS

1. Introduction 3

2. Financial Objectives 3

2.1. Trends in commitments and payments 3

2.2. Management of unspent commitments 4

3. Progress with quality 7

3.1. Quality Support Groups (QSGs) 7

3.2. Monitoring of ongoing programmes 7

3.3. General budget and sector support to beneficiary countries 8

4. Devolution 10

5. Follow-up to comments by the European Court of Auditors 11

5.1. Court of Auditors’ Annual Report 11

5.2. Court of Auditors’ Special Reports 12

6. Key challenges for 2006-07 13

Annex 1: EDF consolidated accounts at 31.12.2005 14

Annex 2: EDF resources for ACP countries and OCTs, end 2005 (€m, net) 15

Annex 3: EDF General Budget Support global commitments, 2000-05 (€m, gross) 17

Annex 4: New EDF commitments to the UN and World Bank Group, 2005 18

Annex 5: EDF global commitments by programming & financing instrument (€m, gross) 19

Annex 6: Consultations held under Arts. 8 and 96/97 of the Cotonou Agreement, 2005 19

Annex 7: Stabex - balances as at 31st December 2005 20

Annex 8: Glossary of terms used in this report 22

INTRODUCTION

The European Development Fund (EDF) finances:

i) European Commission development programmes in:

- sub-Saharan Africa, the Caribbean and the Pacific (ACP) financed under the ACP-EC Partnership (Cotonou Agreement);

- the 20 Overseas Countries and Territories (OCTs) linked constitutionally to Denmark (1), France (6), the Netherlands (2) and the UK (11).[1]

ii) European Investment Bank (EIB) programmes in ACP states, under the Investment Facility and Own Resources.

The Commission manages the European Development Fund separately from the EC general budget. EU Member States who joined the Union before 2004 fund the EDF from direct contributions agreed between them. The ten EU Member States who joined in 2004 will contribute for the first time to the next EDF, the 10th, which should enter into force in 2008.

The 9th EDF took effect on 1st April 2003, once all EU and ACP Member States had ratified the Cotonou Agreement. The Commission transferred outstanding balances from previous EDFs to the 9th EDF. These had funded previous EU-ACP agreements. The 9th EDF will expire in December 2007.

FINANCIAL OBJECTIVES

In 2005, following a recommendation by the Court of Auditors, the Commission reclassified certain transactions relating to Stabex and completed between 2001 and 2004. All figures in this report covering 2001-04 take this into account.

Trends in commitments and payments

The table below shows the evolution of global commitments and payments over a since 1990. It confirms positive trends in each, in particular for payments since 1999.

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The Commission met or exceeded most of its EDF financial performance indicators and targets in 2005.

6th-9th EDF key performance indicators, 2005 (gross, €m) |

Indicator | Target | Result |

Global commitments | 3 500 | 3 511 | 33% higher than in 2004 |

Individual commitments | 3 000 | 3 057 |

Payments | 2 600 | 2 544 | Highest ever annual level for the EDF |

The Commission narrowly missed its 2005 payments target, with a shortfall of € 56 million against the €2.6 billion target, but this was still the highest ever EDF amount paid out in a single year.

The Commission also decommitted funds on old or completed projects and contracts and received money back from previous advance payments. Net amounts are set out below:

Commitments and payments, 2005 (€m) |

Global Commitments | New global commitments (gross) | 3 511 |

De-commitments | 476 |

Net global commitments | 3 035 |

Individual commitments | New contracts (gross) | 3 057 |

Contracts decommitted/cancelled | 405 |

Net individual commitments | 2 652 |

Payments | New payments (gross) | 2 544 |

Recoveries & corrections received[2] | 55 |

Net payments | 2 489 |

Management of unspent commitments

The increasing volumes of EDF global commitments require the Commission to be more effective in managing unspent commitments (referred to internally as ‘RAL’, the acronym of the French term restes à liquider ). The Commission must disburse the funds as planned or decommit them if they are no longer needed or justified, so they can be used for other purposes.

Overall RAL

At the end of 2005, overall RAL stood at €10 324 million, a 6% rise year-on-year. This reflected the high volume of new commitments in 2005. Over the last five years overall RAL has risen 15%, but the table below shows that increases occurred only in two of the last five years - 2003 and 2005 - and then only as a direct consequence of the very high global commitments entered into in those two years.

This is due to:

- the cyclical nature of the EDFs – increases in commitments precede increases in payments - and

- the Commission’s undertaking to commit by the end of 2007, not only all funds allocated to the 9th EDF, but also all unspent funds from previous EDFs.

In addition, the time needed to implement projects - measured by the ratio of RAL to annual payments - remained the same year-on-year, at around 4 years. This represents a 20% cut since 2000, when projects took on average more than 5 years to complete. This was possible because the Commission continued to make more EDF payments: 43% more in 2005 than in 2001.

Within this overall RAL the Commission pays particular attention to two situations which can reveal potential problems:

- “old RAL” - unspent commitments over 5 years old and

- “dormant commitments” - commitments for which there have been no contracts signed or payments made in the last 24 months.

Old and dormant RAL, including Stabex

Old RAL remained relatively stable between 2001 and 2004, but increased in 2005. The Commission did however anticipate this increase: the final figure of €1 025 million was within 2% of the 2005 target of €1 004 million.

The evolution of dormant commitments is less predictable and year-end figures tend to be more volatile. Dormant RAL at the end of 2005 stood at €487 million, above the €360 million target. This was mainly due to:

- slower-than-expected payments from Stabex funds, which made up 35% of dormant RAL at year-end;

- risk capital managed by the EIB, which comprised 25% of dormant RAL at year-end (but only 8% of total EDF allocations.

The Commission is taking several new measures to close old RAL and dormant commitments, including:

- systematic follow-up and monitoring of individual cases over the year: in regional seminars held at the start of the year, EuropeAid Headquarters and Commission Delegations jointly set targets and agree action plans to address these cases;

- a new mechanism under the Cotonou Agreement for closing such commitments, which allows the Commission to issue recovery orders in cases where the National Authorising Officer has not done so;

- a further new mechanism allowing the Commission to directly deduct, under certain conditions, funds proving difficult to recover from instalments of payments made as part of macroeconomic budget support programmes.

Decommitments

In 2005, the Commission decommitted €476 million in unspent commitments, one of the highest annual levels achieved so far. The Commission can now recommit these to new projects and programmes. The table below provides detailed information on:

- the evolution of unspent commitments in the last five years and

- contracting and decommittment of unspent funds in 2005.

Evolution of unspent commitments, 2001-05 (€m) |

Type of unspent commitment (or ‘RAL’) | Measure | Year |

2001 | 2002 | 2003 | 2004 | 2005 |

Contracts | % of funds for which contracts concluded | funds committed in 2003 | 73% (€2 752m) |

funds committed in 2004 | 61% (€1 675m) |

funds committed in 2005 | 25% (€882m) |

Unspent commitments (‘RAL’) | Total decommitted | €476m |

PROGRESS WITH QUALITY

Quality Support Groups (QSGs)

Following EuropeAid’s re-organisation in 2005, the Commission intensified the QSGs’ review of new operations:

- for ACP programmes over €8 million, QSGs now meet formally to review all new proposals;

- for ADP programmes up to €8 million, QSGs use a written quality review procedure.

In 2004, QSGs reviewed a sample of 22 ACP proposals in formal meetings, but in 2005 this rose almost ten-fold to 211 proposals, amounting to €3 800 million.

Through the QSGs, Commission staff with geographical and/or thematic expertise recommend ways to improve new programmes’ design. They review each new programme at two stages of the project cycle: early on, at the initial identification stage, and later once the technical formulation has been completed.

Monitoring of ongoing programmes

Commission staff in both Headquarters and Delegations monitor all programmes regularly. In addition, independent analysts continued to undertake results-oriented monitoring (ROM) in 2005. Monitoring missions were carried out in 60 ACP countries, covering 347 programmes amounting to €5 739 million.

Monitors attribute scores against several internationally-accepted criteria. The benchmark set is that a programme should be ‘performing as planned’. This corresponds to an overall score of 2.5 or more. A score of 3 or more means that the project is performing better than originally planned, while a score of 2 or less means that the project is not reaching its targets. The aggregate indicator for the ACPs was 2.60 in 2005.

Programmes reviewed in 2005 achieved above-target scores for programme design/relevance and sustainability, and scored least well for efficiency (2.42).

ACP programmes’ average ROM scores, 2005 |

ROM criterion | Average score of programmes monitored |

Quality of design / relevance | 2.77 |

Efficiency | 2.42 |

Effectiveness | 2.64 |

Impact | 2.48 |

Sustainability | 2.68 |

Overall | 2.60 |

Preliminary indications suggest that many ACP projects’ complexity, and the difficult political and socio-economic context in which they are implemented, adversely affect ROM scores. The Commission will continue to reinforce its monitoring of ongoing projects, and follow the evolution of ROM scores closely.

General budget and sector support to beneficiary countries

The share of EDF funds channelled through general budget and sector policy support programmes (GBS and SPSPs) increased by 57 % in 2005:

New general budget and sector policy support programmes (GBS and SPSPs), 2005 - global commitments (€m, gross) |

Type of programme | 2004 | 2005 | % increase |

General budget support | 469.4 | 704.7 | 50% |

Sector policy support programmes | 242.1 | 415.7 | 72% |

Total | 711.5 | 1 120.4 | 57% |

Many ACP countries now have poverty reduction support programmes (PRSPs) in place. With these, governments identify priorities for tackling poverty and monitor their progress over time. Budget Support is an effective way to assist beneficiary countries in the implementation of PRSPs.

The Commission also uses Sector Policy Support Programmes (SPSPs) to target aid more effectively in education, health and other key sectors. SPSPs are conditional on governments achieving concrete progress in the sectors concerned - for example, increasing vaccination rates for children under five or school enrolment rates. SPSPs can be funded either through budget support, or as standard development projects.

New general budget support and sector policy support programmes (GBS and SPSPs), 2005 - global commitments (€m, gross) |

Programme type | Financing type | Country | Sector | Amount |

Target | Result |

General budget support | Burkina Faso | Budget Support | - | 151.5 |

Burundi | 7.8 |

Cape Verde | 12.5 |

Congo, Rep. | 30.5 |

Guinea-Bissau | 6.0 |

Madagascar | 55.0 |

Malawi | 41.5 |

Mozambique | 95.0 |

Niger | 70.0 |

Rwanda | 36.0 |

Sierra Leone | 50.0 |

Tanzania | 57.0 |

Uganda | 92.0 |

Sub-total, macroeconomic budget support | 840.0 | 704.8 |

SPSPs | Sectoral budget support (SBS) | Botswana | Education | - | 50.3 |

Burkina Faso | Education | 15.0 |

Dominican Rep. | Education | 3.8 |

Mali | Capacity-building | 72.0 |

Niger | Education | 21.0 |

Zambia | Capacity-building | 13.0 |

Sub-total, SBS | 175.0 | 175.1 |

Standard project financing | Chad | Infrastructure | - | 30.0 |

Transport | 84.0 |

Niger | Transport | 69.0 |

Capacity-building | 3.5 |

Samoa | Water | 19.1 |

Swaziland | Education | 20.0 |

Zambia | Food security | 15.0 |

Sub-total, standard projects | 700.0 | 240.6 |

Sub-total, SPSPs | 875.0 | 415.7 |

Total | 1 715.0 | 1 120.45 |

The share of commitments comprising general budget and sector support has peaked under the current programming arrangements, as most of the large programmes are now underway until 2007-08.

In March 2004 and February 2006, EuropeAid and DG Development submitted to EU Member States meeting in the EDF Committee information notes presenting the guiding principles and methodology of ACP budget support.

DEVOLUTION

During 2005, the remaining four ACP delegations which had not been devolved - Papua New Guinea, Lesotho, Haiti and Burundi - received their sub-delegations. So now all 44 ACP Delegations are devolved, as is EC assistance to all 78 ACP states, since some Delegations cover more than one country.

The Commission conducted nine verification missions in 2005 to Guinea Bissau, Ghana, Nigeria, Papua New Guinea, Lesotho, Central African Republic, Haiti, Sudan and Burundi. It has now completed missions to all 44 ACP Delegations. These allow headquarters staff to check that sub-delegations granted to Heads of Delegations are operating efficiently and under secure conditions.

At year end, 82% of all outstanding commitments under EDF were managed on a devolved basis, just short of the 86% target for 2005. The remaining 18% managed by Headquarters staff mainly comprise intra-ACP programmes.

The table below shows staffing levels in ACP Delegations before and after devolution. External staff comprise Local Agents, Contract Agents, Detached National Experts and Young Experts:

Staff in ACP delegations, pre- and post-devolution |

Before devolution | After devolution | Increase |

Absolute | % |

Officials | 262 | 457 | 195 | 74 % |

External staff | 741 | 1575 | 834[4] | 113% |

Total | 1 003 | 2 032 | 1 029 | 103% |

The Commission foresaw a gap in financing from mid-2006 to 2007 to cover the costs of devolution. It reached an agreement with ACP states as part of the revision of the Cotonou Agreement to transfer an extra €90 million from 9th EDF funds reserved for intra-ACP cooperation. A €90 million financing proposal to cover devolution costs from mid-2006 to 2007 will be presented for a Commission decision in 2006. The Commission will use the funds to finance devolution in 2006 and 2007.

At its meeting in Luxembourg in June 2005, the ACP-EU Council of Ministers decided to amend the Cotonou Agreement by adding this paragraph :

“9. By derogation from Article 58 of this Agreement, an amount of EUR 90 million shall be transferred to the intra ACP envelope under the 9th EDF. This amount may be allocated to finance devolution for the period 2006-2007, and shall be managed directly by the Commission.”

The Commission successfully completed devolution in 2005, but difficulties remain in some areas, in particular relating to staff:

- “hardship” posts remain vacant for long periods;

- the Commission uses so-called “floaters” to address temporary vacancies at critical moments, but this has not been sufficient to respond to all demands.

The vacancy rate for post in Delegations stood at 9% at the end of 2005.

FOLLOW-UP TO COMMENTS BY THE EUROPEAN COURT OF AUDITORS

Court of Auditors’ Annual Report

The Court of Auditors issued a positive Annual Statement of Assurance for the EDF for 2004. It considered that the reports on financial implementation and the financial statements reliably reflected the revenue and expenditure relating to the 6th, 7th, 8th and 9th EDFs for 2004 and their financial situation at year-end.

The Court also noted that both at Headquarters and in delegations, the Commission had made steady progress in applying its Internal Control Standards, and thereby in the functioning of its internal control systems.

No. | Area | Recommendation | Status end 2005, action planned 2006 |

2004 EDF |

(a) | Reporting | In the EDF financial management report (FMR), include, complement or place in context key information. | The FMR highlights significant events only; the financial statements give more detailed information. |

(b) | Stabex | In the FMR, set out the outstanding actions arising from the inventory | See section 4.2 in this report. |

(c) | Reporting | Publish the FMR at the same time as the definitive annual accounts, to be consistent with final data | The deadlines set by the EDF Financial Regulation imply that the FMR accompany the provisional and not the final accounts. For 2005 the FMR and the provisional accounts have been prepared in close collaboration to ensure that data is consistent |

(d) | Advance payments | To register as an asset in the balance sheet of the EDF | When closing the 2005 accounts the Commission registered the advance payments and receivables according to the IPSAS norms. The follow-up of the advance payments has been executed according to the Financial Regulation. The Action Plan for 2006 envisages producing a report on advance payments by the end of the year. |

(e) | RAL | Accelerate the execution of the external aid | See section 6.2 in this report. |

(f) | Results of EDF | Define quantifiable objectifs | In line with the recommendations of the Parliament, the Commission will continue to define quantifiable objectives. Aggregate quantified objectives for the EDF are established in the context of the Annual Management Plan approved each year for EuropeAid. These objectives are monitored against execution during, and at the end, of the year. This Financial Management Report makes reference to such indicators. |

- | International organisations | Detail the amounts involved in activities with major international organisations. | In 2005, the EDF entered into new contracts with: - UN organisations - total €212 million - World Bank (IBRD) - total € 149 million Annex 4 breaks down figures in more detail. |

Court of Auditors’ Special Reports

The Court also issued a report on the public finance aspects of EDF-funded budget support. This found that the Commission’s policies in this area “provide relatively comprehensive information that enables it to take appropriate action.” The table below summarises the Court’s recommendations and AIDCO/C’s follow-up.

No. | Area | Recommendation | Status end 2005 and/or action planned 2006 |

EDF budget support – public finance aspects (no. 2/2005, summarised in 2004 EDF Discharge, para. 55) |

55 | Methodological guide | Update and complete, incl. monitoring reports | Update and complete: work is in progress in updating the Methodological Guide, including clarification of eligibility criteria and reporting on public financial management (where it is planned to replace the six-monthly reports with an annual report). |

Eligibility | Give clearer evidence of countries’ eligibility | This is being covered by revised Identification Fiches, and within the existing format of Financing Proposal. |

Indicators | Use enhanced-incentive PF performance indicators | The Commission and other donors completed the Public Expenditure Financial Accountability (PEFA) framework in 2005. The Commission will use PEFA to replace current tools. In addition: - the current donor group haa extended the PEFA secretariat’s work to 2008 - the OECD-DAC approved the PEFA framework - the EC is using the joint venture on Public Financial Management to encourage more rigorous public finance management. |

Use new PFM performance management tool |

Donor coordination | Cooperate more closely locally |

ACP states’ institutions | Strengthen relations with parliaments & supreme audit institutions (SAIs) | The Commission recognises parliaments’ and SAIs’ important role. but must ensure due regard for: 1. national sovereignty 2. the rules governing the balance of powers between such institutions and 3. the Cotonou Agreement. An orientation note is in preparation. |

KEY CHALLENGES FOR 2006-07

The next two years represent a critical period for the Commission. It must work fast to follow through on its political commitment to deliver more and better aid in ACP states, and in Africa in particular. Key to this is continuing to improve its management of the EDF.

To this end the Commission has set itself the following goals for 2006-2007:

- globally commit all 9th EDF funds by end 2007;

- close 6th EDF by end June 2006;

- close 7th EDF by end 2007;

- reduce “old RAL” and “dormant RAL” in 2006 compared to 2005;

- maintain RAL/payments ratio close to 4 years;

- commit all outstanding Stabex funds before end 2007;

- contract all Stabex funds by end 2008;

- set up an ex-post control system which complies with the authorising officer’s standards;

- continue to raise quality and impact through more quality support and monitoring.

This is an ambitious work programme. Its achievement will ensure that when the 10th EDF enters into force, which is expected to happen in early 2008, it will be managed as efficiently as possible and thereby contribute more to achieving the Millennium Development Goals in ACP states.

Annex 1: EDF consolidated accounts at 31.12.2005

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Annex 2: EDF resources for ACP countries and OCTs, end 2005 (€m, net)

Allocations | Global ctments | Indiv. ctments | Payments |

6th – 8th EDFs |

NIP, TIP National Indicative Programme | 15,955.94 | 15,955.94 | 14,877.96 | 13,571.81 |

Interest rate subsidies on loans | 390.92 | 390.92 | 390.92 | 351.81 |

Emergencies Emergency Aid | 722.92 | 722.92 | 722.27 | 721.59 |

Refugees Refugee Aid | 296.76 | 296.76 | 292.74 | 270.66 |

Risk capital operations | 2,540.65 | 2,540.65 | 2,530.65 | 2,197.90 |

Stabex Stablisation of Export earnings-agri commodities | 3,862.04 | 3,862.04 | 3,840.29 | 3,477.27 |

Sysmin Minining development | 697.31 | 697.31 | 665.20 | 577.84 |

SAF-Structural Adustment Support for macroeconomic and sectoral reforms | 2,727.83 | 2,727.83 | 2,677.31 | 2,649.43 |

Debt relief | 1,100.00 | 1,100.00 | 1,100.00 | 1,100.00 |

Use of interest income | 38.15 | 38.15 | 34.45 | 31.79 |

Transfers from previous EDFs of balances | 422.35 | 422.35 | 410.86 | 398.05 |

Intra-ACP allocation | 60.00 | 60.00 | 60.00 | 60.00 |

Cotonou A envelope –Transitional Measure | 442.09 | 442.09 | 397.87 | 341.74 |

Cotonou B envelope –Transitional Measure | 255.00 | 255.00 | 152.63 | 53.98 |

TOTAL | 29,511.97 | 29,511.97 | 28,153.13 | 25,803.87 |

9th EDF |

A envelope –country allocation | 9,025.31 | 6,325.17 | 3,190.55 | 1,507.37 |

B envelope-country allocation | 1,296.53 | 713.67 | 474.08 | 334.51 |

Regional cooperation | 983.86 | 520.39 | 157.22 | 36.79 |

Intra-ACP allocation-all ACP states | 1,945.23 | 1,324.42 | 713.95 | 460.67 |

Other – Support for Joint Inst. mechanism | 106.99 | 104.97 | 69.81 | 60.98 |

Implementation expenses for the 9th EDF | 125.00 | 125.00 | 112.41 | 108.35 |

Interest, autres recettes | 52.51 | 9.05 | 1.99 | 0.37 |

Special for DRC assistance | 107.99 | 91.96 | 91.69 | 89.56 |

Cotonou countries reserve | 433.20 | 0.00 | 0.00 | 0.00 |

Long term development reserve | 864.29 | 0.00 | 0.00 | 0.00 |

OCTs support expenses (studies, TA) | 2.00 | 0.65 | 0.38 | 0.32 |

TOTAL | 14,942.90 | 9,215.28 | 4,812.08 | 2,598.92 |

Consolidated 6th - 9th EDF |

9th EDF: A envelope, reg. allocation 6th-8th EDFs: NIP, TIP, SAF | 29,135.04 | 25,971.43 | 21,300.90 | 18,107.14 |

Intra-ACP allocation | 2,005.23 | 1,384.42 | 773.95 | 520.67 |

Support to joint Institutional Mechanism | 106.99 | 104.97 | 69.81 | 60.98 |

Reserves for long term development[5] | 864.29 | 0.00 | 0.00 | 0.00 |

Cotonou countries reserve[6] | 433.20 | 0.00 | 0.00 | 0.00 |

Interest rate subsidies | 390.92 | 390.92 | 390.92 | 351.81 |

9th EDF: B envelope 6th-8th EDFs: emergencies, refugees, debt | 3,671.20 | 3,088.35 | 2,741.71 | 2,480.74 |

Risk capital | 2,540.65 | 2,540.65 | 2,530.65 | 2,197.90 |

Stabex | 3,862.04 | 3,862.04 | 3,840.29 | 3,477.27 |

Sysmin | 697.31 | 697.31 | 665.20 | 577.84 |

Use of interest income | 90.66 | 47.20 | 36.44 | 32.16 |

Transfers from 6th-8th EDFs | 422.35 | 422.35 | 410.86 | 398.05 |

COTs support expenses (studies, TA) | 2.00 | 0.65 | 0.38 | 0.32 |

Implementation costs | 125.00 | 125.00 | 112.41 | 108.35 |

Special assistance DRC | 107.99 | 91.96 | 91.69 | 89.56 |

TOTAL | 44,454.87 | 38,727.25 | 32,965.22 | 28,402.79 |

Annex 3: EDF General Budget Support global commitments, 2000-05 (€m, gross)

Country | 2001 | 2002 | 2003 | 2004 | 2005 |

Benin | 55.00 |

Burkina Faso | 125.00 | 151.5 |

Burundi | 22.60 | 43.62 | 7.82 |

Cameroon |

Cape Verde | 12.10 | 5.81 | 12.5 |

Central African Republic | 4.40 |

Chad | 10.00 | 50.00 |

Côte d'Ivoire | 12.77 | 40.00 |

DR Congo | 5.50 | 106.00 |

Congo, Rep. | 30.45 |

Djibouti |

Ethiopia | 25.65 | 44.05 | 95.00 |

Gabon | 4.90 |

The Gambia | 4.26 |

Ghana | 76.22 | 5.00 | 62.00 |

Guinea | 11.04 |

Guinea Bissau | 6.0 |

Guyana | 23.30 |

Jamaica | 21.70 | 30.00 | 25.00 |

Kenya | 125.00 |

Lesotho | 18.50 |

Madagascar | 70.00 | 35.00 | 55.0 |

Malawi | 41.5 |

Mali | 31.76 | 132.92 |

Mauritania | 18.29 |

Mozambique | 168.00 | 16.40 | 95 |

Niger | 3.16 | 20.00 | 90.00 | 70.0 |

Papua New Guinea |

Rwanda | 55.10 | 36.0 |

São Tomé & Príncipe |

Senegal | 53.00 |

Sierra Leone | 50.0 |

Tanzania | 76.13 | 114.00 | 57.0 |

Uganda | 92.0 |

Vanuatu | 1.60 | 1.70 |

Zambia | 117.00 |

Annual totals | 328.06 | 529.55 | 741.42 | 469.43 | 704.77 |

% of EDF annual global commitments | 17% | 25% | 20% | 18% | 20% |

Annex 4: New EDF commitments to the UN and World Bank Group, 2005

Organisation | €m |

UN family | FAO | 6.4 |

ILO | 5.5 |

UNDP | 87.8 |

UNESCO | 0.3 |

UNICEF | 42.4 |

UNIDO | 1.2 |

UNOPS | 2.7 |

UNOV | 24.7 |

WFP | 34.7 |

WHO | 6.5 |

Total | 212.2 |

World Bank Group | Total | 149.0 |

Both groups | Total | 361.2 |

Annex 5: EDF global commitments by programming & financing instrument (€m, gross)

EDF | Programmable aid[7] | Non-programmable aid | Total |

Non-budget support (projects) | Budget support | Sub-total programmable aid | Financial contributions | Export support | Sub-total non programmable aid |

Mauritania | Article 96 consultations were launched after the coup d’état in August. |

Liberia, Guinea-Conakry, Togo | Article 96 consultations were being followed up. |

Guinea-Bissau | Consultations were closed following an end-of-term assessment mission in October. |

Zimbabwe | The Council reviewed its Article 96 Decision in February, and decided to extend it for a further year, until February 2006. |

Côte d’Ivoire | Political conditions prevented the possibility of Article 96 consultations. |

Haiti | The Council lifted the remaining Article 96 measures, enabling the Commission to use the 9th EDF’s €72 million A-envelope. |

Central African Rep. | A successful transition to democratic rule and elections in 2005 led to the resumption of cooperation in July. Reinforced Article 8 dialogue continued on commitments targeting governance and the rule of law. |

Annex 7: Stabex - balances as at 31st December 2005

STABEX is a financial instrument established by the Lomé Convention. Its purpose is to offset the negative consequences for ACP countries of volatility in export earnings. Each time the Commission signs a STABEX transfer agreement with an ACP state, it transfers funds to a secured bank account in Europe.

A Framework of Mutual Obligations (FMO) sets out the ways in which the transferred funds are to be used. Once the Commission and the ACP state's National Authorising Officer have signed the FMO, transfers are made from the security account in Europe to a double signature bank account opened by the beneficiary state. Funds transferred to this double signature account therefore belong to the beneficiary state. These transfers are recorded as expenditure in the EDF’s Financial Statements and therefore balances in these accounts do not appear in the EDF balance sheet.

However, cash outflows from these accounts require a double signature, so the Commission retains joint control of double signature accounts when funds are used for the purposes set out in the FMO. Under Article 212 of the Lomé Convention, an ACP state must give the Commission a report on its use of the funds within twelve months of receipt.

The financial situation at year-end 2005 is set out in the table below:

- figures in columns 1-3, 5 and 7 are based on figures from an earlier table ("2003 table"); this summarised the status of STABEX funds at year-end 2003;

- figures in columns 3 and 7 are also based on figures supplied by the Accounting Officer;

- for two states - Cape Verde and Guinea-Bissau - year-end 2005 figures were not available at the time of drafting this report, so the table shows figures for year-end 2003 and 2004, respectively.

Transfers from 6th EDF | Transfer agreements from 7th and 8th EDFs | Interest on Stabex accounts | Total available funds (transfers plus interest) | FMOs signed | Total excl. FMO | Balance of both accounts (Europe, ACP state) | Payements made |

1 | 2 | 3 | 4 (=1+2+3) | 5 | 6 (= 4-5) | 7 | 8 (= 4-7) |

Benin | 2.279.518 | 973 | 2.280.491 | 2.274.819 | 5.672 | 210.994 | 2.069.497 |

Burkina F. | 20.063.915 | 3.879.205 | 23.943.120 | 23.927.173 | 15.947 | 10.324.408 | 13.618.712 |

Burundi | 68.393.759 | 3.076.410 | 71.470.169 | 36.798.909 | 34.671.260 | 26.447.749 | 45.022.420 |

Cameroon | 280.819.530 | 112.588 | 280.932.118 | 328.040.622 | -47.108.504 | 3.908.515 | 277.023.603 |

Cabo Verde | 1.862.107 | 470.958 | 2.333.065 | 1.937.563 | 395.502 | 1.181.346 | 1.151.719 |

CAR | 24.617.114 | 2.555.261 | 27.172.375 | 16.061.424 | 11.110.951 | 1.081.592 | 26.090.783 |

Chad | 11.307.153 | 4.799.493 | 16.106.646 | 12.461.651 | 3.644.995 | 1.594.604 | 14.512.042 |

Comoros | 9.223.570 | 1.131 | 9.224.701 | 7.926.274 | 1.298.427 | 2.068.785 | 7.155.916 |

Côte d’Iv. | 147.572 | 345.182.669 | 897.976 | 346.228.217 | 50.308.177 | 295.920.040 | 46.749.570 | 299.478.647 |

Dominica | 43.380.734 | 11.728.327 | 55.109.061 | 48.079.069 | 7.029.992 | 13.264.526 | 41.844.535 |

Eq. Guinea | 8.397.999 | 18.914 | 8.416.913 | 8.397.999 | 18.914 | 1.122.322 | 7.294.591 |

Ethiopia | 189.240.270 | 50.422.181 | 239.662.451 | 238.825.667 | 836.784 | 903.872 | 238.758.579 |

Gambia | 4.612.569 | 359.604 | 4.972.173 | 4.612.569 | 359.604 | 1.005.423 | 3.966.750 |

Ghana | 50.581.460 | 9.086.069 | 59.667.529 | 59.667.529 | 0 | 8.762.982 | 50.904.547 |

Grenada | 13.409.109 | 3.130.138 | 16.539.247 | 15.073.887 | 1.465.360 | 4.031.294 | 12.507.953 |

Guinea-Bissau | 1.572.748 | 34.643 | 1.607.391 | 1.827.332 | -219.941 | 958.993 | 648.398 |

Haiti | 35.386.871 | 2.970.097 | 38.356.968 | 511.639 | 37.845.329 | 1.490.593 | 36.866.375 |

Jamaica | 8.806.983 | 13.178 | 8.820.161 | 9.250.872 | -430.711 | 734.261 | 8.085.900 |

Kenya | 132.640.940 | 14.497.879 | 147.138.819 | 86.227.704 | 60.911.115 | 50.136.965 | 97.001.854 |

Kiribati | 908.379 | 908.379 | 908.379 | 0 | 271.853 | 636.526 |

Lesotho | 1.224.000 | 3.705.350 | 1.404.250 | 6.333.600 | 6.333.600 | 0 | 312.928 | 6.020.672 |

Madagascar | 74.244.488 | 16.820.359 | 91.064.847 | 90.744.189 | 320.658 | 21.720.568 | 69.344.279 |

Malawi | 20.030.585 | 3.105.326 | 23.135.911 | 22.952.308 | 183.603 | 6.012.025 | 17.123.886 |

Mali | 941.986 | 64.818 | 1.006.804 | 1.002.088 | 4.716 | 0 | 1.006.804 |

Mauritania | 32.010.377 | 5.705.829 | 37.716.206 | 1.849.875 | 35.866.331 | 26.206.187 | 11.510.019 |

Mozambique | 3.637.727 | 835.671 | 4.473.398 | 4.473.398 | 0 | 4.391.935 | 81.463 |

PNG | 85.162.106 | 33.229 | 85.195.335 | 95.062.351 | -9.867.016 | 901.258 | 84.294.077 |

Rwanda | 66.306.027 | 226.163 | 66.532.190 | 20.140.000 | 46.392.190 | 17.133.180 | 49.399.010 |

Samoa | 661.324 | 5.813.570 | 1.403.721 | 7.878.615 | 6.555.971 | 1.322.644 | 1.147.547 | 6.731.068 |

Sao Tomé | 2.886.861 | 2.886.861 | 2.886.861 | 0 | 2.886.861 |

Senegal | 69.821.420 | 1.684.599 | 71.506.019 | 46.686.795 | 24.819.224 | 51.936.623 | 19.569.396 |

Sierra Leone | 14.834.753 | 344.124 | 15.178.877 | 12.126.798 | 3.052.079 | 3.052.079 | 12.126.798 |

Solomon Is. | 1.114.079 | 79.274.382 | 10.775.594 | 91.164.055 | 70.994.200 | 20.169.855 | 73.509.481 | 17.654.574 |

St. Lucia | 73.337.780 | 31.879.522 | 105.217.302 | 83.838.820 | 21.378.482 | 25.239.590 | 79.977.712 |

St. Vincent | 63.376.174 | 31.474.643 | 94.850.817 | 75.521.501 | 19.329.316 | 26.653.200 | 68.197.617 |

Sudan | 190.981.534 | 10.072.730 | 201.054.264 | 190.981.534 | 10.072.730 | 182.051.061 | 19.003.203 |

Tanzania | 88.225.486 | 22.170.468 | 110.395.954 | 50.329.386 | 60.066.568 | 36.373.543 | 74.022.411 |

Togo | 1.785.406 | 22.009.485 | 9.751.862 | 33.546.753 | 28.279.292 | 5.267.461 | 16.397.764 | 17.148.989 |

Tonga | 2.469.490 | 2.469.490 | 2.469.490 | 0 | 2.469.490 |

Tuvalu | 37.569 | 37.569 | 37.569 | 0 | 37.569 |

Uganda | 175.946.889 | 42.494.103 | 218.440.992 | 218.440.991 | 1 | 41.530.337 | 176.910.655 |

Vanuatu | 3.497.440 | 1.534.626 | 5.032.066 | 3.959.176 | 1.072.890 | 76.900 | 4.955.166 |

Zimbabwe | 41.636.938 | 18.350.624 | 59.987.562 | 31.212.949 | 28.774.613 | 23.877.916 | 36.109.646 |

Total | 4.932.381 | 2.372.875.814 | 318.187.286 | 2.695.995.481 | 2.019.998.400 | 733.623.253 | 734.774.769 | 1.961.220.712 |

The balance of Stabex accounts - in column 7 - is of € 734.774.769, of which: |

in BBVA account in Brussels | € | 372.604.458 |

in EC-ACP accounts | € | 362.170.311 |

- Annex 8: Glossary of terms used in this report

A

accounting : the act of recording and reporting financial transactions, including the origination of the transaction, its recognition, processing, and summarization in the financial statements.

accounting officer : each Union institution appoints an accounting officer responsible for proper implementation of payments, collection of revenue and recovery of amounts established as being receivable; preparing and presenting the accounts; keeping the accounts; laying down the accounting rules and methods and the chart of accounts; laying down and validating the accounting systems and where appropriate validating systems laid down by the authorising officer to supply or justify accounting information; treasury management.

accrual accounting : recognizes revenue when earned, rather than when collected. Expenses are recognized when incurred rather than when paid. This is contrasted with cash basis accounting that recognizes transactions and other events only when cash is received or paid.

annuality : the budgetary principle according to which expenditure and revenue is programmed and authorised for one year, starting on Jan 1 and ending on Dec 31.

auditing : independent assessment of the sufficiency and effective operation of internal controls

auditing standards : each institution determines, in accordance with its specific features and requirements, the scope of the internal auditors’ mission and the objectives and procedures for the exercise of the internal audit function with due respect to international internal audit standards.

external auditor : the external auditor for the EU institutions is the European Court of Auditors.

internal audit: performed within an entity by its staff rather than an independent certified public accountant; the function of internal auditor (IA) is incompatible with that of authorising officer and accounting officer. The IA is designated by the institution, which it must advise on dealing with risks, by issuing independent opinions on the quality of management and control systems and issuing recommendations for improvement.

authorising officer : responsible in each institution for implementing revenue and expenditure in accordance with the principles of sound financial management and for ensuring that the requirements of legality and regularity are complied with.

B

budgetary authority : institutions with decisional powers on budgetary matters- the European Parliament and the Council of Ministers.

C

controlling operations or internal control : process designed to provide reasonable assurance regarding achievement of various management objectives, such as the fulfilment of legal acts, or reliability of financial actions and reports.

ex-ante controls occur before the financial transaction.

ex-post controls are post-payment checks carried out after the financial transaction.

internal control standards : the Commission’s internal control standards were decided by the Commission and are largely inspired by the COSO standards (Committee of Sponsoring Organizations of the Treadway Commission) - an alliance of five professional organizations dedicated to disseminating appropriate internal control standards).

D

delegation : the Commission’s delegations and offices around the world:

decentralised programme : a programme managed by officials of the beneficiary country, with the support of the relevant Commission delegation.

discharge : the decision by which the European Parliament, on the basis of the recommendation from the Council and the declaration of assurance provided by the Court of Auditors, closes the life of a budget exercise. It covers the accounts of all the Communities’ revenue and expenditure, the resulting balance and the assets and liabilities of the Communities shown in the balance sheet.

E

EDF : The European Development Fund is the main instrument for Commission aid for development cooperation in the African, Caribbean and Pacific (ACP) countries and the Overseas Countries and Territories (OCT). The EDF is governed by its own Financial Regulation and is managed outside the General Budget. The EDF is funded from direct contributions from Member States. The rates of contributions differ from those of the General Budget and are agreed in negotiations.

external auditor : see "auditing" above

F

financial regulation : adopted by unanimity in Council after obtaining the opinion of the European Parliament and the Court of Auditors, this regulation lays down the rules for the establishment and implementation of the general budget of the European Communities.

financial statement : presentation of financial data including balance sheets, revenue and cash flow statements, or any supporting statement that is intended to communicate an entity's financial position at a point in time and its results of operations for a period then ended.

fraud : covers the intentional use or presentation of documents resulting in the reception of funds from the EU budget or the use of funds for a purpose different from the one for which the funds were given, or else, the intentional use or presentation of documents resulting in less money being paid to the EU budget.

G

general accounts : used to prepare the balance sheet and economic outturn.

global commitment : legal pledge to provide finance, provided certain conditions are met.

H - I

internal audit : see "auditing"

individual commitment : contract with a provider of goods or services to deliver a programme.

internal control : see "controlling operations"

international accounting standards : from 2005 onwards, the EC accounting rules in place are those prepared on the basis of the International Public Sector Accounting Standards, IPSAS, as promulgated by the International Federation of Accountants (IFAC). The IPSAS are themselves based on the International Financial Reporting Standards (IFRS, formerly IAS) applicable to commercial companies, but have been adapted as necessary to accommodate the particularities of the public sector.

J - P

payments : cash or bank transfers to EDF programme or project beneficiaries

Q - R

RAL : French acronym for “ restes à liquider ” - commitments which remain to be used/spent.

recoveries : entitlements vis-à-vis the Commission’s debtors. Authorising Officers establish third parties’ debts towards the Commission and tell the accounting officer to recover money due.

risk and risk assessment/risk analysis : a risk is commonly defined as an event that can result in an undesirable or negative outcome (i.e. the non-achievement of the objectives set up). It is characterised by the probability of the event occurring and the resulting impact if it does occur. These two factors combine to produce a level of risk exposure. A risk assessment identifies such events and their impact and likelihood.

S

sound financial management : the budgetary principle according to which budget appropriations must be used according to economy, efficiency and effectiveness.

statement of assurance (DAS) : the European Court of Auditors provides the European Parliament and the Council each year with a statement of assurance as to the reliability of the accounts of all revenue and expenditure of the Commission and the legality and regularity of the underlying transactions.

T

transparency : the budgetary principle of transparency requires the Commission to publish consolidated financial statements and management reports in the Official Journal and online.

treasury : the Commission has bank accounts with Member State Treasuries, Central Banks and commercial banks and these make up the treasury.

U - V - W - X - Y - Z

[1] Annex II to the EC Treaty lists 21 Overseas Countries and Territories (OCTs). The Commission has direct relations with 20 of them, as the Overseas Association Decision does not apply to Bermuda (at its request).

[2] Table 2.7 on the report on financial implementation provides details on recoveries and corrections received.

[3] Until 01/01/2003 including old RAL ; from 31/12/2003 oal implementation provides details on recoveries and corrections received.

[4] Until 01/01/2003 including old RAL ; from 31/12/2003 onwards excluding old RAL

[5] Financed under the EDF administration support costs.

[6] Includes:

i) €525m balances released from the EDF conditional billion but which had still to be transferred to the intra-ACP allocation at end 2005;

ii) €90m in operational credits to finance devolution in 2006-2007 (new paragraph 9, Annex I, revised Cotonou Agreement).

[7] Reserve for:

i) countries for which the 9th EDF has not been notified - Togo, €20.8m

ii) countries without signed country strategy papers (CSPs) – Côte d’Ivoire, Equatorial Guinea, Guinea, Liberia, Sudan, Zimbabwe. For some countries, CSPs are being prepared for signature in 2006; for the others, an end of term review in 2006 will reassess the amount of the reserve.

[8] Programmable aid: aid programmed within the framework of national and regional indicative programmes.

[9] The Commission holds accounting responsibility for venture capital managed by the European Investment Bank under the 6th-8th EDFs.

[10] HIPC: the World Bank-led Highly Indebted Poor Countries initiative, which helps offset eligible ACP countries’ debts.

Global Fund: The Global Fund to Fight AIDS, Tuberculosis and Malaria.