TABLE OF CONTENTS

IMPLEMENTING AND ACCOUNTING FOR THE EDF RESOURCES. 2

PART I - EDF ANNUAL ACCOUNTS: FUNDS MANAGED BY THE EUROPEAN COMMISSION. 8

1........... FINANCIAL STATEMENTS OF THE 8TH, 9TH AND 10TH EUROPEAN DEVELOPMENT FUNDS. 9

1.1........ 8TH, 9TH AND 10TH EDFs: AGGREGATED BALANCE SHEET, ECONOMIC OUTTURN ACCOUNT, CASH FLOW TABLE AND STATEMENT OF CHANGES IN NET ASSETS. 9

1.2........ 8TH EDF: BALANCE SHEET, ECONOMIC OUTTURN ACCOUNT AND STATEMENT OF CHANGES IN NET ASSETS  13

1.3........ 9TH EDF: BALANCE SHEET, ECONOMIC OUTTURN ACCOUNT AND STATEMENT OF CHANGES IN NET ASSETS  16

1.4........ 10TH EDF: BALANCE SHEET, ECONOMIC OUTTURN ACCOUNT AND STATEMENT OF CHANGES IN NET ASSETS  19

1.5........ NOTES TO THE FINANCIAL STATEMENTS OF THE 8TH, 9TH AND 10TH EDFs. 22

2........... REPORT ON FINANCIAL IMPLEMENTATION. 38

2.1........ ALLOCATIONS. 38

2.2........ AGGREGATED ACCOUNTS. 38

2.3........ OTHER MANAGEMENT INFORMATION. 38

PART II - EDF ANNUAL ACCOUNTS: FINANCIAL STATEMENTS OF THE INVESTMENT FACILITY. 38

3.1 ....... STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2012. 38

3.2........ STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2012. 38

3.3........ STATEMENT OF CHANGES IN CONTRIBUTORS’ RESOURCES FOR THE YEAR ENDED 31 DECEMBER 2012  38

3.4........ STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2012. 38

3.5........ NOTES TO THE FINANCIAL STATEMENTS AS AT 31 DECEMBER 2012. 38

ANNEX TO PART 1 – CHAPTER 2 (REPORT ON THE FINANCIAL IMPLEMENTATION): SITUATION BY COUNTRY AND BY INSTRUMENT. 38

CERTIFICATION OF THE ACCOUNTS

The annual accounts of the 8th, 9th and 10th European Development Funds for the year 2012 have been prepared in accordance with Title VIII of the Financial Regulation of the 10th European Development Fund and with the accounting principles, rules and methods set out in annex to the financial statements.

I acknowledge my responsibility for the preparation and presentation of the annual accounts of the 8th, 9th and 10th European Development Funds in accordance with Article 125 of the Financial Regulation of the 10th European Development Fund.

I have obtained from the authorising officer and from the EIB, who guarantee its reliability, all the information necessary for the production of the accounts that show the European Development Funds' assets and liabilities and the budgetary implementation.

I hereby certify that based on this information, and on such checks as I deemed necessary to sign off the accounts, I have a reasonable assurance that the accounts present a true and fair view of the financial position of the European Development Funds in all material aspects.

                                                                                                               

(Signed)

Manfred Kraff

Accounting Officer

                                                                                               

IMPLEMENTING AND ACCOUNTING FOR THE EDF RESOURCES

1.         BACKGROUND

The European Union has cooperative development relations with a large number of developing countries. The main purpose is to promote economic and social development with a particular focus on reducing and alleviating poverty in the long-term, by providing beneficiary countries with development aid and technical assistance. To achieve this, the Union draws up, jointly with the partner countries, cooperation strategies and mobilises the financial resources to implement them. These Union resources allocated to development come from three sources:

– The European Union budget

– The European Development Fund

– The European Investment Bank

The European Development Fund (EDF) is the main instrument for providing Union aid for development cooperation to the African, Caribbean and Pacific (ACP) States and Overseas Countries and Territories (OCTs). The 1957 Treaty of Rome made provision for its creation with a view to granting technical and financial assistance, initially limited to African countries which at that time were still colonised and with which some Member States had historical links.

The EDF is not funded by the European Union's budget. It is funded by the Member States, subject to its own financial regulation and managed by a specific committee. The European Commission is responsible for the financial implementation of the operations carried out with EDF resources and the European Investment Bank (EIB) manages the Investment Facility.

During the period 2008-2013, the geographic aid granted to ACP States and OCTs will continue to be mainly funded by the EDF. Each EDF is usually concluded for a period of around five years. Since the conclusion of the first partnership convention in 1964, the EDF programming cycles have generally followed the partnership agreement/convention cycles. Each EDF is governed by its own Financial Regulation which imposes the preparation of financial statements for each individual EDF. Accordingly, financial statements are prepared separately for each EDF in respect of the part that is managed by the European Commission. These financial statements are also presented in an aggregated way so as to provide a global view of the financial situation of the resources for which the European Commission is responsible.

Within the framework of the Cotonou agreement, the Investment Facility was established. This Investment Facility is managed by the European Investment Bank and is used to support private sector development in the ACP States by financing essentially – but not exclusively – private investments. The Facility is designed as a renewable fund, so that loan repayments can be reinvested in other operations, thus resulting in a self-renewing and financially independent Facility. As the Investment Facility is not managed by the European Commission, it is not consolidated in the first part of the annual accounts – the financial statements of the 8th, 9th and 10th EDFs and the related report on financial implementation. The financial statements of the Investment Facility are included as a separate part of the annual accounts (part 2) to provide a full picture of the development aid of the EDF. The 10th EDF covers the period from 2008 to 2013 and has an overall budget of EUR 22 682 million. Of this amount, EUR 21 966 million is allocated to the ACP countries, EUR 286 million to the OCTs and EUR 430 million to the Commission as support expenditure for programming and implementation of the EDF[1].

2.         HOW IS THE EDF FUNDED?

The European Council of 15-16 December 2005 adopted the financial perspectives for 2007-2013. In this context it was decided that geographical cooperation with the ACP States would not be integrated into the European Union budget (budgetised), but would continue to be funded through the existing inter-governmental EDF for the period 2008-2013.

The European Union budget is annual and according to the budgetary principle of annuality, expenditure and revenue are planned and authorised for one year. Unlike the European Union, the EDF is a fund operating on the basis of multiannuality. Each EDF is concluded through an internal agreement between Member States, which establishes an overall fund to implement development cooperation during a period of usually five years. As resources are allocated on a multiannual basis, the allocated funds may be used over the period of the EDF. The lack of budget annuality is highlighted in the budgetary reporting, where the budgetary implementation of the EDFs is measured against the total funds.

The EDF resources are “ad hoc” contributions from the EU Member States. Approximately every five years, Member State representatives meet at intergovernmental level to decide on an overall amount that will be allocated to the fund and to oversee its implementation The Commission then manages the fund in accordance with the EU Development Policy it proposes and which the Council adopts.  Since Member States have their own development and aid policies in parallell  to the Union policy, the Member States must coordinate their policies with the EU to ensure they are complementary. Until 2010, contributions were called from the 15 participating Member States. In 2011, the first contributions under the 10th EDF, in which the 27 Member States participate, were called.

While some funds of the 10th EDF have been set aside for unforeseen needs, most are being programmed in indicative multi-annual frameworks, mainly geographic but also thematic, currently set for the years 2008-2013. Country strategy papers, regional strategy papers and intra-ACP strategy papers have been adopted by the Commission accordingly. Their implementation is monitored annually and the strategies are reviewed at mid-term (finalised) and at end-of-term (on-going). As a result of these mid-term or end-of-term reviews, the Commission may, on behalf of the European Union, revise the strategies and resource allocation in the light of the current needs and the performance of the ACP states or regions concerned.

In addition to the above mentioned contributions, it is also possible for Member States to enter into co-financing arrangements or to make voluntary financial contributions to the EDF.

3.       HOW ARE THE EDF RESOURCES MANAGED AND SPENT?

3.1      Operational expenditure

EDF operational expenditure takes different forms, depending on how the money is paid out and managed. In accordance with the Financial Regulation, the Commission implements the EDF resources using the following methods:

Decentralised management: these are the cases where the Commission delegates to third countries, more or less substantially according to the local situation of the beneficiary country concerned, certain tasks for implementation of the budget.

Centralised management: this is where the budget is implemented either directly by the Commission services or indirectly where the Commission confers tasks of implementation of the budget to bodies accountable under European Union law or national law, such as the European Union agencies.

Joint management with international organisations: under this method, the Commission entrusts certain implementation tasks to an international organisation.

3.2      The different financial actors

The responsibility of the Authorising Officer by delegation covers the entire management process, from determining what needs to be done to achieve the policy objectives set to manage the activities launched from both an operational and budgetary standpoint, including signing legal commitments and/or monitoring performance, making payments and even recovering funds, if necessary.

The Head of the Delegation of the European Union is the local liaison between the Commission and the national or regional ACP/OCT authorities in the field. He/she works in close collaboration with the national or Regional Authorising Officers in defining the implementing strategy and Sectoral policies, preparing, studying and reviewing EDF programmes and projects.

The National Authorising Officer in the recipient country is a senior official appointed by the government of each ACP State/OCT. He/she represents the authorities of his/her country for all activities financed by the fund and managed by the Commission and by the EIB. In most cases, these functions are exercised by a member of the government, generally the State Minister of Planning or Finance. The National Authorising Officer carries out the administrative, technical and financial duties of managing EDF programmes and projects.

The Accounting Officer of the Commission executes payment and recovery orders drawn up by Authorising Officers of the Commission and is responsible for managing the treasury, laying down accounting rules and methods, validating accounting systems, keeping the accounts and drawing up the corresponding annual accounts. Furthermore, the Accounting Officer is required to sign the accounts declaring that they provide a true and fair view of the financial position.

3.3      Implementing the EDF resources

The bulk of the financial resources awarded to ACP States and OCTs through the EDF are awarded through grants. At the beginning of each EDF, the European Union informs the ACP States and the OCTs about the indicative allocations which should be available to them over the period of the fund. Resources are allocated based on a country’s needs and performance criteria.

At a national level, the country strategy paper (CSP) is a document prepared by the ACP State concerned and the Commission. It is drawn from prior consultation with a wide range of actors including non-State actors, local authorities and, where relevant, ACP Parliaments. The CSP is an instrument to prioritise activities and build local ownership of cooperation programmes.

A National Indicative Programme (NIP) is then drawn up on the basis of and consistent with the development objectives and priorities expressed in the CSP. The NIP targets the sectors and fields which will receive the aid, explains how the aid will fulfil its objectives, and gives a timetable for implementation. The CSP and the NIP are subject to an annual, mid-term and end-of-the-EDF-term review and improvements and changes are made when necessary during its operational period.

3.4      Committing to spend the EDF resources

No EDF resources can be spent unless and until the Commission and the intended recipient of EDF money have entered into a written legal commitment. A written legal commitment can be a (grant, service or other) contract concluded with entities accountable under private law such as NGOs or economic operators, or may consist of administrative and/or financial arrangements concluded by the Commission with entities accountable under public international law such as states and their public entities or interational organisations,  possessing a legal personality and capacity.

Before a legal commitment can be entered into with a third party, there must be a budget line with sufficient funds authorising the activity in question. If this condition is met, the funds required must be reserved in the budget by means of a budgetary commitment made in the accounting system. This, however, has no effect on the general accounts (or general ledger) since no charge has yet been incurred. This is because the accounting system of the EDF comprises two separate but linked elements:

(a) budget accounts, which provide a detailed record of budget implementation; and,

(b) general accounts, used to prepare the balance sheet and economic outturn.

The budget accounts show the commitments and payments made. They are based on the cash accounting principle, whereby an item is only recorded in the accounts when cash is committed, paid out or received. This type of accounting is typical of the public sector whose focus has, historically, tended to be on the budget and its implementation.

The general accounts (based on the accrual accounting principle) show all expenses and revenue over the financial year (and thus the economic outturn) and establish the financial position of the EDF in the form of a balance sheet of assets and liabilities at 31 December of a given year.

3.5      Making a payment

No payment can be made unless a budgetary commitment has already been approved by the Authorising Officer.

Pre-financing is a payment intended to provide the beneficiary with a cash advance, i.e. a float. It may be split into a number of installments over a period defined in the particular pre-financing agreement. The float or advance is either used for the purpose for which it was provided during the period defined in the agreement or is repaid – if the beneficiary does not incur eligible expenditure he/she is obliged to return the pre-financing advance to the EDF. Thus pre-financing paid is not a definitive expense until the relevant contractual conditions are met and so is recorded as an asset on the balance sheet when the initial payment is made. The amount of the pre-financing asset is reduced (wholly or partially) by the acceptance of eligible costs (which are taken as expenses in the economic outturn account) and amounts returned.           

At year-end, an assessment has to be made concerning eligible expenses incurred by beneficiaries of EDF funds but not yet reported. Following these cut-off calculations, estimated eligible amounts are recorded as accrued charges, while the estimated non-eligible parts remain open in the “eligibility to be checked” accounts. These amounts are shown under current liabilities so as not to overestimate assets and liabilities.

3.6      Recovering undue payments

The eligibility of expenditure charged to the EDF is verified on the basis of the supporting documents stipulated in the applicable rules or in the conditions of each grant. With the aim of optimising the relationship between the costs and the benefits of control systems, checks on the supporting documents for final claims tend to be more detailed than those on interim claims, and thus may detect errors in interim payments which are corrected by adjustment of the final payment. Furthermore, the Commission has the right to verify the probity of the supporting documents by making checks on the claimant's premises, during the implementation of the action financed and/or afterwards (ex-post). Errors found during the implementation period may be corrected by adjustment of subsequent claims. Errors found ex-post will be the subject of a recovery order.

4.         YEAR-END REPORTING

4.1      Annual accounts

It is the Accounting Officer's responsibility to prepare the annual accounts and ensure that they present a true and fair view of the financial position of the EDF.

The annual accounts are presented as follows:

            Part I: Funds managed by the European Commission

– Financial statements of the 8th, 9th and 10th European Development Funds

– Report on financial implementation of the 8th, 9th and 10th European Development Funds

            Part II: Funds managed by the European Investment Bank

– Financial statements of the Investment Facility

The financial statements of the Investment Facility are included as a separate part of the annual accounts so as to provide a full picture of the development aid of the EDF.

Following audit by the Court of Auditors, the annual accounts are adopted by the Commission by 31 July of the subsequent year and presented to the Council and Parliament for discharge.

4.2      Annual Activity Report

The Authorising Officer is required to prepare an Annual Activity Report (AAR) on the activities under his/her responsibility. In this AAR, the Authorising Officer reports on policy results and on the reasonable assurance he may have that the resources assigned to the activities described in his report have been used for their intended purpose and in accordance with the principles of sound financial management, and that the control procedures put in place give the necessary guarantees concerning the legality and regularity of the underlying transactions.

5.         AUDIT AND DISCHARGE

5.1      Audit

The EDF annual accounts and resource management are overseen by its external auditor, the European Court of Auditors, which draws up an annual report for the Council and the European Parliament. The Court's main task is to conduct an external, independent audit of the EDF annual accounts. As part of its activities, the Court of Auditors produces:

(1) an annual report, detailing its observations on the annual accounts and underlying transactions;

(2) an opinion, based on its audits and given in the annual report in the form of a statement of assurance, on (i) the reliability of the accounts and (ii) the legality and regularity of the underlying transactions;

(3) special reports giving the findings of audits covering specific areas of management.

The Court of Auditors is entitled to access all documents required during the course of its audit. The Court audits all areas of EDF activities, right down to examining the legality and regularity of individual transactions and payments. It also audits the annual accounts themselves, reviewing individual balance sheet and economic outturn account items, as well as the overall presentation of the financial statements. Thus the Court can offer its opinion not only on the figures presented, but also on the system and controls in place.

5.2      Discharge

The final control is the discharge of the financial implementation of the EDF resources for a given financial year. The European Parliament is the discharge authority of the EDF. This means that following the audit and finalisation of the annual accounts it falls to the Council to recommend and then to the Parliament to decide whether to grant discharge to the Commission for the financial implementation of the EDF resources for the preceding financial year. This decision is based on a review of the accounts and the annual report of the Court of Auditors (which includes an official statement of assurance) and replies of the Commission, and also following questions and further information requests to the Commission.

The discharge represents the political aspect of the external control of financial implementation and is the decision by which the European Parliament, acting on a Council recommendation, "releases" the Commission from its responsibility for management of the financial implementation of a given financial year. This discharge procedure may produce one of two outcomes: the granting or postponement of the discharge. When granting discharge the Parliament may highlight observations it considers important, often recommending actions that the Commission should take concerning these matters. The Commission sets out the measures taken in a follow-up report and an action plan which it sends to both the Parliament and the Council.

PART I - EDF ANNUAL ACCOUNTS: FUNDS MANAGED BY THE EUROPEAN COMMISSION[2]

1.           FINANCIAL STATEMENTS OF THE 8TH, 9TH AND 10TH EUROPEAN DEVELOPMENT FUNDS           

1.1         8TH, 9TH AND 10TH EDFs: AGGREGATED BALANCE SHEET, ECONOMIC OUTTURN ACCOUNT, CASH FLOW TABLE AND STATEMENT OF CHANGES IN NET ASSETS

AGGREGATED BALANCE SHEET OF THE 8TH, 9TH AND 10TH EDFs     

|| || || || EUR millions

|| Note || 31.12.2012 || 31.12.2011

|| NON-CURRENT ASSETS || || ||

|| Pre-financing || 2.1 || 438 || 380

|| || || ||

|| CURRENT ASSETS || || ||

|| Pre-financing || 2.2 || 1 334 || 1 175

|| Receivables || 2.3 || 70 || 111

|| Cash and cash equivalents || 2.5 || 690 || 1 224

||   || || ||

|| TOTAL ASSETS || || 2 532 || 2 891

|| || || ||

|| NON-CURRENT LIABILITIES || || ||

|| Payables || 2.6 || (40) || -

|| || || ||

|| CURRENT LIABILITIES || || ||

|| Payables || 2.7 || (1 057) || (1 033)

|| || || ||

|| TOTAL LIABILITIES || || (1 097) || (1 033)

|| || || ||

|| NET ASSETS || || 1 435 || 1 858

|| || || ||

|| FUNDS & RESERVES || || ||

|| Called fund capital || 2.8 || 29 579 || 26 979

|| Other reserves || 2.9 || 2 252 || 2 252

|| Economic outturn carried forward from previous years || || (27 374) || (24 674)

|| Economic outturn of the year || || (3 023) || (2 700)

|| NET ASSETS || || 1 435 || 1 858

AGGREGATED ECONOMIC OUTTURN ACCOUNT OF THE 8TH, 9TH AND 10TH EDFs

|| || EUR millions

|| Note || 2012 || 2011

|| || ||

OPERATING REVENUE || 3.1 || 124 || 99

|| || ||

OPERATING EXPENSES || || ||

Operating expenses || 3.2 || (3 017) || (2 702)

Administrative expenses || 3.3 || (107) || (75)

|| || ||

SURPLUS (DEFICIT) FROM OPERATING ACTIVITIES || || (3 001) || (2 679)

|| || ||

Financial revenue || 3.4 || (22) || (20)

SURPLUS (DEFICIT) FROM FINANCIAL ACTIVITIES || || (22) || (21)

|| || ||

ECONOMIC OUTTURN OF THE YEAR || || (3 023) || (2 700)

AGGREGATED CASHFLOW TABLE OF THE 8TH, 9TH AND 10TH EDFs  

|| || EUR millions

|| Note || 2012 || 2011

|| || ||

Economic outturn of the year || || (3 023) || (2 700)

|| || ||

OPERATING ACTIVITIES || 4.2 || ||

Ordinary contributions from Member States || || 2 606 || 3 238

Co-financing contributions || || 19 || 7

(Reversal of) impairment losses on receivables || || 4 || 6

|| || ||

(Increase)/decrease in non-current pre-financing || || (58) || (28)

(Increase)/decrease in current pre-financing || || (159) || (79)

(Increase)/decrease in current receivables[3] || || 31 || 14

Increase/(decrease) in non-current liabilities || || 40 || -

Increase/(decrease) in current liabilities[4] || || 6 || (42)

|| || ||

NET CASH FLOW || || (534) || 417

|| || ||

NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS || || (534) || 417

Cash and cash equivalents at the beginning of the year || 2.5 || 1 224 || 808

Cash and cash equivalents at the end of the year || 2.5 || 690 || 1 224

AGGREGATED STATEMENT OF CHANGES IN NET ASSETS OF THE 8TH, 9TH AND 10TH EDFs          

|| || || || || || || EUR millions

|| Fund Capital (a) || Uncalled funds (b) || Called fund capital (c)=(a)-(b) || Cumulative reserves (d) || Other reserves (e) || Total Net Assets (c)+(d)+(e)

BALANCE AS AT 31 DECEMBER 2010 || 45 691 || 21 812 || 23 879 || (24 674) || 2 252 || 1 458

Capital increase – ordinary contributions || - || (3 100) || 3 100 || - || - || 3 100

 Economic outturn  of the year || - || - || - || (2 700) || - || (2 700)

 BALANCE AS AT 31 DECEMBER 2011 || 45 691 || 18 712 || 26 979 || (27 374) || 2 252 || 1 858

 Capital increase – ordinary contributions || - || (2 600) || 2 600 || - || - || 2 600

Economic outturn of the year || - || - || - || (3 023) || - || (3 023)

 BALANCE AS AT 31 DECEMBER 2012 || 45 691 || 16 112 || 29 579 || (30 396) || 2 252 || 1 435

1.2         8TH EDF: BALANCE SHEET, ECONOMIC OUTTURN ACCOUNT AND STATEMENT OF CHANGES IN NET ASSETS

BALANCE SHEET OF THE 8TH EDF

|| || || || EUR millions

|| Note || 31.12.2012 || 31.12.2011

|| CURRENT ASSETS || || ||

|| Pre-financing || 2.2 || 38 || 70

|| Receivables || 2.3 || 1 || 4

|| Liaison accounts || 2.4 || 345 || 387

|| || || ||

|| TOTAL ASSETS || || 384 || 461

|| || || ||

|| CURRENT LIABILITIES || || ||

|| Payables || 2.7 || (22) || (29)

|| || || ||

|| TOTAL LIABILITIES || || (22) || (29)

|| || || ||

|| NET ASSETS || || 361 || 432

|| || || ||

|| FUNDS & RESERVES || || ||

|| Called fund capital || 2.8 || 12 840 || 12 840

|| Other reserves || 2.9 || (2 354) || (2 276)

|| Economic outturn carried forward from previous years || || (10 132) || (10 042)

|| Economic outturn of the year || || 7 || (90)

|| NET ASSETS || || 361 || 432

ECONOMIC OUTTURN ACCOUNT OF THE 8TH EDF          

|| || EUR millions

|| Note || 2012 || 2011

|| || ||

OPERATING REVENUE || 3.1 || 58 || 40

|| || ||

OPERATING EXPENSES || 3.2 || (49) || (128)

|| || ||

|| || ||

SURPLUS (DEFICIT) FROM OPERATING ACTIVITIES || || 9 || (88)

|| || ||

Financial revenue || 3.4 || (2) || (1)

SURPLUS (DEFICIT) FROM FINANCIAL ACTIVITIES || || (2) || (2)

|| || ||

ECONOMIC OUTTURN OF THE YEAR || || 7 || (90)

STATEMENT OF CHANGES IN NET ASSETS OF THE 8TH EDF

|| || || || || || || EUR millions

|| Fund Capital (a) || Uncalled funds (b) || Called fund capital (c)=(a)-(b) || Cumulative reserves (d) || Other reserves (e) || Total Net Assets (c)+(d)+(e)

BALANCE AS AT 31 DECEMBER 2010 || 12 840 || - || 12 840 || (10 042) || (2 237) || 560

Capital increase – ordinary contributions || - || - || - || - || - || -

Transfers to/from the 10th EDF || - || - || - || - || (38) || (38)

Economic outturn of the year || - || - || - || (90) || - || (90)

BALANCE AS AT 31 DECEMBER 2011 || 12 840 || - || 12 840 || (10 132) || (2 276) || 432

Capital increase – ordinary contributions || - || - || - || - || - || -

Transfers to/from the 10th EDF || - || - || - || - || (78) || (78)

Economic outturn  of the year || - || - || - || 7 || - || 7

BALANCE AS AT 31 DECEMBER 2012 || 12 840 || - || 12 840 || (10 125) || (2 354) || 361

1.3         9TH EDF: BALANCE SHEET, ECONOMIC OUTTURN ACCOUNT AND STATEMENT OF CHANGES IN NET ASSETS

BALANCE SHEET OF THE 9TH EDF

|| || || || EUR millions

|| Note || 31.12.2012 || 31.12.2011

|| NON-CURRENT ASSETS || || ||

|| Pre-financing || 2.1 || 119 || 191

|| || || ||

|| CURRENT ASSETS || || ||

|| Pre-financing || 2.2 || 447 || 569

|| Receivables || 2.3 || 58 || 87

|| Liaison accounts || 2.4 || 1 919 || 2 557

|| Cash and cash equivalents || 2.5 || - || 6

||   || || ||

|| TOTAL ASSETS || || 2 543 || 3 410

|| || || ||

|| CURRENT LIABILITIES || || ||

|| Payables || 2.7 || (375) || (315)

|| || || ||

|| TOTAL LIABILITIES || || (375) || (315)

|| || || ||

|| NET ASSETS || || 2 168 || 3 096

|| || || ||

|| FUNDS & RESERVES || || ||

|| Called fund capital || 2.8 || 11 699 || 11 699

|| Other reserves || 2.9 || 4 126 || 4 227

|| Economic outturn carried forward from previous years || || (12 830) || (11 932)

|| Economic outturn of the year || || (827) || (898)

|| NET ASSETS || || 2 168 || 3 096

ECONOMIC OUTTURN ACCOUNT OF THE 9TH EDF

|| || EUR millions

|| Note || 2012 || 2011

|| || ||

OPERATING REVENUE || 3.1 || 49 || 49

|| || ||

OPERATING EXPENSES || || ||

Operating expenses || 3.2 || (856) || (924)

Administrative expenses || 3.3 || (1) || (3)

|| || ||

|| || ||

SURPLUS (DEFICIT) FROM OPERATING ACTIVITIES || || (809) || (879)

|| || ||

Financial revenue || 3.4 || (18) || (19)

SURPLUS (DEFICIT) FROM FINANCIAL ACTIVITIES || || (18) || (19)

|| || ||

ECONOMIC OUTTURN OF THE YEAR || || (827) || (898)

STATEMENT OF CHANGES IN NET ASSETS OF THE 9TH EDF

|| || || || || || || EUR millions

|| Fund Capital (a) || Uncalled funds (b) || Called fund capital (c)=(a)-(b) || Cumulative reserves (d) || Other reserves (e) || Total Net Assets (c)+(d)+(e)

BALANCE AS AT 31 DECEMBER 2010 || 11 699 || 660 || 11 039 || (11 932) ||   4 157 || 3 263

Capital increase – ordinary contributions || - || (660) || 660 || - || - || 660

Transfers to/from the 10th EDF || - || - || - || - || 70 || 70

Economic outturn of the year || - || - || - || (898) || - || (898)

BALANCE AS AT 31 DECEMBER 2011 || 11 699 || - || 11 699 || (12 830) || 4 227 || 3 096

Capital increase – ordinary contributions || - || - || - || - || - || -

Transfers to/from the 10th EDF || - || - || - || - || (100) || (100)

Economic outturn of the year || - || - || - || (827) || - || (827)

BALANCE AS AT 31 DECEMBER 2012 || 11 699 || - || 11 699 || (13 657) || 4 126 || 2 168

1.4         10TH EDF: BALANCE SHEET, ECONOMIC OUTTURN ACCOUNT AND STATEMENT OF CHANGES IN NET ASSETS

BALANCE SHEET OF THE 10TH EDF

|| || || || EUR millions

|| Note || 31.12.2012 || 31.12.2011

|| NON-CURRENT ASSETS || || ||

|| Pre-financing || 2.1 || 319 || 189

|| || || ||

|| CURRENT ASSETS || || ||

|| Pre-financing || 2.2 || 849 || 536

|| Receivables || 2.3 || 11 || 20

|| Cash and cash equivalents || 2.5 || 690 || 1 218

||   || || ||

|| TOTAL ASSETS || || 1 869 || 1 963

|| || || ||

|| NON-CURRENT LIABILITIES || || ||

|| Payables || 2.6 || (40) || -

|| || || ||

|| CURRENT LIABILITIES || || ||

|| Payables || 2.7 || (660) || (689)

|| Liaison accounts || 2.4 || (2 264) || (2 944)

|| || || ||

|| TOTAL LIABILITIES || || (2 963) || (3 633)

|| || || ||

|| NET ASSETS || || (1 095) || (1 670)

|| || || ||

|| FUNDS & RESERVES || || ||

|| Called fund capital || 2.8 || 5 040 || 2 440

|| Other reserves || 2.9 || 479 || 301

|| Economic outturn carried forward from previous years || || (4 411) || (2 699)

|| Economic outturn of the year || || (2 203) || (1 712)

|| NET ASSETS || || (1 095) || (1 670)

ECONOMIC OUTTURN ACCOUNT OF THE 10TH EDF

|| || EUR millions

|| Note || 2012 || 2011

|| || ||

OPERATING REVENUE || 3.1 || 18 || 10

|| || ||

OPERATING EXPENSES || || ||

Operating expenses || 3.2 || (2 112) || (1 650)

Administrative expenses || 3.3 || (106) || (72)

|| || ||

|| || ||

SURPLUS (DEFICIT) FROM OPERATING ACTIVITIES || || (2 201) || (1 712)

|| || ||

Financial revenue || 3.4 || (2) || 0

SURPLUS (DEFICIT) FROM FINANCIAL ACTIVITIES || || (2) || (1)

|| || ||

ECONOMIC OUTTURN OF THE YEAR || || (2 203) || (1 712)

STATEMENT OF CHANGES IN NET ASSETS OF THE 10TH EDF

|| || || || || || || EUR millions

|| Fund Capital (a) || Uncalled funds (b) || Called fund capital (c)=(a)-(b) || Cumulative reserves (d) || Other reserves (e) || Total Net Assets (c)+(d)+(e)

BALANCE AS AT 31 DECEMBER 2010 || 21 152 || 21 152 || - || (2 699) || 333 || (2 366)

Capital increase – ordinary contributions || - || (2 440) || 2 440 || - || - || 2 440

Transfers from the 8th and the 9th EDF || - || - || - || - || (32) || (32)

Economic outturn of the year || - || - || - || (1 712) || - || (1 712)

BALANCE AS AT 31 DECEMBER 2011 || 21 152 || 18 712 || 2 440 || (4 411) || 301 || (1 670)

Capital increase – ordinary contributions || - || (2 600) || 2 600 || - || - || 2 600

Transfers from/to the 8th and the 9th EDF || - || - || - || - || 178 || 178

 Economic outturn of the year || - || - || - || (2 203) || - || (2 203)

BALANCE AS AT 31 DECEMBER 2012 || 21 152 || 16 112 || 5 040 || (6 614) || 479 || (1 095)

1.5         NOTES TO THE FINANCIAL STATEMENTS OF THE 8TH, 9TH AND 10TH EDFs           

1.         SIGNIFICANT ACCOUNTING POLICIES

1.1.     LEGAL PROVISIONS AND THE FINANCIAL REGULATION

The financial statements are drawn up in accordance with the Financial Regulation applicable to the 10th EDF. In accordance with the provisions of Article 121 of this regulation, the financial statements are prepared respecting the principles of accrual accounting.

These financial statements have been drafted in conformity with the accounting rules and methods of the EDF, themselves drawn up on the basis of International Public Sector Accounting Standards (IPSAS) or by default, International Financial Reporting Standards (IFRS) as respectively issued by the International Public Sector Accounting Standard Board (IPSASB) and the International Accounting Standard Board (IASB). The accounting rules adopted by the Accounting Officer of the EDF have been applied in respect of the part of the EDF resources for which the European Commission is responsible for financial management.

The EDF Accounting Officer must submit the provisional accounts to the Court of Auditors for audit by 31 March of the following year. The Court of Auditors shall in turn make its observations on the accounts known to the Commission by 15 June (Article 125). On the basis of these observations, the Commission approves the final accounts by 31 July and sends them to the European Parliament, the Council and the Court of Auditors. The accounts are then published in the Official Journal by 15 November, together with the statement of assurance given by the Court of Auditors in respect of the part of the EDF resources for which the Commission is responsible for the financial management.

1.2.     ACCOUNTING PRINCIPLES

The objective of the financial statements is to provide information about the financial position, performance and cash flows of an entity that is useful to a wide range of users. For a public sector entity such as the EDF, the objectives are more specifically to provide information useful for decision making, and to demonstrate the accountability of the entity for the resources entrusted to it.

If they are to present a true and fair view, financial statements must not only supply relevant information to describe the nature and range of an organisation’s activities, explain how it is financed and supply definitive information on its operations, but do so in a clear and comprehensible manner which allows comparisons between financial years. It is with these goals in mind that the present document has been drawn up.

The accounting system of the EDF comprises general accounts and budget accounts. The budget accounts give a detailed picture of the implementation of the budget. They are based on the cash accounting principle. The general accounts allow for the preparation of the financial statements as they show all expenses and income for the financial year based on accrual accounting rules and are designed to establish the financial position in the form of a balance sheet at 31 December.

Article 120 of the 10th EDF Financial Regulation sets out the accounting principles to be applied in drawing up the financial statements:

– going concern basis;

– prudence;

– consistent accounting methods;

– comparability of information;

– materiality;

– no netting;

– reality over appearance;

– accrual-based accounting.

1.3.     BASIS OF PREPARATION

1.3.1.  Functional and reporting currency

The financial statements are presented in millions of euros, the euro being the functional and reporting currency of the EDF.

1.3.2.  Currency and basis for conversion

Foreign currency transactions are translated into euros using the exchange rates prevailing on the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of foreign currency transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the economic outturn account.

Year-end balances of monetary assets and liabilities denominated in foreign currencies are converted into euros on the basis of the below exchange rates applying on 31 December:    

Currency || 31.12.2012 || 31.12.2011 || Currency || 31.12.2012 || 31.12.2011

XOF || 655.957 || 655.957 || KES || 113.460 || 109.362

XAF || 655.957 || 655.957 || BIF || 2037.95 || 1780.23

NGN || 206.074 || 204.185 || SLL || 5709.56 || 5663.54

PGK || 2.76702 || 2.81057 || TZS || 2077.48 || 2058.31

HTG || 56.2987 || 53.2461 || UGX || 3508.51 || 3181.89

GNF || 9250.40 || 9155.86 || MGA || 2981.70 || 2870.88

MWK || 439.917 || 213.286 || SZL || 11.1727 || 10.4830

1.3.3.  Use of estimates

In accordance with IPSAS and generally accepted accounting principles, the financial statements necessarily include amounts based on estimates and assumptions by management based on the most reliable information available. Significant estimates include, but are not limited to, amounts for provisions, impairment losses on accounts receivable and accrued charges. Actual results could differ from those estimates. Changes in estimates are reflected in the period in which they become known.

1.4.     BALANCE SHEET

1.4.1   Pre-financing amounts

Pre-financing is a payment intended to provide the beneficiary with a cash advance, i.e. a float. It may be split into a number of payments over a period defined in the particular pre-financing agreement. The float or advance is repaid or used for the purpose for which it was provided during the period defined in the agreement. If the beneficiary does not incur eligible expenditures, he/she has to return the pre-financing advance to the EDF. The amount of the pre-financing is reduced (wholly or partially) by the acceptance of eligible costs and amounts returned.

At year-end, outstanding pre-financing amounts are valued at the original amount(s) paid less: amounts returned, eligible amounts cleared, estimated eligible amounts not yet cleared at year-end and value reductions.

Interest on pre-financing is recognised as it is earned in accordance with the provisions of the relevant agreement. An estimate of the accrued interest revenue, based on the most reliable information, is made at year-end.

1.4.2   Receivables

Receivables are carried at original amount less write-down for impairment. A write-down for impairment of receivables is established when there is objective evidence that the full amount due cannot be collected according to the original terms of the receivable. The amount of the write-down is the difference between the asset’s carrying amount and the recoverable amount, being the present value of expected future cash flows, discounted at the market rate of interest for similar borrowers. Also recognised is a general write-down for outstanding recovery orders not already subject to a specific write-down. This general write-down is based on the historical loss rates. The amount of the write-down is recognised in the economic outturn account.

1.4.3   Cash and cash equivalents

Cash and cash equivalents are financial instruments and are defined as current assets. They include cash at hand, deposits held at call with banks and other current highly liquid investments with original maturities of three months or less.

1.4.4   Payables

A significant amount of the payables of the EDF are not related to the purchase of goods or services – instead they are unpaid cost claims from beneficiaries of grants or other funding. They are recorded as payables for the requested amount when the cost claim is received and, after verification, accepted as eligible by the relevant financial agents. At this stage they are valued at the accepted and eligible amount.

Payables arising from the purchase of goods and services are recognised at invoice reception for the original amount and corresponding expenses are entered in the accounts when the supplies or services are delivered and accepted.

1.4.5   Provisions

Provisions are recognised when the EDF has a present legal or constructive obligation towards third parties as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation, and the amount can be reliably estimated. The amount of the provision is the best estimate of the expenditures expected to be required to settle the present obligation at the reporting date.

1.4.6   Accrued and deferred income and charges

A critical element in accrual accounting is the exercise of ensuring that transactions are recorded in the accounting year to which they relate. This exercise is referred to as the cut-off exercise. In particular, an assessment has to be made concerning eligible expenses incurred by beneficiaries of EDF funds but not yet reported to the EDF (accrued charges). Conversely, some payments made in the current year relate to subsequent periods (deferred charges) and these have to be identified and included in the subsequent period(s).

According to the EDF accounting rules, transactions and events are recognised in the financial statements in the period to which they relate. At the end of the accounting period, accrued expenses are recognised based on an estimated amount of the transfer obligation of the period. The calculation of the accrued expenses is made in accordance with detailed operational and practical guidelines issued by the Commission which aim at ensuring that the financial statements reflect a true and fair view.

Revenue is also accounted for in the period to which it relates. At year-end, if an invoice is not yet issued but the service has been rendered, the supplies have been delivered by the EDF or a contractual agreement exists (i.e. by reference to a treaty), an accrued income will be recognised in the financial statements.

In addition, at year-end, if an invoice is issued but the services have not yet been rendered or the goods supplied have not yet been delivered, the revenue will be deferred and recognised in the subsequent accounting period.

1.5.     ECONOMIC OUTTURN ACCOUNT

1.5.1   Revenue

There is no revenue budgeted for the European Development Fund the ordinary contributions from Member States are treated as fund capital. Revenue comprises recovery of expenses and interest income.

Recovery of expenses

For operations giving rise to reimbursement of expenditures previously paid by the EDF to a final beneficiary or third country, recovery orders and deductions from subsequent payments are established and accounted for as follows:

– Recovery of expenses: the recovery order issued results in a receivable with the corresponding entry being income in the economic outturn account for that year; or,

– Recovery of pre-financing amounts: in this case the amount is included under the pre-financing heading on the balance sheet.

Interest income

Interest income is recognised in the economic outturn account using the effective interest method. The interest income comprises interest received or receivable on cash balances and demandable deposits held with commercial banks and on late payment of entitlements to the EDF. Interest income is recognised as it accrues.

1.5.2   Expense

Exchange expenses arising from the purchase of goods and services are recognised when the supplies are delivered and accepted. They are valued at original invoice cost.

Non-exchange expenses account for the majority of the EDF's expenditure. They relate to transfers to beneficiaries and can be of three types: entitlements, transfers under agreement and discretionary grants, or contributions and donations.

Transfers are recognised as expenses in the period during which the events giving rise to the transfer occurred, as long as the nature of the transfer is allowed by regulation (Financial Regulation or other) or a contract has been signed authorising the transfer; any eligibility criteria have been met by the beneficiary; and a reasonable estimate of the amount can be made.

When any request for payment or cost claim is received and meets the recognition criteria, it is recognised as an expense for the eligible amount. At year-end, incurred eligible expenses already due to the beneficiaries but not yet reported are estimated and recorded as accrued expenses.

Interest expense

Interest expense is recognised in the economic outturn account using the effective interest method. The interest expense comprises interest paid or payable and is recognised as it accrues.

1.6.     CONTINGENT ASSETS AND LIABILITIES

1.6.1   Contingent assets

A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the EDF. A contingent asset is disclosed when an inflow of economic benefits or service potential is probable.

Contingent assets are assessed at each balance sheet date to ensure that developments are appropriately reflected in the financial statements. If it has become virtually certain that an inflow of economic benefits or service potential will arise and the asset’s value can be measured reliably, the asset and the related revenue are recognised in the financial statements of the period in which the change occurs.

Guarantees are possible assets that arise from past events and whose existence will be confirmed by the occurrence or non-occurrence of the object of the guarantee. Guarantees can thus qualify as contingent assets. A guarantee is settled when the object of the guarantee no longer exists. It is crystallised when the conditions are fulfilled for calling for a payment from the guarantor.

1.6.2   Contingent liabilities

A contingent liability is a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the EDF; or a present obligation that arises from past events but is not recognised because: it is not probable that an outflow of resources embodying economic benefits or service potential will be required to settle the obligation or, in the rare circumstances where the amount of the obligation cannot be measured with sufficient reliability. A contingent liability is disclosed unless the possibility of an outflow of resources embodying economic benefits or service potential is remote.

Contingent liabilities are assessed at each balance sheet date to determine whether an outflow of resources embodying economic benefits or service potential has become probable. If it becomes probable that an outflow of resources embodying economic benefits or service potential will be required for an item dealt with as contingent liability, a provision is recognised in the financial statements of the period in which the change of probability occurs.

2.         NOTES TO THE BALANCE SHEET

NON-CURRENT ASSETS

2.1      PRE-FINANCING

|| || || || EUR millions

|| 8th EDF || 9th EDF || 10th EDF || TOTAL 31.12.2012 || TOTAL 31.12.2011

Pre-financing || - || 119 || 319 || 438 || 380

TOTAL || - || 119 || 319 || 438 || 380

Many contracts provide for payments of advances before the commencement of works, deliveries of supplies or the provision of services. Sometimes the payment schedules of contracts foresee payments on the basis of progress reports. Pre-financing is normally paid in the currency of the country or territory where the project is executed.

The timing of the recoverability or utilisation of the pre-financing governs whether it is disclosed as a current or a non-current pre-financing asset. The utilisation is defined by the project's underlying agreement. Any repayments or utilisation due within twelve months of the reporting date are disclosed as current pre-financing. As many of the EDF projects are long-term in nature, it is necessary that the related advances are available for more than one year. Thus these pre-financing amounts are shown as non-current assets.

The increase in non-current pre-financing of EUR 58 million compared to 31.12.2011 is mainly explained by an increase in non-current pre-financing related to PIR[5] Projects (EUR 97 million), Intra ACP Projects (EUR 42 million) and PIN[6] grants (EUR 10 million), offset by a decrease in the pre-financing related to Intra ACP (EUR 73 million) and Administrative Expenses (EUR 29 million).

       

CURRENT ASSETS

2.2      PRE-FINANCING

|| || || || EUR millions

|| 8th EDF || 9th EDF || 10th EDF || TOTAL 31.12.2012 || TOTAL 31.12.2011

Pre-financing (gross) || 70 || 1 207 || 2 316 || 3 593 || 3 415

Less estimated clearing of pre-financing || (32) || (760) || (1 468) || (2 259) || (2 240)

TOTAL || 38 || 447 || 849 || 1 334 || 1 175

The increase in net current pre-financing of EUR 159 million is mainly due to an increase in pre-financing related to the aid instruments PIN grants (EUR 147 million), PIR Projects (EUR 68 million) and Intra ACP-Debt Relief (EUR 39 million). This increase was partially offset by a decrease in the net pre-financing related to Sectorial Policy (EUR 65 million) and Intra ACP - Social Sectors Projects (EUR 32 million).

2.2.1 Guarantees received in respect of pre-financing

Guarantees are held to secure pre-financing and are released when the final claim under a project is paid. A guarantee has two different values referred to as the “nominal” and the “on-going” values. For the “nominal” value, the generating event is linked to the existence of the guarantee. For the “on-going” value, the guarantee’s generating event is the pre-financing payment and/or subsequent clearings.

At 31 December 2012 the "nominal" value of guarantees received by the EDF in respect of pre-financing amounts to EUR 566 million. The "on-going" value of those guarantees amounts to EUR 391 million. At 31 December 2011 these values were EUR 637 million and EUR 394 million respectively.

2.3      RECEIVABLES

|| || || || || EUR millions

|| Note || 8th EDF || 9th EDF || 10th EDF || TOTAL 31.12.2012 || TOTAL 31.12.2011

Receivables from customers || 2.3.1 || 1 || 6 || 2 || 10 || 13

Receivables from Member States || 2.3.2 || - || - || 3 || 3 || 9

Accrued income and deferred charges || 2.3.3 || 0 || 51 || 6 || 57 || 89

TOTAL || || 1 || 58 || 11 || 70 || 111

2.3.1 Receivables from customers

|| || || || EUR millions

|| 8th EDF || 9th EDF || 10th EDF || TOTAL 31.12.2012 || TOTAL 31.12.2011

Receivables from customers || 5 || 19 || 3 || 26 || 27

-Write-down || (3) || (12) || (1) || (16) || (13)

TOTAL || 1 || 6 || 2 || 10 || 13

These are recovery orders entered in the accounts at 31 December 2012 as established entitlements to be recovered and not already included under other headings on the assets side of the balance sheet. The closing balance for recovery orders represents the value of recovery orders issued but not yet paid at year-end.

The movements in open recovery orders during the period are detailed below:

|| || || || EUR millions

|| 8th EDF || 9th EDF || 10th EDF || TOTAL 2012 || TOTAL 2011

Open recovery orders at beginning of year || 6 || 19 || 1 || 25 || 18

Recovery orders issued || 12 || 64 || 63 || 139 || 130

Recovery orders closed || (13) || (64) || (61) || (138) || (123)

Cashed || (12) || (43) || (43) || (97) || (108)

Waived (art 73 FR) || - || (1) || - || (1) || (1)

Cancelled || 0 || (3) || 0 || (4) || (2)

Offset || (2) || (17) || (18) || (36) || (13)

Open recovery orders at end of year || 5 || 19 || 3 || 26 || 25

2.3.2 Receivables from Member States

The EUR 3 million receivable from Member States in the 10th EDF comprises cofinancing contributions from Belgium, Spain and Sweden.

2.3.3 Accrued income and deferred charges

Accrued income and deferred charges include primarily accrued interest on pre-financing amounts. Additionally, accrued interest income on late payment of contributions is included under this heading.

The decrease in accrued income and deferred charges is explained by lower accrued interest on pre-financing (see note 3.4).

2.4      LIAISON ACCOUNTS

|| || || || EUR millions

|| 8th EDF || 9th EDF || 10th EDF || TOTAL 31.12.2012 || TOTAL 31.12.2011

to/from 6th EDF || (2 065) || (214) || - || (2 279) || (2 279)

to/from 7th EDF || - || 2 279 || - || 2 279 || 2 279

to/from 8th EDF || - || (3 038) || 628 || (2 410) || (2 453)

to/from 9th EDF || 3 038 || - || (2 892) || 146 || (491)

to/from 10th EDF || (628) || 2 892 || - || 2 264 || 2 944

TOTAL || 345 || 1 919 || (2 264) || 0 || 0

For reasons of efficiency, the single treasury covering all the EDFs is allocated to the 10th EDF; this leads to operations between the various EDFs, which are balanced out in the liaison accounts between the various EDF balance sheets.

The major 2012 movements in the liaison accounts include payments made by the 10th EDF for implementation of the 8th and 9th EDFs.

         

2.5      CASH AND CASH EQUIVALENTS[7]

|| || || || || EUR millions

|| Note || 8th EDF || 9th EDF || 10th EDF || TOTAL 31.12.2012 || TOTAL 31.12.2011

Cash at banks || 2.5.1 || - || - || 687 || 687 || 1 211

STABEX security accounts || 2.5.2 || - || - || 2 || 2 || 5

Co-financing bank accounts || 2.5.3 || - || - || - || - || 8

Democratic Republic Congo special fund[8] || - || - || - || 1 || 1 || 1

TOTAL || || - || - || 690 || 690 || 1 224

2.5.1 Cash at banks

|| || || || EUR millions

|| 8th EDF || 9th EDF || 10th EDF || TOTAL 31.12.2012 || TOTAL 31.12.2011

Special accounts - financial institutions of Member States || - || - || 633 || 633 || 1 129

Current accounts – commercial banks || || || 54 || 54 || 80

Local Paying Agents || - || - || 0 || 0 || 2

TOTAL || - || - || 687 || 687 || 1 211

The overall decrease in cash at banks is mainly explained by the level of payments made and a higher level of budget execution than in the previous reporting period.

Local paying agent accounts represent amounts held in bank accounts within ACP States and OCTs used for making payments in local currency within the beneficiary state. These accounts are kept in euros or in a currency of a Union Member State. In order to achieve a more centralised management of payments, during 2012, 3 out of the 4 remaining local paying agent accounts were closed.

2.5.2 STABEX Security accounts

|| EUR millions

|| Balance at 31.12.2012 || Balance at 31.12.2011

Ivory Coast || 2 || 2

Malawi || - || 1

Other countries || 0 || 2

TOTAL || 2 || 5

STABEX is the acronym for a European Union compensatory finance scheme to stabilise export earnings of the ACP countries. It was first introduced in the Lomé Convention (1975) with the purpose of remedying the harmful effects of the instability of export revenue from agricultural products. The balance on the STABEX security accounts represents the total of STABEX funds available which will be transferred to the relevant beneficiary ACP State at a future date. This balance is allocated to the 10th EDF. During 2012, eight STABEX security accounts were closed following the winding up of the STABEX aid instrument.

In addition to these funds, there are other STABEX funds held by beneficiary ACP States. Once the Commission and the beneficiary (ACP) State reach agreement on how the STABEX funds are to be utilised, a transfer convention is signed by both parties. In accordance with the provisions of Article 211 of the Lomé IV Agreement[9] (as revised), the funds are transferred into an interest bearing double signature account (European Commission and Beneficiary State) opened in the name of the ACP State. The funds remain in these double signature accounts until a FMO (Framework of Mutual Obligations) justifies a transfer for a project.

The Commission's Authorising Officer retains the power of signature over the account in order to ensure that the funds are disbursed as intended. The funds in the double signature accounts are the property of the ACP State and are consequently not recorded as assets in the EDF accounts. The transfers to these accounts are recorded as STABEX payments.

In 2012, EUR 49 million was returned to the EDF from double signature accounts in ACP countries following Article 1.4 of the Internal Agreement of the 10th EDF[10]. These funds were transferred mainly from the Salomon Islands (EUR 12 million), Ivory Coast (EUR 11 million), Burundi (EUR 5 million), St Vincent and the Grenadines (EUR 3 million), Senegal (EUR 3 million), Malawi (EUR 3 million), Uganda (EUR 3 million) and Burkina Faso (EUR 2 million). These revenues are included in operating income (STABEX aid instrument) in the economic outturn account of the 8th EDF.

2.5.3 Co-financing bank accounts

|| || || || EUR millions

|| 8th EDF || 9th EDF || 10th EDF || TOTAL 31.12.2012 || TOTAL 31.12.2011

Co-financing bank accounts || - || - || - || - || 8

TOTAL || - || - || - || - || 8

The co-financing bank accounts were closed. These funds, except for administrative part, were returned to the Member States following instructions from the Authorising Officer.  

NON-CURRENT LIABILITIES

2.6      PAYABLES

|| || || || EUR millions

|| 8th EDF || 9th EDF || 10th EDF || TOTAL 31.12.2012 || TOTAL 31.12.2011

Co-financing - payables || - || - || 40 || 40 || -

TOTAL || - || - || 40 || 40 || -

Co-financing payables at the end of 2012 relate to the 10th EDF.

Co-financing contributions received are presented as payables to Member States and non-Member States as they fulfill the criteria of revenues from non-exchange transactions under condition. The EDF is required to use the contributions to deliver services to third parties or is otherwise required to return the assets (the contributions received) to the Member States. The outstanding payable for co-financing agreements represents the co-financing contribution received less the expenses incurred related to the project. The effect on net assets is nil.

In 2012, in order to improve the presentation of the co-financing payables the amounts were split between non-current and current liabilities. The increase in the total co-financing payables is explained in the note 2.7.1.2.

CURRENT LIABILITIES

2.7      PAYABLES

|| || || || || EUR millions 

|| Note || 8th EDF || 9th EDF || 10th EDF || TOTAL 31.12.2012 || TOTAL 31.12.2011

Current payables || 2.7.1 || 4 || 67 || 138 || 209 || 399

Accrued charges || 2.7.2 || 19 || 308 || 228 || 555 || 339

Deferred fund capital contribution || 2.7.3 || - || - || 293 || 293 || 295

TOTAL || || 22 || 375 || 660 || 1 057 || 1 033

2.7.1 Current payables

|| || || || || EUR millions

|| Note || 8th EDF || 9th EDF || 10th EDF || TOTAL 31.12.2012 || TOTAL 31.12.2011

Suppliers and other || 2.7.1.1 || 4 || 67 || 81 || 152 || 308

Co-financing payables || 2.7.1.2 || - || - || 46 || 46 || 81

Sundry payables || 2.7.1.3 || 0 || 0 || 12 || 12 || 10

TOTAL || || 4 || 67 || 138 || 209 || 399

Payables include cost statements received by the EDF relating to the grant activity. They are recorded for the amount being claimed from the moment the demand is received. The same procedure applies to invoices and credit notes received under procurement activities. The cost claims concerned have been taken into account for the year-end cut-off procedures. Following the cut-off entries, estimated eligible amounts have been recognised in the economic outturn account.

2.7.1.1 Suppliers and other

Included under this heading are amounts owed to suppliers as well as amounts payable to public bodies and third states.

The decrease of EUR 157 million compared to the previous reporting period relates primarly to a EUR 75 million decrease in payables to third states and a EUR 37 million decrease in payables to non-public suppliers.

2.7.1.2 Co-financing payables

In 2012, in order to improve the presentation of the co-financing payables, the amounts were split between non-current and current liabilities.  The decrease in current co-financing payables is mainly due to a reclassification of EUR 40 million to the non-current payables.

The total non-current and current co-financing payables increased by EUR 5 million. In 2012, new co-financing contributions were received from Germany (EUR 2 million) and Canada (EUR 2 million). The increase of Swedish co-financing payable (EUR 8 million) was partially offset by a decrease in Spanish and co-financing payables to UK (EUR 2 million each) and the clearing of the Italian co-financing payable within the 9th EDF.

The co-financing payables were decreased by EUR 8 million to recognise revenue related to the co-financing projects (see 3.1.3 and 3.2.2).

2.7.1.3 Sundry payables

Sundry payables mainly comprise unallocated cash receipts and returned amounts.

2.7.2 Accrued charges

|| || || || EUR millions

|| 8th EDF || 9th EDF || 10th EDF || TOTAL 31.12.2012 || TOTAL 31.12.2011

Accrued charges || 19 || 308 || 228 || 555 || 339

TOTAL || 19 || 308 || 228 || 555 || 339

At year-end, an assessment is made concerning eligible expenses incurred by beneficiaries of EDF funds but not yet reported. Following these cut-off calculations, estimated eligible amounts are recorded as accrued charges.

Estimated utilisation of pre-financing amounts is presented as an estimated clearing of pre-financing (see 2.2).

2.7.3 Deferred fund capital contribution

|| || || EUR millions

|| 8th EDF || 9th EDF || 10th EDF || TOTAL 31.12.2012 || TOTAL 31.12.2011

United Kingdom || - || - || 274 || 274 || 289

Ireland || - || - || 9 || 9 || 5

Lithuania || - || - || - || - || 1

Hungary || - || - || 10 || 10 || -

TOTAL || - || - || 293 || 293 || 295

This comprises Member States' contributions paid in advance.

NET ASSETS

2.8      CALLED FUND CAPITAL

|| || EUR millions

|| 8th EDF || 9th EDF || 10th EDF || TOTAL

Fund Capital || 12 840 || 11 699 || 21 152 || 45 691

Uncalled fund capital || - || - || (18 712) || (18 712)

Called fund capital 31.12.2011 || 12 840 || 11 699 || 2 440 || 26 979

|| || || ||

Fund Capital || 12 840 || 11 699 || 21 152 || 45 691

Uncalled fund capital || - || - || (16 112) || (16 112)

Called fund capital 31.12.2012 || 12 840 || 11 699 || 5 040 || 29 579

The fund capital represents the total amount of contributions from Member States for the relevant EDF fund as laid down in each of the Internal Agreements.

The uncalled funds represent the initial allocation not yet called up from Member States.

The called fund capital represents the amount of the initial allocations which has been called up for transfer to the treasury accounts by the Member States in accordance with the procedure laid down in Article 16 of the 10th EDF Financial Regulation.

The capital of the 8th and the 9th EDF has been called up and received in its entirety.

Called and uncalled fund capital by Member State

|| || || || EUR millions

Contributions || % || uncalled 10th EDF 31.12.2011 || called up in 2012 || uncalled 10th EDF 31.12.2012

Austria || 2.41 || (451) || 63 || (388)

Belgium || 3.53 || (661) || 92 || (569)

Denmark || 2.00 || (374) || 52 || (322)

Finland || 1.47 || (275) || 38 || (237)

France || 19.55 || (3 658) || 508 || (3 150)

Germany || 20.50 || (3 836) || 533 || (3 303)

Greece || 1.47 || (275) || 38 || (237)

Ireland || 0.91 || (170) || 24 || (147)

Italy || 12.86 || (2 406) || 334 || (2 072)

Luxemburg || 0.27 || (51) || 7 || (44)

Netherlands || 4.85 || (908) || 126 || (781)

Portugal || 1.15 || (215) || 30 || (185)

Spain || 7.85 || (1 469) || 204 || (1 265)

Sweden || 2.74 || (513) || 71 || (441)

United Kingdom || 14.82 || (2 773) || 385 || (2 388)

Cyprus || 0.09 || (17) || 2 || (15)

Czech Republic || 0.51 || (95) || 13 || (82)

Estonia || 0.05 || (9) || 1 || (8)

Hungary || 0.55 || (103) || 14 || (89)

Lithuania || 0.12 || (22) || 3 || (19)

Latvia || 0.07 || (13) || 2 || (11)

Malta || 0.03 || (6) || 1 || (5)

Poland || 1.3 || (243) || 34 || (209)

Slovenia || 0.18 || (34) || 5 || (29)

Slovakia || 0.21 || (39) || 5 || (34)

Bulgaria || 0.14 || (26) || 4 || (23)

Romania || 0.37 || (69) || 10 || (60)

TOTAL || 100,00 || (18 712) || 2 600 || (16 112)

In 2012 contributions under the 10th EDF were called. The first tranche of the 2013 Member States' contributions was called in November 2012.

2.9      OTHER RESERVES

EUR millions

|| 8th EDF || 9th EDF || 10th EDF || TOTAL

Balance at 31.12.2010 || (2 237) || 4 157 || 333 || 2 252

Transfer of decommited amounts to the 10th EDF from the 8th and 9th EDFs || (38) || (80) || 118 || 0

Transfer from the 10th to the 9th EDF to allocate funds to Southern Sudan following Council Decision 2010/406/EU ||                       -   || 150 || (150) || 0

Balance at 31.12.2011 || (2 276) || 4 227 || 301 || 2 252

Transfer of decommited amounts to the 10th EDF from the 8th and 9th EDFs || (78) || (300) || 378 || 0

Transfer from the 10th to the 9th EDF to allocate funds to Southern Sudan following Council Decision 2011/315/EU ||                        -   || 200 || (200) || 0

Balance at 31.12.2012 || (2 354) || 4 126 || 479 || 2 252

Balance at 31.12.2012 includes: || || || ||

- Funds allocated to Southern Sudan || -              || 350 || -                    || 350

Since the entry into force of the 10th EDF in 2008, all decommitted funds of previous EDFs are transferred to the reserve of the 10th EDF. This reserve may be committed only under the conditions set out in Article 1.4 of the Internal Agreement on the 10th EDF.

In 2012, EUR 78 million and EUR 300 million of decommitted funds were transferred to the performance reserve of the 10th EDF from the 8th and 9th EDFs respectively while EUR 200 million were transferred from the performance reserve of the 10th EDF to the 9th EDF in order to allocate funds to South Sudan.[11]

3.         NOTES TO THE ECONOMIC OUTTURN ACCOUNT

3.1      OPERATING REVENUE

EUR millions

|| 8th EDF || 9th EDF || 10th EDF || TOTAL 2012 || TOTAL 2011

Recovery of expenses || 2 || 14 || 2 || 17 || 16

Recovery of STABEX funds ||           49 || - || - || 49 || 26

Exchange gains || 7 || 35 || 8 || 51 || 54

Operating income co-financing || - || - || 8 || 8 || 2

TOTAL || 58 || 49 || 18 || 124 || 99

3.1.1 Recovery of expenses

This heading represents the recovery orders issued by the EDF and the deduction from subsequent payments recorded in the EDF accounting system, to recover expenditures previously paid out, based on controls, audits or eligibility analysis. It should be noted that recovery of pre-financing amounts is not included as revenue, but credited to the pre-financing heading on the balance sheet.

Recovery of undue payments

In 2012, recovery orders for EUR 27 million were issued in respect of undue payments, compared to EUR 12 million in 2011. Of these, EUR 11 million related to the recovery of expenses and were thus recorded as operating revenue. EUR 16 million represented recoveries of pre-financing amounts paid and were credited to the pre-financing asset on the balance sheet.

The nature of the recovery of undue payments can be summarised as follows:

EUR millions ||

|| Revenue || Pre-financing || TOTAL 2012 || Revenue || Pre-financing || TOTAL 2011

Error || 1 || 1 || 2 || 2 || 1 || 3

Irregularity || 9 || 15 || 25 || 6 || 3 || 8

OLAF Notified || 1 || - || 1 || 1 || - || 1

TOTAL || 11 || 16 || 27 || 8 || 4 || 12

3.1.2 Recovery of STABEX funds

In 2012, EUR 49 million was returned to the EDF from double signature accounts in ACP countries following Article 1.4 of the Internal Agreement of the 10th EDF[12]. These funds were transferred mainly from the Salomon Islands (EUR 12 million), Ivory Coast (EUR 11 million), Burundi (EUR 5 million), St Vincent and the Grenadines (EUR 3 million), Senegal (EUR 3 million), Malawi (EUR 3 million), Uganda (EUR 3 million) and Burkina Faso (EUR 2 million). These revenues are included in operating income (STABEX aid instrument) in the economic outturn account of the 8th EDF.

3.1.3 Operating income co-financing

The operating income relating to co-financing represents the contributions used (see 3.2.2). As these contributions fulfil the criteria of revenues from non-exchange transactions under condition, the contribution is recognised in accordance with the implementation of the co-financing project.

3.2      OPERATING EXPENSES

EUR millions

|| 8th EDF || 9th EDF || 10th EDF || TOTAL 2012 || TOTAL 2011

Operating expenses – aid instruments || 41 || 812 || 2 085 || 2 938 || 2 633

Operating expenses co-financing ||  -     ||  -     || 8 || 8 || 2

Exchange losses || 8 || 39 || 20 || 66 || 61

Write-down of receivables || 0 || 6 || - || 6 || 7

TOTAL || 49 || 856 || 2 112     || 3 017 || 2 702

In 2012 the Commission refined its methodology for estimating accrued charges. Had this refinement not been made, the operating expenses would have been 2 849 million euro instead of 3 017 million euro. The impact on net assets would have been the same amount (a decrease of EUR 168 million) mainly due to an increase in the accrued charges accounts (see 2.7.2).

3.2.1 Operating expenses – aid instruments

|| || || || EUR millions

|| 8th EDF || 9th EDF || 10th EDF || TOTAL 2012 || TOTAL 2011

Programmable aid || 17 || 93 || 1 366 || 1 476 || 1 251

Macro-economic support || - || 8 || - || 8 || 51

Sectoral policy || 0 || 322 || 3 || 326 || 371

Interest rate subsidies || 5 || - || - || 5 || 0

Intra ACP projects || - || 311 || 409 || 720 || 650

Emergency aid || - || 60 || 274 || 333 || 212

Refugee aid || 6 || - || - || 6 || 0

Risk capital || 1 || - || - || 1 || 19

STABEX || 4 || - || - || 4 || 12

Sysmin || 0 || - || - || 0 || (8)

Other aid programmes related to former EDFs || - || 10 || - || 10 || 24

Institutional support || - || (1) || 33 || 32 || 8

Compensation export receipts || 7 || 10 || - || 18 || 42

Total || 41 || 812 || 2 085 || 2 938 || 2 633

The EDF operating expenditure covers the various aid instruments and takes different forms, depending on how the money is paid out and managed.

3.2.2 Operating expenses co-financing

These are the expenses incurred on co-financing projects in 2012. As the co-financing contributions received fulfil the criteria of revenues from non-exchange transactions under condition, a corresponding amount of contributions has been recognised as operating revenue (see 3.1.3).

3.2.3 Write-down of receivables

This heading includes mainly pre-financing corrections and amounts written down/lost on realisation concerning debtors.

3.3      ADMINISTRATIVE EXPENSES

EUR millions

|| 8th EDF || 9th EDF || 10th EDF || TOTAL 2012 || TOTAL 2011

Administrative expenses || - || 1 || 106 || 107 || 75

TOTAL || - || 1 || 106 || 107 || 75

This heading includes support expenditure; i.e. the administrative costs related to the programming and implementation of the EDFs. This includes expenses for preparation, follow-up, monitoring, and evaluation of projects as well as expenses for computer networks, technical assistance etc.

3.4      FINANCIAL REVENUE

EUR millions

|| 8th EDF || 9th EDF || 10th EDF || TOTAL 2012 || TOTAL 2011

Interest income - European banks || - || 6 || 4 || 9 || 1

Interest on pre-financing || (2) || (24) || (6) || (32) || (21)

TOTAL || (2) || (18) || (2) || (22) || (20)

Interest on pre-financing is recognised in accordance with the provisions of article 7 paragraph 3 and article 8 of the 10th EDF Financial Regulation. The reversal of the 2011 accrual for interest on pre-financing resulted in a negative interest revenue in 2012.

4.         NOTES TO THE CASH FLOW STATEMENT

4.1      PURPOSE AND PREPARATION OF THE CASH FLOW STATEMENT

Cash flow information is used to provide a basis for assessing the ability of the EDF to generate cash and cash equivalents, and its needs to utilise those cash flows.

The cash flow statement is prepared using the indirect method. This means that the net surplus or deficit for the financial year is adjusted for the effects of transactions of a non-cash nature and any deferrals or accruals of past or future operating cash receipts or payments.

Cash flows arising from transactions in a foreign currency are recorded in the EDF's reporting currency (euro), by applying to the foreign currency amount the exchange rate between the euro and the foreign currency at the date of the cash flow.

4.2      OPERATING ACTIVITIES

The EDF cash flow statement only shows cash flows from operating activities as the EDF does not have investment or financing activities. The objective of the operating activities is to participate in the achievement of policy targeted outcomes.

5.         CONTINGENT ASSETS AND LIABILITIES AND OTHER DISCLOSURES

5.1      CONTINGENT ASSETS

EUR millions

|| 8th EDF || 9th EDF || 10th EDF || TOTAL 31.12.2012 || TOTAL 31.12.2011

Performance guarantees || 13 || 171 || 120 || 304 || 325

Retention guarantees || 6 || 107 || 74 || 188 || 197

Contingent assets relating to legal cases || - || - || - || - || 1

TOTAL || 19 || 279 || 194 || 492 || 523

5.1.1 Performance guarantees

Performance guarantees are sometimes requested to ensure that beneficiaries of EDF funding meet the obligations of their contracts with the EDF.

The decrease of EUR 21 million in performance guarantees is the difference between the  guarantees released and new guarantees received. Most of the guarantees relased were under the 9th EDF, and the new guarantees were also mainly received under the 9th EDF.

5.1.2 Retention guarantees

Retention guarantees concern only works contracts. Typically, 10% of the interim payments to beneficiaries are withheld to ensure that the contractor fulfils his/her obligations. These withheld amounts are reflected as amounts payable. Subject to the approval of the contracting authority, the contractor may instead submit a retention guarantee which replaces the amounts withheld on interim payments. These received guarantees are disclosed as contingent assets.

The decrease of EUR 9 million in retention guarantees is a difference between the  guarantees released and new guarantees received. Most of the guarantees released were under the 9th EDF and  the new guarantees were also mainly received under the 9th EDF.

5.2      OTHER DISCLOSURES

5.2.1 Budgetary commitments not yet expensed

EUR millions

|| 8th EDF || 9th EDF || 10th EDF || TOTAL 31.12.2012 || TOTAL 31.12.2011

Outstanding budgetary commitments not yet paid || 103 || 938 || 4 601 || 5 642 || 5 594

Related amounts included in the economic outturn account || (22) || (382) || (310) || (714) || (646)

TOTAL || 81 || 557 || 4 291 || 4 928 || 4 948

Outstanding budgetary commitments represent open commitments for which payments and/or decommitments have not yet been made. This is a normal consequence of the existence of multiannual programmes. At 31 December 2012 the outstanding budgetary commitments totalled EUR 5 642 million. The amount disclosed as a future commitment to be funded is this outstanding budgetary commitment less related amounts that have been included as expenses in the 2012 economic outturn account, giving a total of EUR 4 928 million.

6.         FINANCIAL RISK MANAGEMENT

The following disclosures with regard to the financial risk management of the European Development Fund relate to the treasury operations carried out by the European Commission on behalf of the European Development Fund in order to implement its resources.

6.1      RISK MANAGEMENT POLICIES AND HEDGING ACTIVITIES

The rules and principles for the management of the EDF's treasury operations are laid down in Council Regulation 215/2008 on the Financial Regulation applicable to the 10th EDF, and in the Internal Agreement.

As a result of the above regulation, the following main principles apply:

– The EDF contributions are paid by Member States in special accounts opened with the bank of issue of each Member State or the financial institution designated by it. The amounts of the contributions shall remain in those special accounts until the payments of EDF need to be made.

– EDF contributions are paid by Member States in EUR, while the EDF's payments are denominated in EUR and in other currencies, including less well-known ones.

– Bank accounts opened by the Commission on behalf of the EDF may not be overdrawn.

In addition to the special accounts, other bank accounts are opened by the Commission on behalf of the EDF, with financial institutions (central banks and commercial banks), for the purpose of executing payments and receiving receipts other than the Member State contributions to the budget according to art. 44 of the Council Regulation 215/2008 (see 6.4 below).

All commercial banks where accounts other than the "special accounts" mentioned above have been opened for the EDF, are selected by the Commission by call for tenders.

Treasury and payment operations are highly automated and rely on modern information systems. Specific procedures are applied to guarantee system security and to ensure segregation of duties in line with the Financial Regulation, the Commission’s internal control standards, and audit principles.

A written set of guidelines and procedures regulate the management of the treasury and payment operations with the objective of limiting operational and financial risk and ensuring an adequate level of control. They cover the different areas of operation, and compliance with the guidelines and procedures is checked regularly.

6.2      MARKET RISK

6.2.1   Currency risk

All contributions are held in EUR, and other currencies are purchased only when they are needed for the execution of payments. As a result the EDF's treasury operations are not exposed to currency risk.

6.2.2   Interest rate risk

The EDF does not borrow monies and as a consequence it is not exposed to interest rate risk.

It however earns interest on balances it holds on its different banks accounts. The Commission, on behalf of the EDF, has therefore put in place measures to ensure that interest earned regularly reflect market interest rates as well as their possible fluctuation.

Overnight balances held on commercial bank accounts are remunerated on a daily basis. The remuneration of balances on such accounts is based on variable market rates to which a contractual margin (positive or negative) is applied. For most of the accounts the interest calculation is linked to the EONIA (Euro Over Night Index Average), and is adjusted to reflect any fluctuations of this rate. For some other accounts the interest calculation is linked to the ECB marginal rate (the one used for the ECB refinancing operations). As a result no risk is taken by the EDF that its balances be remunerated at rates lower than market rates.

6.3      CREDIT RISK (COUNTERPARTY RISK)

Most of the EDF's treasury resources are kept, in accordance with Council Regulation 215/2008, in the "special accounts" opened by Member States for the payment of their contributions. The majority of such accounts are held with Member States' treasuries or national central banks. These institutions carry the lowest counterparty risk for the EDF (exposure is with its Member States).

For the part of the EDF's treasury resources kept with commercial banks in order to cover the execution of payments, replenishment of these accounts is executed on a just-in-time basis and is automatically managed by the Commission treasury's cash management system. Minimum cash levels, proportional to the average amount of daily payments made from it, are kept on each account. As a consequence the amounts kept overnight on these accounts remain constantly at low levels which ensure the EDF's risk exposure is limited.

In addition, specific guidelines are applied for the selection of commercial banks in order to further minimise counterparty risk to which the EDF is exposed.

All commercial banks are selected by call for tenders. The minimum short-term credit rating required for admission to the tendering procedures is Moody's P-1 or equivalent (S&P A-1 or Fitch F1). A lower level may be required in specific and duly justified circumstances.

6.4      LIQUIDITY RISK

Budget principles applied to the EDF ensure that overall cash resources for the budgetary period are always sufficient for the execution of all related payments. Indeed the total Member States' contributions equal the overall amount of payment appropriations for the relevant budgetary period.

Member States contributions to EDF, however, are paid in three instalments per year, while payments are subject to certain seasonality.

In order to ensure that treasury resources are always sufficient to cover the payments to be executed in any given month, information on the treasury situation is regularly exchanged between the Commission' treasury and the relevant spending departments in order to ensure that payments executed in any given period do not exceed the available treasury resources.

In addition to the above, in the context of the EDF's daily treasury operations, automated cash management tools ensure that sufficient liquidity is available on each of the EDF's bank accounts, on a daily basis.

7.         RELATED PARTY DISCLOSURES

No related party transactions requiring separate disclosure under this heading have been identified.

8.         EVENTS AFTER THE BALANCE SHEET DATE

At the date of transmission of these accounts, no material issues had come to the attention of the Accounting Officer of the EDF or were reported to him that would require separate disclosure under this section. The annual accounts and related notes were prepared using the most recently available information and this is reflected in the information presented above.

9.         RECONCILIATION ECONOMIC OUTTURN - BUDGET OUTTURN

The economic outturn of the year is calculated on the basis of accrual accounting principles. The budget outturn is however based on cash accounting rules. As both are the result of the same underlying transactions, it is a useful control to ensure that they are reconcilable. The table below shows this reconciliation, highlighting the key reconciling amounts, split between revenue and expenditure items.      

|| || EUR millions

|| 2012 || 2011

|| ||

ECONOMIC OUTTURN OF THE YEAR || (3 023) || (2 700)

|| ||

REVENUE || ||

 Entitlements not affecting the budget outturn || (47) || (52)

Entitlements established in the current year but not yet collected || (8) || (3)

Entitlements established in previous years and collected in the current year || 14 || 10

Net effect of pre-financing || 62 || 46

Net accrued revenue || (40) || (13)

|| ||

EXPENDITURE || ||

Expenses of the current year not yet paid || 38 || 98

Expenses of previous years paid in the current year || (101) || (249)

Payment cancellations || 7 || 17

Net effect of pre-financing || (316) || (346)

Net accrued expenses || 204 || 317

|| ||

BUDGET OUTTURN OF THE YEAR || (3 209) || (2 874)

9.1 Reconciling items – Revenue

The budgetary revenue of a financial year corresponds to the revenue collected from entitlements established in the course of the year and amounts collected from entitlements established in previous years.

The entitlements not affecting the budget outturn are recorded in the economic outturn but from a budgetary perspective cannot be considered as revenues as the cashed amount is transferred to reserves and cannot be recommitted without a Council decision.

The entitlements established in the current year but not yet collected are to be deducted from the economic outturn for reconciliation purposes as they do not form part of budgetary revenue. On the contrary, the entitlements established in previous years and collected in the current year must be added to the economic outturn for reconciliation purposes.

The net effect of pre-financing is the clearing of the recovered pre-financing amounts. This is a cash receipt which has no impact on the economic outturn.

The net accrued revenue mainly consists of accruals made for year-end cut-off purposes. Only the net effect, i.e. the accrued revenue of the current year less the reversal of accrued revenue of the previous year, is taken into consideration.

9.2 Reconciling items – Expenditure

Expenses of the current year not yet paid are to be added for reconciliation purposes as they are included in the economic outturn but do not form part of budgetary expenditure. On the contrary, the expenses of previous years paid in the current year must be deducted from the economic outturn for reconciliation purposes as they are part of the current year's budgetary expenditure but have either no effect on the economic outturn or they decrease the expenses in case of corrections.

The cash receipts from payment cancellations do not affect the economic outturn whereas they impact the budget outturn.

The net effect of pre-financing is the combination of the new pre-financing amounts paid in the current year (recognised as budgetary expenditure of the year) and the clearing of pre-financing paid in the current year or previous years through the acceptance of eligible costs. The latter represents an expense in accrual terms but not in the budgetary accounts since the payment of the initial pre-financing had already been considered as a budgetary expenditure at the time of its payment.

The net accrued expenses mainly consist of accruals made for year-end cut-off purposes, i.e. eligible expenses incurred by beneficiaries of EDF funds but not yet reported to the EDF. Only the net effect, i.e. the accrued expenses of the current year less the reversal of accrued expenses of the previous year, is taken into consideration.           

2.           REPORT ON FINANCIAL IMPLEMENTATION

INTRODUCTORY NOTE

Previous EDFs

· Decision 1/2000 of the ACP-EC Council of 27 July 2000 regarding transitional measures provides for some of the unallocated resources from previous EDFs to be used for programmes consistent with the relevant provisions of the Cotonou Agreement and put into early application under transitional measures.

· Commission Decision 410/2001 of 16 March 2001, which fixes the allocations for the indicative programmes of the ACP countries under the ACP-EC Partnership Agreement, provides that the unallocated resources from previous EDFs up to a maximum of EUR 1.2 billion are to be used for implementation in accordance with the rules and procedures of the relevant EDFs, pending the entry into force of the Financial Protocol to the 9th EDF.

· Commission Decision 1033/2001 of 15 June 2001 fixed the allocations for regional programmes and intra-ACP cooperation under the Financial Protocol to the ACP-EC Partnership Agreement.

· Commission Decision 1252/2002 of 11 July 2002 increased the envelope intended for intra-ACP cooperation by EUR 60 million, from the general reserves of the 6th and 7th EDFs, and also provided for the use of these additional funds pending the entry into force of the Financial Protocol to the 9th EDF, in accordance with the rules and procedures applicable to the original EDFs.

· Lastly, Decision 3/2002 of the ACP-EC Council of Ministers of 23 December 2002 took an amount of EUR 25 million from the unallocated resources of the 8th EDF (general reserve) and allocated it to regional cooperation under the ACP-EC Partnership Agreement.

· As the 6th EDF was closed in 2006 and the 7th EDF was closed in 2008, the annual accounts no longer contain implementation tables for these EDFs. However, implementation of the transferred balances can be found in the 9th EDF.

· As in past years, to ensure transparency in the presentation of the accounts for 2012, the tables below set out separately for the 8th EDF the part used for Lomé Convention programming and the part used for programming under the Cotonou Agreement. Regarding the latter, entry in the accounts and the presentation of accounts is based on Article 3(2) of Annex IV to the ACP-EC Partnership Agreement, as regards countries. That Article gives the ACP countries an A envelope to cover macroeconomic support and support for programmes and projects and a B envelope to cover unforeseen needs such as emergency assistance, debt relief initiatives and support to offset the adverse effects of instability in export earnings[13]. For the regions, the accounts are set out according to the regional programming as referred to in Chapter 2 of the ACP-EC Partnership Agreement (i.e. regional indicative programmes and intra-ACP cooperation).

· Under Point 4 of Annex Ib (Multiannual financial framework for the period 2008 to 2013) to the ACP-EC Partnership Agreement, the remaining balances and the amounts decommitted under the Funds between 31.12.2007 and the entry into force of the 10th EDF were transferred to the 9th EDF to ensure that the EU administration could do its work and to cover the costs of ongoing projects until the 10th EDF comes into force.

· Council Decision 2010/406/EU decided to use for the benefit of Sudan an amount of EUR150 million from the funds de-committed from projects under the 9th and previous EDF's for the purpose of addressing the needs of the most vulnerable population. This amount has been allocated during 2011.

· Council Decision 2011/315/EU decided to use for the benefit of South Sudan an amount of EUR 200 million from the funds de-committed from projects under the 9th and previous EDF's to be used to support the implementation of the Three Year Southern Sudan Development plan. This amount has been allocated during 2012.

10th EDF

The ACP-EC Partnership Agreement signed on 23 June 2000 in Cotonou by the Member States of the European Community and the States of Africa, the Caribbean and the Pacific (ACP States) entered into force on 1 April 2003. The Cotonou Agreement was amended by the agreement signed by the same States in Luxembourg on 25 June 2005.

The EU Council Decision of 27 November 2001 (2001/822/EC) on the association of the overseas countries and territories (OCT) with the European Union entered into force on 2 December 2001. This Decision was amended on 19 March 2007 (Decision 2007/249/EC).

The Internal Agreement on the financing of Community aid under the multiannual financial framework for the period 2008-2013 in accordance with the revised Cotonou Agreement, adopted by the Representatives of the Governments of the Member States of the European Community on 17 July 2006, entered into force on 1 July 2008.

Under the Cotonou Agreement, the second period (2008-2013) of Community aid to the ACP States and OCTs is funded by the 10th EDF to the tune of EUR 22 682 million, of which:

· EUR 21 966 million is allocated to the ACP countries in accordance with the multiannual financial framework set out in Annex Ib to the revised Cotonou Agreement, of which EUR 20 466 million  is managed by the European Commission;

· EUR 286 million is allocated to the OCTs in accordance with Annex IIAa of the revised Council Decision on the association of the OCTs with the European Community, of which 256 million is managed by the European Commission;

· EUR 430 million is for the Commission to finance the costs arising from the programming and implementation of 10th EDF resources, in accordance with Article 6 of the Internal Agreement.

Since the date of entry into force of the 10th EDF these amounts are supplemented by decommitments from previous EDF's, interest income and unused cash balances resulting from the system to guarantee the stabilisation of export earnings from primary agricultural products (STABEX) under the Funds prior to the 9th EDF. All funds are managed in accordance with their specific rules as foreseen in the revised Cotonou Agreement and the Internal Agreement.

Of the above mentioned 10th EDF allocations, the European Commission manages the initial amount of EUR 21 152 million as follows

– EUR 15 300 million for the national indicative programmes, comprising:

· EUR 13 500 million for the A envelope, of which EUR 13 345 million have been  opened. In addition, the A envelope was increased from transfer of reserves by EUR 341 million, increased by EUR 91 million from closure of stabex de-commitments and decreased by EUR 33 million following transfer to regional allocations (MTR region-PALOP). As a result the total available funds amount to EUR 13 744 million in opened allocations and EUR 155 million still to be opened.

· EUR 1 800 million for the B envelopes, fully opened. In addition the B enveloppe was increased from reserves by EUR 148 million are open, bringing the total open funds to EUR 1 948 million.

– EUR 1 783 million for the regional indicative programmes, together with a transfer of EUR 33 million from Enveloppe A and a transfer to reserves of EUR 19 million, resulting in EUR 1 797 million of open allocations;

– EUR 2 700 million in Intra-ACP allocations, all are open, and together with a transfer of EUR 195 million from reserves, a total of EUR 2 895 million of allocations are open;

– EUR 683 million as a reserve, of which EUR 664 million has been transferred leaving a balance of EUR 19 million.

– EUR 430 million for implementation costs, all open

– EUR 256 million OCT allocations of which mainly:

· A enveloppe funds for EUR 195 million, of which EUR 140 million are open

· B enveloppe funds of EUR 15 million, of which EUR 7 million are open

· Regional allocations funds of EUR 40 million, all are open

· Studies/technical assistance funds of EUR 6 million, all open

- 10th EDF non-mobilisable performance reserve

Since the 10th EDF came into force on 1 July 2008, the remaining balances and the amounts decommitted from projects under the 9th and previous EDFs are transferred to the performance reserve of the 10th EDF, with the exception of Stabex funds and 9th EDF administrative envelope. This reserve may be used under the conditions set out in Article 1(4) of the Internal Agreement on the 10th EDF.

Please find below the detail of this reserve as at 31.12.2012 (EUR million):

Total funds transferred to the 10th EDF non-mobilisable reserve: || 815

minus funds transferred to the 9th EDF in favour of  Sudan, Council Decision 2010/406/EU of 12.07.2010 || -150

minus funds transferred to the 9th EDF in favour of South Sudan, Council Decision 2011/315/EU of 23.05.2011 || -200

Total available in the reserve (ACP+OCT): || 465

- 10th EDF Stabex reserve

Following the closure of Stabex accounts, unused/decommitted funds are transferred to the 10th EDF Stabex A Envelope reserve (10th EDF Internal Agreement Art. 1(4)) and then to the national indicative programmes of the countries concerned.

The situation at 31.12.2012 of the reserve is as follows (EUR million):

Country concerned || Reserve A Envelope STABEX

Ivory Coast || 11.43

Cape Verde || 0.01

Guinea Bissau || 0.30

Sierra Leone || 0.22

Senegal || 0.90

Total || 12.86

- 10th EDF Co-financings

Under the 10th EDF, transfer agreements for co-financings from Member States were signed for  EUR 116 million and commitment appropriations were opened for a total amount of EUR 99 million, while payment appropriations were opened for the cashed amounts totalling EUR 93 million.

The situation of co-financing appropriations at 31.12.2012 is shown in the table below (EUR million):

|| Commitments appropriations || Payment appropriations

Co-financing - A Envelope || 84 || 78

Co-financing - Intra ACP || 12 || 12

Co-financing – Administrative expenses || 3 || 3

|| 99 || 93

The following tables, concerning the amounts decided, contracted and paid, show net figures.

The tables presenting the situation by country and by instrument are annexed.

2.1         ALLOCATIONS

2.2         AGGREGATED ACCOUNTS

2.3.       OTHER MANAGEMENT INFORMATION

Italian co-financing (1985)

The italian co-fnancing, in force since 1985, and still open in 2011 as the  '4th rehabilitation programme – Somalia' which was still in progress could finally be closed in 2012. Balances available at closure have been repaid to Italy.

PART II - EDF ANNUAL ACCOUNTS: FINANCIAL STATEMENTS OF THE INVESTMENT FACILITY

EUROPEAN INVESTMENT BANK || CA/463/13

|| 14 March 2013

|| Document 13/072

||

||

BOARD OF DIRECTORS

Investment Facility

financial statements

as at 31 december 2012

|| ||

|| - Statement of financial position - Statement of comprehensive income - Statement of changes in contributors’ resources - Statement of cash flows - Notes to the financial statements ||

ORG.: E ||

3.         FINANCIAL STATEMENTS OF THE INVESTMENT FACILITY

3.1         STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2012

(In EUR’000)

|| Notes || 31.12.2012 || 31.12.2011

|| || ||

ASSETS || || ||

Cash and cash equivalents || 5 || 466 568 || 452 279

Derivative financial instruments || 6 || 115 || 434

Loans and receivables || 7 || 1 146 280 || 1 033 160

Available-for-sale financial assets || 8 || 333 001 || 251 660

Amounts receivable from contributors || 9/15 || 87 310 || 87 310

Held-to-maturity financial assets || 10 || 99 029 || -

Other assets || 11 || 224 || 416

|| || ||

Total Assets ||   || 2 132 527 || 1 825 259

|| || ||

|| || ||

LIABILITIES AND CONTRIBUTORS' RESOURCES || || ||

|| || ||

LIABILITIES || || ||

Derivative financial instruments || 6 || 7 035 || 12 702

Deferred income || 12 || 37 808 || 33 003

Amounts owed to third parties || 13 || 312 086 || 329 660

Other liabilities || 14 || 1 153 || 1 113

|| || ||

Total Liabilities || || 358 082 || 376 478

|| || ||

CONTRIBUTORS' RESOURCES || || ||

Member States Contribution called || 15 || 1 561 309 || 1 281 309

Fair value reserve || || 68 434 || 41 750

Retained earnings || || 144 702 || 125 722

|| || ||

Total Contributors' resources || || 1 774 445 || 1 448 781

|| || ||

Total Liabilities and Contributors' resources || || 2 132 527 || 1 825 259

The accompanying notes form an integral part of these financial statements.

3.2         STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2012

(In EUR’000)

|| Notes || From 01.01.2012 || From 01.01.2011 ||

|| to 31.12.2012 || to 31.12.2011 ||

|| || || ||

Interest and similar income || 17 || 67 503 || 59 561 ||

Interest and similar expense  || 17 || -1 114 || -940 ||

|| || || ||

Net interest and similar income || || 66 389 || 58 621 ||

|| || || ||

Fee and commission income || 18 || 1 934 || 2 149 ||

Fee and commission expenses || 18 || -292 || -144 ||

|| || || ||

Net fee and commission income || || 1 642 || 2 005 ||

|| || || ||

Fair value change of derivative financial instruments || || 5 348 || -7 534 ||

Net realised gains on available-for-sale financial assets || 19 || 1 045 || 17 228 ||

Net foreign exchange loss/gain || || -10 575 || 8 376 ||

|| || || ||

Net result on financial operations || || -4 182 || 18 070 ||

|| || || ||

Change in impairment on loans and receivables, net of reversal || 7 || 597 || 27 452 ||

Impairment on available-for-sale financial assets || 8 || -8 927 || -6 888 ||

Impairment on other assets || 20 || -337 || - ||

General administrative expenses || 21 || -36 202 || -38 006 ||

|| || || ||

Profit for the year || || 18 980 || 61 254 ||

|| || || ||

Other comprehensive income: || || || ||

Available-for-sale financial assets – Fair value reserve  || || || ||

1. Net change in fair value of available-for-sale financial assets  || 8 || 18 551 || 20 574 ||

2. Net amount transferred to profit or loss || 8 || 8 133 || -3 394 ||

Total available-for-sale financial assets || || 26 684 || 17 180 ||

|| || || ||

Total other comprehensive income || || 26 684 || 17 180 ||

|| || || ||

Total comprehensive income for the year || || 45 664 || 78 434 ||

The accompanying notes form an integral part of these financial statements.

3.3         STATEMENT OF CHANGES IN CONTRIBUTORS’ RESOURCES FOR THE YEAR ENDED 31 DECEMBER 2012

(In EUR’000)

|| Contribution called || Fair Value Reserve || Retained earnings || Total

At 1 January 2012                                                                     Notes || 1 281 309 || 41 750 || 125 722 || 1 448 781

|| || || ||

Member States contribution called during the year                         15 || 280 000 || - || - || 280 000

|| || || ||

Profit for the year 2012 || - || - || 18 980 || 18 980

|| || || ||

Total other comprehensive income for the year || - || 26 684 || - || 26 684

|| || || ||

Changes in contributors’ resources || 280 000 || 26 684 || 18 980 || 325 664

|| || || ||

At 31 December 2012 || 1 561 309 || 68 434 || 144 702 || 1 774 445

|| || || ||

|| Contribution called || Fair Value Reserve || Retained earnings || Total

At 1 January 2011                                                                     Notes || 1 131 309 || 24 570 || 64 468 || 1 220 347

|| || || ||

Member States contribution called during the year                         15 || 150 000 || - || - || 150 000

|| || || ||

Profit for the year 2011 || - || - || 61 254 || 61 254

|| || || ||

Total other comprehensive income for the year || - || 17 180 || - || 17 180

|| || || ||

Changes in contributors’ resources || 150 000 || 17 180 || 61 254 || 228 434

|| || || ||

At 31 December 2011 || 1 281 309 || 41 750 || 125 722 || 1 448 781

|| || || ||

|| || || ||

The accompanying notes form an integral part of these financial statements.

3.4         STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2012

(In EUR’000)

|| Notes || From 01.01.2012 to 31.12.2012 || From 01.01.2011 to 31.12.2011

OPERATING ACTIVITIES || || ||

Profit for the financial year || || 18 980 || 61 254

Adjustments || || ||

Impairment on available-for-sale financial assets  || || 8 927 || 3 172

Net change in impairment on loans and receivables   || || -597 || -27 452

Interest capitalised on loans and receivables || 7 || -9 622 || -10 512

Change in accrued interest and amortised cost on loans and receivables || || -1 407 || -2 801

Change in accrued interest and amortised cost on held-to-maturity financial assets || || -751 || -

Increase in deferred income || || 4 805 || 3 424

Effect of exchange rate changes on loans  || || 16 044 || -15 337

Effect of exchange rate changes on available-for-sale financial assets || || -1 204 || 34

Profit on operating activities before changes in operating assets and liabilities || || 35 175 || 11 782

|| || ||

Loan disbursements || 7 || -233 018 || -237 040

Repayments of loans || 7 || 115 480 || 104 410

Fair value changes on derivatives || || -5 348 || 7 534

Increase in held-to-maturity financial assets || || -98 278 || -

Increase in available-for-sale financial assets || 8 || -81 981 || -67 829

Sale of available-for-sale financial assets  || 8 || 19 601 || 24 971

Decrease in other assets || || 192 || 2 756

Increase in other liabilities || || 40 || 173

Increase in amounts payable to the European Investment Bank || || 6 876 || 4 144

|| || ||

Net cash flows from operating activities || || -241 261 || -149 099

|| || ||

FINANCING ACTIVITIES || || ||

Contribution received from Member States || || 236 345 || 136 345

Amounts received from Member States with regard to interest subsidies || || 43 655 || 76 345

Amounts paid on behalf of Member States with regard to interest subsidies    || || -24 450 || -22 899

|| || ||

Net cash flows from financing activities || || 255 550 || 189 791

|| || ||

Net increase in cash and cash equivalents || || 14 289 || 40 692

Cash and cash equivalents at beginning of financial year || || 452 279 || 411 587

Cash and cash equivalents at the end of the financial year || || 466 568 || 452 279

|| || ||

Cash and cash equivalents are composed of: || || ||

Cash in hand || || 10 588 || 3 127

Term deposits || || 455 980 || 449 152

|| || 466 568 || 452 279

|| || ||

Supplementary disclosures of operating cash flows || || 2012 || 2011

Interest received || || 64 490 || 57 391

Interest paid || || -1 137 || -1 162

Dividends received || || 975 || 974

The accompanying notes form an integral part of these financial statements.

3.5         NOTES TO THE FINANCIAL STATEMENTS AS AT 31 DECEMBER 2012

1 General information

The Investment Facility (“the Facility” or “IF”) has been established within the framework of the Cotonou Agreement (the “Agreement”) on co-operation and development assistance negotiated between the African, Caribbean and Pacific Group of States (the “ACP States”) and the European Union and its Member States on 23 June 2000, revised on 25 June 2005 and 23 June 2010.

The Facility is not a separate legal entity and the European Investment Bank (“EIB”) manages the contributions on behalf of the Member States (“Donors”) in accordance with the terms of the Agreement.

Financing under the Agreement is provided from EU Member States’ budgets and is disbursed according to financial protocols defined for successive five- to six-year periods. Within the framework of the Agreement and following the entry into force of a second financial protocol on 1 July 2008 (covering the period 2008-2013), referred to as the 10th European Development Fund (“EDF”), the European Investment Bank (“EIB” or “the Bank”) is entrusted with the management of:

- the Facility, a EUR 3 185.5 million  risk-bearing revolving fund geared to fostering private sector investment in ACP countries of which EUR 48.5 million are allocated to Overseas Countries and territories (“OCT countries”);

- grants for the financing of interest rate subsidies worth EUR 400 million for ACP countries and EUR 1.5 million for OCT countries. Up to 10% of these subsidies can be used to fund project-related technical assistance.

The present financial statements cover the period from 1 January 2012 to 31 December 2012.

 

On a proposal from the Management Committee of EIB, the Board of Directors of EIB adopted the Financial Statements on 14 March 2013, and authorised their submission to the Board of Governors for approval by 14 May 2013.

2 Significant accounting policies

2.1 Basis of preparation – Statement of compliance

The Facility’s financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union.

2.2 Significant accounting judgments and estimates

The preparation of financial statements requires the use of accounting estimates. It also requires the European Investment Bank’s Management to exercise its judgment in the process of applying the Investment Facility’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed hereafter.

The most significant use of judgments and estimates are as follows:

§ Fair value of financial instruments

Where the fair values of financial assets and financial liabilities recorded on the statement of financial position cannot be derived from active markets, they are determined using a variety of valuation techniques that include the use of mathematical models. The input to these models is taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values. The judgments include considerations of liquidity and model inputs such as correlation and volatility for derivatives with maturity of more than three months.

§ Impairment losses on loans and receivables

The Facility reviews its problem loans and receivables at each reporting date to assess whether an allowance for impairment should be recorded in the statement of comprehensive income. In particular, judgment by the European Investment Bank’s Management is required in the estimation of the amount and timing of future cash flows when determining the level of allowance required. Such estimates are based on assumptions about a number of factors and actual results may differ, resulting in future changes to the allowance. In addition to specific allowance against individually significant loans and receivables, the Facility may also book a collective impairment allowance against exposures which, although not specifically identified as requiring a specific allowance, have a greater risk of default than when originally granted.

In principle, a loan is considered as impaired when payment of interest and principal are past due by 90 days or more and, at the same time, the European Investment Bank’s Management considers that there is an objective indication of impairment.

§ Valuation of unquoted available-for-sale equity investments

Valuation of unquoted available-for-sale equity investments is normally based on one of the following:

- recent arms length market transactions;

- current fair value of another instrument that is substantially the same;

- the expected cash flows discounted at current rates applicable for items with similar terms and risk characteristics; or

- other valuation models.

The determination of the cash flows and discount factors for unquoted available-for-sale equity investments requires significant estimation. The Facility calibrates the valuation techniques periodically and tests them for validity using either price from observable current market transactions in the same instrument or from other available observable market data.

§ Impairment of available-for-sale financial assets

The Facility treats available-for-sale equity investments as impaired when there has been a significant or prolonged decline in the fair value below its cost or where other objective evidence of impairment exists. The determination of what is “significant” or “prolonged” requires judgment. The Facility treats “significant” generally as 30% or more and “prolonged” greater than 12 months. In addition, the Facility evaluates other factors, including normal volatility in share price for quoted equities and the future cash flows and the discount factors for unquoted equities.

2.3 Change in accounting policies

The accounting policies adopted are consistent with those of the previous financial year. The Facility has not adopted any new or amended IFRS standard during the year.

Standards issued but not yet effective

A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 1 January 2012, and have not been applied in preparing these financial statements.

IAS 1 Presentation of items of Other comprehensive income

The amendments to IAS 1 change the grouping of items presented in Other comprehensive income. Items that would be reclassified to profit and loss at a future point in time would be presented separately from items that will never be reclassified. The standard is effective for periods beginning on or after 1 July 2012 with early adoption permitted.

IFRS 9 Financial instruments

The first step in a three part project by the IASB to replace IAS 39 Financial instruments, this standard redefines the categories of financial assets and liabilities and their accounting treatment. The standard remains a ‘work in progress’ and it will eventually replace IAS39 in its entirety. The current effective date of the standard is 1 January 2015. IFRS 9 is not yet endorsed by the European Union. The Facility does not plan to adopt this standard early and the extent of the impact has not yet been determined.

The following standard was issued in 2011, with an effective date of 1 January 2013 with early adoption permitted. The impact of the adoption of this standard on the Facility’s financial statements has not yet been determined.

IFRS 13 Fair value measurement

This standard defines fair value, sets out a framework for measuring fair value and requires disclosures about fair value measurements.

2.4 Summary of significant accounting policies

The statement of financial position represents assets and liabilities in decreasing order of liquidity and does not distinguish between current and non-current items.

2.4.1 Foreign currency translation

The Facility uses the Euro (EUR) for presenting its financial statements, which is also the functional currency. Except as otherwise indicated, financial information presented in EUR has been rounded to the nearest thousand.

Foreign currency transactions are translated, at the exchange rate prevailing on the date of the transaction.

Monetary assets and liabilities denominated in currencies other than Euro are translated into Euro at the exchange rate prevailing at the balance sheet date. The gain or loss arising from such translation is recorded in the statement of comprehensive income.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

Exchange differences arising on the settlement of transactions at rates different from those at the date of the transaction, and unrealised foreign exchange differences on unsettled foreign currency monetary assets and liabilities, are recognised in the statement of comprehensive income.

The elements of the statement of comprehensive income are translated into Euro on the basis of the exchange rates prevailing at the end of each month.

2.4.2 Cash and cash equivalents

The Facility defines cash and cash equivalents as current accounts, short-term deposits or commercial papers with original maturities of three months or less.

2.4.3 Financial assets other than derivatives

Financial assets are accounted for using the settlement date basis.

§ Held-to-maturity financial assets

Held-to-maturity financial assets comprise quoted bonds with the intention of holding them to maturity.

Those bonds are initially recorded at their fair value plus any directly attributable transaction cost. The difference between entry price and redemption value is amortised in accordance with the effective interest method over the remaining life of the bond.

The Facility assesses at each balance sheet date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred “loss event”) and that loss event (or event) has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Impairment loss is recognised in profit and loss and the amount of the loss is measured as the difference between the carrying value and the present value of estimated future cash flows discounted at the instrument’s original effective interest rate.

§ Loans

Loans originated by the Facility are recognised in the assets of the Facility when cash is advanced to borrowers. They are initially recorded at cost (net disbursed amounts), which is the fair value of the cash given to originate the loan, including any transaction costs, and are subsequently measured at amortised cost, using the effective yield method, less any provision for impairment or uncollectability.

§ Available-for-sale financial assets

Available-for-sale financial assets are those which are designated as such or do not qualify to be classified as designated at fair value through profit or loss, held-to-maturity or loans and receivables. They include equity instruments and investments in venture capital funds.

After initial measurement, available-for-sale financial assets are subsequently carried at fair value. Note the following details for the fair value measurement of equity investments, which cannot be derived from active markets:

a. Venture capital funds

The fair value of each venture capital fund is based on the latest available Net Asset Value (NAV), reported by the fund, if calculated based on international valuation guidelines recognised to be in line with IFRS (for example: the International Private Equity and Venture Capital Valuation guidelines, IPEV Guidelines, as published by the European Venture Capital Association). The Facility may however decide to adjust the NAV reported by the fund if there are issues that may affect the valuation.

b. Direct equity investments

The fair value of the investment is based on the latest set of financial statements available, re-using, if applicable, the same model as the one used at the acquisition of the participation.

Unrealised gains or losses on venture capital funds and direct equity investments are reported in contributors’ resources until such investments are sold, collected or disposed of, or until such investments are determined to be impaired. If an available-for-sale investment is determined to be impaired, the cumulative unrealised gain or loss previously recognised in equity is included in the statement of comprehensive income.

For unquoted investment, the fair value is determined by applying recognised valuation techniques (for example discounted cash flows or multiple). These investments are accounted for at cost when the fair value cannot be reliably measured. To be noted that in the first 2 years of the investments, they are recognised at cost.

The participations acquired by the Facility typically represent investments in private equity or venture capital funds. According to industry practice, such investments are generally investments jointly subscribed by a number of investors, none of whom is in a position to individually influence the daily operations and the investment activity of such fund. As a consequence, any membership by an investor in a governing body of such fund does not in principle entitle such investor to influence the day-to-day operations of the fund. In addition, individual investors in a private equity or a venture capital fund do not determine policies of a fund such as distribution policies on dividends or other distributions. Such decisions are typically taken by the management of a fund on the basis of the shareholders agreement governing the rights and obligations of the management and all shareholders of the fund. The shareholders’ agreement also generally prevents individual investors from bilaterally executing material transactions with the fund, interchanging managerial personnel or obtaining privileged access to essential technical information. The Facility’s investments are executed in line with the above stated industry practice, ensuring that the Facility neither controls nor exercises any form of significant influence within the meaning of IAS 27 and IAS 28 over any of these investments, including those investments in which the Facility holds over 20 % of the voting rights.

§ Guarantees

At initial recognition, the financial guarantees are recognised at fair value corresponding to the Net Present Value (NPV) of expected premium inflows. This calculation is performed at the starting date of each transaction and is recognised on balance sheet as “Financial guarantees” under “other assets” and “other liabilities”.

Subsequent to initial recognition, the Facility’s liabilities under such guarantees are measured at the higher of:

- the best estimate of expenditure required to settle any financial obligation arising as a result of the guarantee, which is estimated based on all relevant factors and information existing at the date of the statement of financial position.

- the amount initially recognised less cumulative amortisation. The amortisation of the amount initially recognised is done using the actuarial method.

Any increase or decrease in the liability relating to financial guarantees is taken to the statement of comprehensive income under “fee and commission income”.

The Facility’s assets under such guarantee are subsequently amortized using the actuarial method and tested for impairment.

In addition, when a guarantee agreement is signed, it is presented as a contingent liability for the Facility and when the guarantee is engaged, as a commitment for the Facility.

2.4.4 Impairment of financial assets

The Facility assesses at each balance sheet date whether there is any objective evidence that a financial asset is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred “loss event”) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter into bankruptcy or other financial reorganisation and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

For the loans outstanding at the end of the financial year and carried at amortised cost, impairments are made when presenting objective evidence of risks of non recovery of all or part of their amounts according to the original contractual terms or the equivalent value. If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the assets carrying amount and the present value of estimated future cash flows. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the statement of comprehensive income. Interest income continues to be accrued on the reduced carrying amount based on the effective interest rate of the asset. Loans together with the associated allowance are written off when there is no realistic prospect of future recovery. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account.

The Facility conducts the credit risk assessments based on each individual operation and does not consider a collective impairment.

For the available-for-sale financial assets, the Facility assesses at each balance sheet date whether there is objective evidence that an investment is impaired. Objective evidence would include a significant or prolonged decline in the fair value of the investment below its costs. Where there is evidence of impairment, the cumulative loss (measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognised in the statement of comprehensive income) is removed from contributors’ resources and recognised in the statement of comprehensive income. Impairment losses on available-for-sale financial assets are not reversed through the statement of comprehensive income; increases in their fair value after impairment are recognised directly in contributors’ resources.

The European Investment Bank’s Risk Management reviews financial assets for impairment at least once a year. Resulting adjustments include the unwinding of the discount in the statement of comprehensive income over the life of the asset, and any adjustments required in respect of a reassessment of the initial impairment.

2.4.5 Derivative financial instruments

Derivatives include cross currency swaps, cross currency interest rate swaps and currency forwards.

In the normal course of its activity, the Facility may enter into swap contracts with a view to hedge specific lending operations or into currency forward contract with a view to hedge its currency positions, denominated in actively traded currencies other than the Euro, in order to offset any gain or loss caused by foreign exchange rate fluctuations.

The Facility does not use any of the hedge possibilities under IAS 39. All derivatives are measured at fair value through the profit or loss and are reported as derivative financial instruments. Fair values are derived primarily from discounted cash-flow models, option-pricing models and from third party quotes.

Derivatives are recorded at fair value and carried as assets when their fair value is positive and as liabilities when their fair value is negative. Changes in the fair value of derivative financial instruments are included in “Net result on financial operations”.

Derivatives are initially recognised using the trade date basis.

2.4.6 Contributions

Contributions from Member States are recognised as receivables in the statement of financial position on the date of the Council Decision fixing the financial contribution to be paid by the Member States to the Facility.

The Member States contributions meet the following conditions and are consequently classified as equity:

- as defined in the contribution agreement, they entitle the Member States to decide on the utilisation of the Facility’s net assets in the events of the Facility’s liquidation;

- they are in the class of instruments that is subordinate to all other classes of instruments;

- all financial instruments in the class of instruments that is subordinate to all other classes of instruments have identical features;

- the instrument does not include any features that would require classification as a liability; and

- the total expected cash flows attributable to the instrument over its life are based substantially on the profit or loss, the change in the recognised net assets or the change in the fair value of the recognised and unrecognised net assets of the Facility over the life of the instrument.

2.4.7 Interest income on loans

Interest on loans originated by the Facility is recorded in the statement of comprehensive income (‘Interest and similar income’) and on the statement of financial position (‘Loans and receivables’) on an accrual basis using the effective interest rate, which is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the loan to the net carrying amount of the loan. Once the recorded value of a loan has been reduced due to impairment, interest income continues to be recognised using the original effective interest rate applied to the new carrying amount.

2.4.8 Interest subsidies and technical assistance

As part of its activity, the Facility manages interest subsidies and technical assistance on behalf of the Member States.

The part of the Member States contributions allocated to the payment of interest subsidies is not accounted for in the Facility’s contributors’ resources but is classified as amounts owed to third parties. The Facility operates the disbursement to the final beneficiaries and then decreases the amounts owed to third parties.

When amounts contributed with regard to interest subsidies and technical assistance are not fully granted, they are reclassified as contribution to the Facility.

2.4.9 Interest income on cash and cash equivalents

Interest income on cash and cash equivalents is recognised in the statement of comprehensive income of the Facility on an accrual basis.

2.4.10 Fees, commissions and dividends

Fees received in respect of services provided over a period of time are recognised as income as the services are provided. Commitment fees are deferred and recognised in income using the effective interest method over the period from disbursement to repayment of the related loan.

Dividends relating to available-for-sale financial assets are recognised when received.

2.4.11 Taxation

The Protocol on the Privileges and Immunities of the European Communities, appended to the treaty on the European Union and the treaty of the functioning of the European Union, stipulates that the assets, revenues and other property of the Institutions of the Union are exempt from all direct taxes.

3 Risk Management

This note presents information about the Facility’s exposure to and its management and control of credit and financial risks, in particular the primary risks associated with its use of financial instruments. These are:

- credit risk – the risk of loss resulting from client or counterparty default and arising on credit exposure in all forms, including settlement risk;

- liquidity risk – the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset;

- market risk – exposure to observable market variables such as interest rates, foreign exchange rates and equity market prices.

3.1 Risk management organisation

The European Investment Bank adapts its risk management on an ongoing basis.

The Risk Management of EIB independently identifies, assesses, monitors and reports the credit and equity price risks to which the Facility is exposed. Within a framework whereby the segregation of duties is preserved, the Risk Management is independent of the Front Offices. The Director General of Risk Management reports for risk matters, to the designated Vice-President of the European Investment Bank. The designated Vice-President meets regularly with the Audit Committee to discuss topics relating to risks. He is also responsible for overseeing risk reporting to the European Investment Bank’s Management Committee and the Board of Directors.

3.2 Credit risk

Credit risk is the potential loss that could result from client or counterparty default and arising on credit exposure in all forms, including settlement.

3.2.1. Credit risk policy

In carrying out the credit analysis on loan counterparts, EIB assesses credit risk with a view to quantify and pricing it. The Facility has developed an Internal Rating Methodology (IRM) for corporates or financial institutions to determine the Internal Ratings of its main borrower/guarantor beneficiary counterparts. The methodology is based on a system of scoring sheets tailored for each major credit counterpart type (e.g. Corporates, Banks, Public Sector Entities, etc). Taking into consideration both, best banking practice and the principles set under the Basel International Capital Accord (Basel II), all counterparts that are material to the credit profile of a specific transaction are classified into internal rating categories using the IRM for the specific counterpart type. Each counterpart is initially assigned to an Internal Rating reflecting the counterpart’s long-term foreign currency rating (or local currency equivalent when required) following an in-depth analysis of the counterpart’s risk profile and its country risk operating context.

The credit assessment of project finance and other structured limited recourse operations is not subject to IRM and is using credit risk tools relevant for the sector, focused mainly on cash flow availability and debt service capacity. These tools include the analysis of projects’ contractual framework, counterpart’s analysis and cash flow simulations. Similarly to corporates and financial institutions, each project is assigned to an internal risk rating and an expected loss.

All non-sovereign (or non sovereign guaranteed/assimilated) operations are subject to specific transaction-level and counterpart size limits. The maximum nominal amount of each transaction is capped by a limit which depends on the transaction expected loss. Counterpart limits are applied to consolidated exposures. Such limits typically reflect the size of counterparts own funds as well as their total external long-term funding.

In order to mitigate credit risk the Facility uses various credit enhancements which are:

- project related securities (e.g., pledge over the shares; pledge over the assets; assignment of rights; pledge over the accounts); or/and

- guarantees, generally provided by the sponsor of the financed project (e.g., completion guarantees, first demand guarantees).

In addition, the Facility uses seldom credit enhancements which are not immediately correlated to the project risk, like collaterals or bank guarantees.

The Facility does not use any credit derivatives to mitigate credit risk.

3.2.2. Maximum exposure to credit risk without taking into account any collateral and other credit enhancements

The following table shows the maximum exposure to credit risk for the components of the statement of financial position, including derivatives. The maximum exposure is shown gross, before the effect of mitigation through the use of collateral.

Maximum exposure (in EUR’000) || 31.12.2012 || 31.12.2011

ASSETS || ||

Cash and cash equivalents || 466 568 || 452 279

Derivative financial instruments || 115 || 434

Loans and receivables || 1 146 280 || 1 033 160

Amounts receivable from contributors || 87 310 || 87 310

Held-to-maturity financial assets || 99 029 || -

Other assets || 224 || 416

Total Assets || 1 799 526 || 1 573 599

|| ||

OFF BALANCE SHEET || ||

Contingent liabilities || ||

- Guarantees undrawn || 20 000 || 20 000

Commitments || ||

- Undisbursed loans || 749 044 || 701 092

- Guarantees drawn || 6 224 || 7 909

Total Off balance sheet || 775 268 || 729 001

|| ||

Total credit exposure || 2 574 794 || 2 302 600

3.2.3. Credit risk on loans and receivables

3.2.3.1 Credit risk measurement for loans and receivables

Each and every lending transaction undertaken by the Facility benefits from a comprehensive risk assessment and quantification of expected loss estimates that are reflected in a Loan Grading (“LG”). LGs are established according to generally accepted criteria, based on the quality of the borrower, the maturity of the loan, the guarantee and, where appropriate, the guarantor.

The loan grading (LG) system comprises the methodologies, processes, databases and IT systems supporting the assessment of credit risk in lending operations and the quantification of expected loss estimates. It summarises a large amount of information with the purpose of offering a relative ranking of loans’ credit risks. LGs reflect the present value of the estimated level of the “expected loss”, this being the product of the probability of default of the main obligors, the exposure at risk and the loss severity in the case of default. LGs are used for the following purposes:

- as an aid to a finer and more quantitative assessment of lending risks;

- as help in distributing monitoring efforts;

- as a description of the loan’s portfolio quality at any given date;

- as one input in risk-pricing decisions based on the expected loss.

The following factors enter into the determination of an LG:

i) The borrower’s creditworthiness: RM independently reviews borrowers and assesses their creditworthiness based on internal methodologies and external data. In line with the Basel II Advanced Approach chosen, the Bank has developed an internal rating methodology (IRM) to determine the internal ratings of borrowers and guarantors. This is based on a set of scoring sheets specific to defined counterparty types.

ii) The default correlation: it quantifies the chances of simultaneous financial difficulties arising for both the borrower and the guarantor. The higher the correlation between the borrower and the guarantor’s default probabilities, the lower the value of the guarantee and therefore the lower the LG.

iii) The value of guarantee instruments and of securities: this value is assessed on the basis of the combination of the issuer’s creditworthiness and the type of instrument used.

iv) The contractual framework: a sound contractual framework will add to the loan’s quality and enhance its internal grading.

v) The loan’s duration: all else being equal, the longer the loan, the higher the risk of incurring difficulties in the servicing of the loan.

A loan’s expected loss is computed by combining the five elements discussed above. Depending on the level of this loss, a loan is assigned to one of the following LG classes listed below:

A     Prime quality loans: there are three sub-categories. A comprises all EU sovereign risks, i.e. loans granted to or fully, explicitly and unconditionally guaranteed by Member States, where no repayment difficulties are expected and for which an unexpected loss of 0% is allocated. A+ denotes loans granted to (or guaranteed by) entities other than Member States, with no expectation of deterioration over their duration. A- includes those lending operations where there is some doubt about the maintenance of their current status (for instance because of a long maturity, or for the high volatility of the future price of an otherwise excellent collateral), but where any downside is expected to be quite limited.

B      High quality loans: these represent an asset class with which the bank feels comfortable, although a minor deterioration is not ruled out in the future. B+ and B- are used to denote the relative likelihood of the possibility of such deterioration occurring.

C      Good quality loans: an example could be unsecured loans to solid banks and corporates with a 7-year bullet, or equivalent amortising, maturity at disbursement.

D      This rating class represents the borderline between “acceptable quality” loans and those that have experienced some difficulties. This watershed in loan grading is more precisely determined by the sub-classifications D+ and D-. Loans rated D- require heightened monitoring.

E      This LG category includes loans with a risk profile greater than generally accepted. It also includes loans which in the course of their lives have experienced severe problems and their sliding into a situation of loss cannot be excluded. For this reason, the loans are subject to close and high monitoring. The sub-classes E+ and E- differentiate the intensity of this special monitoring process, with those operations graded E- being in a position where there is a strong possibility that debt service cannot be maintained on a timely basis and therefore some form of debt restructuring is required, possibly leading to an impairment loss.

F      F (fail) denotes loans representing unacceptable risks. F- graded loans can only arise out of outstanding transactions that have experienced, after signature, unforeseen, exceptional and dramatic adverse circumstances. All operations where there is a loss of principal to the Facility are graded F and a specific provision is applied.

Generally, loans internally graded D- or below are placed on the Watch List. However, if a loan was originally approved with a risk profile of D- or weaker, it will only be placed on the Watch List as a result of a material credit event causing a further deterioration of its LG classification.

The table in section 3.2.3.3 shows the credit quality analysis of the Facility’s loan portfolio based on the various LG classes as described above.

3.2.3.2 Analysis of lending credit risk exposure

The following table shows the maximum exposure to credit risk on loans signed and disbursed by nature of borrower taking into account guarantees provided by guarantors:

At 31.12.2012 In EUR’000 || Guaranteed || Other credit enhancements || Not guaranteed || Total

Banks || 12 630 || 136 695 || 207 582 || 356 907

Corporates || 20 077 || 78 171 || 478 358 || 576 606

Public institutions || 30 462 || - || 18 || 30 480

States || - || 5 819 || 176 468 || 182 287

Total disbursed || 63 169 || 220 686 || 862 425 || 1 146 280

Signed not disbursed || 14 091 || 142 963 || 591 990 || 749 044

At 31.12.2011 In EUR’000 || Guaranteed || Other credit enhancements || Not guaranteed || Total

Banks || 13 026 || 97 994 || 197 245 || 308 265

Corporates || 15 699 || 55 601 || 475 012 || 546 312

Public institutions || 37 670 || - || - || 37 670

States || - || 6 214 || 134 699 || 140 913

Total disbursed || 66 395 || 159 809 || 806 956 || 1 033 160

Signed not disbursed || 10 434 || 173 484 || 517 174 || 701 092

The Facility’s loans events affecting its borrowers and guarantors are continually monitored by Ops B, the EIB’s operational directorate for operations outside the EU. In particular, contractual rights are assessed on a case by case basis in case of a rating deterioration and/or contractual default. Mitigation measures are pursued, whenever necessary in accordance with the credit risk guidelines. Also, in case of renewals of bank guarantees received for its loans, it is ensured that these are replaced or action is taken in a timely manner.

As an immediate response to the developments in the financial markets that have taken place since September 2008, the Facility has acted to reinforce its arrangements for the monitoring and management of risks. To this end, in April 2011, Ops B has created an autonomous monitoring division reporting directly to the Director General, tasked with the responsibility of performing loan financial and contractual monitoring. Its purpose is to promote the exchange of information among departments and to suggest reporting and operational management procedures for use at times of financial crisis with the objective of rapid reaction if required.

3.2.3.3 Credit quality analysis per type of borrower

The tables below show the credit quality analysis of the Facility’s loan portfolio as at 31 December 2012 and 31 December 2011 by the Loan Grading applications, based on the exposure signed (disbursed and undisbursed).

At 31.12.2012 In EUR’000 || ||  High Grade ||  Standard Grade ||  Min. Accept. Risk ||  High Risk ||  No grading ||  Total

|| || A to B- || C || D+ || D- and below || ||

Borrower || Banks || 50 000 || 24 342 || 21 864 || 529 325 || 337 014 || 962 545

Corporates || 7 466 || 8 006 || - || 605 672 || - || 621 144

Public institutions || - || - || - || 70 480 || - || 70 480

States || - || - || - || 241 155 || - || 241 155

Total || || 57 466 || 32 348 || 21 864 || 1 446 632 || 337 014 || 1 895 324

At 31.12.2011 In EUR’000 || ||  High Grade ||  Standard Grade ||  Min. Accept. Risk ||  High Risk ||  No grading ||  Total

|| || A to B- || C || D+ ||  D- and below || ||

Borrower || Banks || 50 002 || 9 674 || 39 966 || 356 629 || 351 476 || 807 747

Corporates || 3 917 || 5 279 || - || 635 825 || - || 645 021

Public institutions || - || - || - || 38 761 || - || 38 761

States || - || - || - || 242 723 || - || 242 723

Total || || 53 919 || 14 953 || 39 966 || 1 273 938 || 351 476 || 1 734 252

3.2.3.4 Risk concentrations of loans and receivables

3.2.3.4.1 Geographical analysis

Based on the country of borrower, the Facility’s loan portfolio can be analysed by the following geographical regions (in EUR‘000):

Country of borrower || 31.12.2012 || 31.12.2011

Regional – ACP || 84 051 || 99 543

Uganda || 140 833 || 117 035

Regional – West Africa || 33 856 || 14 161

Mozambique || 137 745 || 126 666

Mauritania || 65 670 || 43 427

Ethiopia || 81 666 || 84 266

Dominican Republic || 67 991 || 66 118

Kenya || 131 566 || 65 611

Cameroon || 72 525 || 60 706

Zambia || 18 772 || 43 294

Congo (Democratic Republic) || 28 415 || 8 980

Nigeria || 14 383 || 28 691

Regional – Pacific || 17 767 || 20 603

Regional – Central Africa || 10 431 || 12 109

Jamaica || 71 027 || 59 317

Madagascar || - || 1 253

Mauritius || 11 302 || 12 732

Ghana || 5 642 || 7 812

Angola || 10 009 || 13 598

Trinidad and Tobago || 1 483 || 1 002

Burkina Faso || 10 727 || 12 588

Malawi || 4 950 || 5 833

New Caledonia || 4 198 || 4 673

Rwanda || 9 641 || 11 197

Niger || 4 146 || 3 950

French Polynesia || 2 631 || 3 131

Botswana || - || -

Senegal || 5 837 || 10 329

Lesotho || 3 827 || 3 902

Vanuatu || 3 639 || 3 917

Belize || 13 || 103

Grenada || 2 477 || 2 698

Gabon || 1 011 || 1 509

Togo || 52 644 || 53 224

Cape Verde || 27 073 || 28 405

Djibouti || 762 || 777

Haiti || 4 654 || -

Saint Lucia || 2 916 || -

Total || 1 146 280 || 1 033 160

3.2.3.4.2 Industry sector analysis

The table below analyses the Facility’s loan portfolio by industry sector of the borrower. Operations which are first disbursed to a financial intermediary before being disbursed to the final beneficiary are reported under global loans (in EUR’000):

Industry sector of borrower || 31.12.2012 || 31.12.2011

Global loans and agency agreements || 252 662 || 218 912

Airlines and aircraft manufacture || 13 || 103

Airports and air traffic management systems || 30 480 || 31 052

Basic material and mining || 168 911 || 135 573

Chemicals, plastics and pharmaceuticals || - || 20 400

Drinking water, water treatment || 38 697 || 33 247

Electricity, coal and others || 409 090 || 358 745

Food chain || - || 1 244

Investment goods/consumer durables || 3 827 || 3 902

Marine transport and other || 5 819 || 6 214

Materials processing, construction || 24 154 || 29 025

Paper chain || 4 747 || 4 840

Roads and motorways || 73 921 || 62 856

Telecommunications || 18 427 || 24 963

Tertiary and other || 115 532 || 102 084

Total || 1 146 280 || 1 033 160

3.2.3.5 Arrears on loans

Amounts in arrears are identified, monitored and reported according to a set of procedures called “Guidelines for the Monitoring of late payments”.

The monitoring and reporting of amounts in arrears is generally managed by the Late Payment Unit (“LPU”) of EIB’s Transaction Management and Restructuring Directorate. LPU prepares a monthly report on unpaid loan instalments of the Facility, including a table comparing arrears of more than eight days from month to month. The monthly report gives a detailed indication of the steps already taken or to be taken by country, loan and instalment.

In addition, a monthly report on loans overdue by more than 90 days is prepared and sent to the European Commission. Twice a year the EIB management committee receives a summary table on arrears for loans overdue by more than 30 days and 90 days as well as a report including comparative information on the annual and semi-annual evolution of arrears.

The arrears of payments on concerned loans can be analysed as follows (in EUR’000):

|| Notes || Loans and receivables 31.12.2012 || Loans and receivables 31.12.2011

Carrying amount || || 1 146 280 || 1 033 160

|| || ||

Individually impaired || || ||

Gross amount || || 110 767 || 112 662

Allowance for impairment || 7 || -45 144 || -48 816

Carrying amount individually impaired || || 65 623 || 63 846

|| || ||

Collectively impaired || || ||

Gross amount || || - || -

Allowance for impairment || || - || -

Carrying amount collectively impaired || || - || -

|| || ||

Past due but not impaired || || ||

|| || ||

Past due comprises || || ||

30-60 days || || 12 ||  8

60-90 days || || - ||  472

90-180 days || || - ||  13

more 180 days || || - ||  33

Carrying amount past due but not impaired || || 12 ||  526

|| || ||

Carrying amount neither past due nor impaired || || 1 080 645 || 968 788

|| || ||

Total carrying amount loans and receivables || || 1 146 280 || 1 033 160

|| || || ||

3.2.4. Credit risk on cash and cash equivalents

Available funds are invested in accordance with the Facility’s schedule of contractual disbursement obligations. As of 31.12.2012, investments were only in the form of bank deposits and other short-term financial instruments. Investments in medium and long-term bonds could also be eligible, according to the investment guidelines and depending on liquidity requirements.

The minimum short term rating required for authorised banks or issuers is P-1/A-1/F1 (Moody’s, S&P, Fitch). In case of different ratings being granted by more than one credit rating agency, the lowest rating governs. The maximum authorized limit for each authorised bank or issuer is currently EUR 50 000 000 (fifty million euro).

The deposits are executed with authorised entities with a maximum maturity of three months from trading date and up to the credit exposure limit.

As at 31 December 2012 and 31 December 2011 all bank deposits and short term commercial papers held by the Facility had a minimum rating of P-1 at settlement day according to Moody’s. The rating of P-2 as at 31 December 2011 is due to the downgrade of one counterparty on 21 December 2011.

The following table shows the situation of bank deposits including accrued interest (in EUR’000):

Minimum short-term rating (Moody’s term) ||      Minimum long-      term rating      (Moody’s term) || 31.12.2012 || 31.12.2011

P-1 ||      Aa1 || 43 400 || 10% || - || -

P-1 ||      Aa2 || - || - || 28 622 || 6%

P-1 ||      Aa3 || 130 901 || 29% || 105 547 || 24%

P-1 ||      A1 || 83 500 || 18% || 117 603 || 26%

P-1 ||      A2 || 198 179 || 43% || 179 938 || 40%

P-2 ||      A3 || - || - || 17 441 || 4%

Total ||      || 455 980 || 100% || 449 151 || 100%

3.2.5. Credit risk on derivatives

3.2.5.1 Credit risk policy of derivatives

The credit risk with respect to derivatives is represented by the loss which a given party would incur where the other counterparty to the deal would be unable to honour its contractual obligations. The credit risk associated with derivatives varies according to a number of factors (such as interest and exchange rates) and generally corresponds to only a small portion of their notional value.

In the normal course of its activity, the Facility may enter into swap contracts with a view to hedge specific lending operations or into currency forward contracts, with a view to hedge its currency positions denominated in actively traded currencies other than the Euro. All the swaps are executed by the European Investment Bank with an external counterpart. The swaps are disciplined by the same Master Swap Agreements and Credit Support Annexes signed between the European Investment Bank and its external counterparts.

3.2.5.2 Credit risk measurement for derivatives

All the swaps executed by the European Investment Bank that are related to the Facility are treated within the same contractual framework and methodologies applied for the derivatives negotiated by the European Investment Bank for its own purposes. In particular, eligibility of swap counterparts is determined by the European Investment Bank based on the same eligibility conditions applied for its general swap purposes.

The European Investment Bank measures the credit risk exposure related to swaps and derivatives transactions using the Net Market Exposure (NME) and Potential Future Exposure (PFE) approach for reporting and limit monitoring. The NME and the PFE fully include the derivatives related to the Investment Facility.

The following table shows the maturities of swap contracts (including cross currency swaps, cross currency interest rate swaps and excluding short-term currency swaps), sub-divided according to their notional amount and fair value:

Swap contracts at 31.12.2012 || less than || 1 year || 5 years || more than || Total 2012

In EUR’000 || 1 year || to 5 years || to 10 years || to 10 years ||

Notional amount || 1 480 || 9 833 || 15 253 || - || 26 566

Fair Value (i.e. net discounted value) || 71 || -528 || -3 529 || - || -3 986

Swap contracts at 31.12.2011 || less than || 1 year || 5 years || more than || Total 2011

In EUR’000 || 1 year || to 5 years || to 10 years || to 10 years ||

Notional amount || 7 042 || 43 593 || 16 899 || - || 67 534

Fair Value (i.e. net discounted value) || -674 || -1 331 || -3 869 || - || -5 874

The Facility enters into short-term currency swap contracts in order to hedge currency risk on loan disbursements in currencies different from EUR. Short-term currency swaps have a maturity of maximum three months and are regularly rolled-over. The notional amount of short-term currency swaps stood at EUR 652 million at 31 December 2012 against EUR 585 million at 31 December 2011. The fair value of short-term currency swaps amounts EUR -2.9 million at 31 December 2012 against EUR -6.4 million at 31 December 2011.

The Facility enters into interest rate swap contracts in order to hedge the interest rate risk on loans disbursed. As at 31 December 2012 there is one interest rate swap outstanding with a notional amount of EUR 19.6 million (2011: nil) and a fair value of EUR 0.03 million (2011: nil).

3.2.6. Credit risk on held-to-maturity financial assets

The following table shows the situation of the held-to-maturity portfolio entirely composed of bond positions with remaining maturities of less than three months.

Minimum short-term rating (Moody’s term) ||      Minimum long-      term rating      (Moody’s term) || 31.12.2012 || 31.12.2011

P-2 ||      Baa2 || 50 143 || 51% || - || -

P-3 ||      Baa3 || 48 886 || 49% || - || -

Total ||      || 99 029 || 100% || - || -

3.3 Liquidity risk

3.3.1 Liquidity risk management

Liquidity risk represents the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset.

The IF is primarily funded by annual contributions from Member States (9th and 10th EDF resources) and secondly by reflows stemming from IF operations. Each year, the EC, taking into account EIB’s forecasts concerning the management and operations of the IF, shall establish and communicate to the Council by 15 October a statement of the commitments, payments and the annual amount of the calls for contributions (interest subsidies included) to be made in the current and the following budget years.

In order to calculate Member States annual contributions, disbursement pattern of the existing and pipelined portfolio is analysed and followed up throughout the year. Special events, such as early reimbursements, sales of shares or default cases are taken into account to correct annual liquidity requirements. To further minimize the liquidity risk, the Facility maintains a liquidity reserve sufficient to cover at any point in time forecasted disbursements, as communicated periodically by OPS B.

The treasury assets of the accounts opened in the name of the IF are managed by the Bank’s Treasury Department in accordance with the principle of segregation of duties between the Front and Back Office. Settlement operations related to the investment of these assets are under the responsibility of the Planning and Settlement of Operations Department.

Further, according to the principle of segregation of duties, the authorisation of counterparts and limits for treasury investments, as well as the monitoring of such limits, are the responsibility of the Bank’s Risk Management Directorate.

3.3.2 Liquidity risk measurement

The tables in this section analyse the financial liabilities of the Facility by maturity on the basis of the period remaining between the balance sheet date and the contractual maturity date (based on undiscounted cash flows).

The Facility holds commitments in the form of undisbursed portions of the credit under signed loan agreements, of undisbursed portions of signed capital subscription/investment agreements, of loan guarantees granted, or of committed interest rate subsidies and technical assistance (“TA”). The disbursement time pattern is subject to a significant degree of uncertainty. Loans under the IF have a disbursement deadline. However disbursements are made at times and in amounts reflecting the progress of underlying investment projects and funding transactions in a relatively volatile operating environment. Capital investments become due when and as soon as equity fund managers issue valid calls for capital, reflecting the progress in their investment activities. The drawdown period is usually of 3 years, with frequent prolongation by one or two years. Some disbursement commitments usually survive the end of the drawdown period until full disposal of the fund’s underlying investments, as the fund’s liquidity may be insufficient from time to time to meet payment obligations arising in respect of fees or other expenses. Loan guarantees are not subject to specific disbursement commitments unless a guarantee is called by its beneficiary. The amount of guarantee outstanding is reduced alongside the repayment schedule of each guaranteed loan.

On this background, the breakdown of maturities shown below has been estimated, considering the contractual disbursement period in each case, using forecasts established in line with standard methods for the liquidity planning of the Facility. As far as disbursement commitments under technical assistance contracts are concerned, these are usually of a short term nature (below one year). “Maturity undefined” was chosen in the following cases: commitments from drawn and undrawn guarantees; committed but un-disbursed loans for which the contractual disbursement period has expired and extension is awaited; interest rate subsidies for which funds had been called from Member States to cover future requirements on a lump basis.

The liquidity profile of derivative financial liabilities represents the contractual undiscounted cash flows of swap contracts including cross currency swaps (CCS), cross currency interest rate swaps (CCIRS), short term currency swaps and interest rate swaps.

Maturity profile of non-derivative financial liabilities ||  3 months or less || More than 3 months to 1 year || More than 1 year to 5 years || More than 5 years || Maturity Undefined || Gross nominal outflow

In EUR’000 as at 31.12.2012

Others (issued guarantees, drawn guarantees) || - || - || - || - || 26 224 || 26 224

Outflows for committed but un-disbursed loans || 16 500 || 287 657 || 243 020 || - || 201 867 || 749 044

Outflows for committed investment funds and share subscription || - || 26 806 || 54 958 || 7 319 || 127 987 || 217 070

Outflows for committed interest subsidies || 255 || 101 495 || 79 206 || - || 23 599 || 204 555

Outflows for committed TA || 2 000 || 8 511 || 13 109 || - || - || 23 620

Total || 18 755 || 424 469 || 390 293 || 7 319 || 379 677 || 1 220 513

Maturity profile of non-derivative financial liabilities ||  3 months or less || More than 3 months to 1 year || More than 1 year to 5 years || More than 5 years || Maturity Undefined || Gross nominal outflow

In EUR’000 as at 31.12.2011

Others (issued guarantees, drawn guarantees) || - || - || - || - || 27 909 || 27 909

Outflows for committed but un-disbursed loans || 2 295 || 257 127 || 274 573 || 54 000 || 113 097 || 701 092

Outflows for committed investment funds and share subscription || 2 035 || 38 424 || 38 010 || 7 666 || 178 432 || 264 567

Outflows for committed interest subsidies || 1 445 || 31 100 || 139 211 || - || 16 211 || 187 967

Outflows for committed TA || 4 564 || 16 693 || - || - || - || 21 257

Total || 10 339 || 343 344 || 451 794 || 61 666 || 335 649 || 1 202 792

Maturity profile of derivative financial liabilities In EUR’000 as at 31.12.2012 ||  3 months or less || More than 3 months to 1 year || More than 1 year to 5 years || More than 5 years || Gross nominal inflow/outflow

CCS and CCIRS – Inflows || 1 238 || 7 364 || 14 498 || 5 350 || 28 450

CCS and CCIRS – Outflows || -1 286 || -8 428 || -17 218 || -5 894 || -32 826

Short term currency swaps – Inflows || 649 000 || - || - || - || 649 000

Short term currency swaps – Outflows || -652 451 || - || - || - || -652 451

Interest Rate Swaps – Inflows || 65 || 511 || 3 274 || 2 117 || 5 967

Interest Rate Swaps - Outflows || - || -753 || -3 537 || -1 577 || -5 867

Total || -3 434 || -1 306 || -2 983 || -4 || -7 727

|| || || || ||

Maturity profile of derivative financial liabilities In EUR’000 as at 31.12.2011 ||  3 months or less || More than 3 months to 1 year || More than 1 year to 5 years || More than 5 years || Gross nominal inflow/outflow

CCS and CCIRS – Inflows || 9 873 || 14 365 || 19 533 || 7 430 || 51 201

CCS and CCIRS – Outflows || -10 091 || -17 527 || -24 420 || -9 015 || -61 053

Short term currency swaps – Inflows || 585 000 || - || - || - || 585 000

Short term currency swaps – Outflows || -591 909 || - || - || - || -591 909

Total || -7 127 || -3 162 || -4 887 || -1 585 || -16 761

3.4 Market risk

Market risk represents the risk that changes in market prices, such as interest rates, equity prices, foreign exchange rates and credit spreads (not relating to changes in the issuer’s credit standing) will affect an entity’s income or the value of its holdings in financial instruments.

3.4.1. Interest rate risk

Interest rate risk is the volatility in the economic value of, or in the income derived from, the Facility’s positions due to adverse movements in market yields or the term structure of interest rates. Exposure to interest rate risk occurs when there are differences in repricing and maturity characteristics of the different assets and liabilities.

The Facility measures the sensitivity of its loan portfolio and related micro hedging swaps to interest rate risk via a Basis Point Value (BPV) calculation.

The BPV measures the gain or loss in the net present value of the relevant portfolio, due to a 1 basis point (0.01%) increase in interest rates tenors ranging within a specified time bucket “money market – up to one year”, “very short – 2 to 3 years”, “short – 4 to 6 years”, “long – 12 to 20 years” or “extra long – more than 21 years”.

To obtain the net present value of the loans, the Facility uses the EUR funding curve (EUR swap curve + EIB funding spread) for cash flows denominated in EUR and foreign currencies other than USD and the USD funding curve for cash flows denominated in USD. To obtain the net present value of the micro hedging swaps, the facility uses the EUR swap curve for cash flows denominated in EUR and the USD swap curve for cash flows denominated in USD.

As shown in the following table the net present value of the loan portfolio including related micro-hedging swaps as at 31.12.2012 would decrease by EUR 341k (as at 31.12.2011: decrease by EUR 239k) if interest rates rise simultaneously by 1 basis point.

Basis point value In EUR’000 || Money Market || Very Short || Short || Medium || Long || Extra Long || Total

As at 31.12.2012 || 1 year || 2 to 3 years || 4 to 6 years || 7 to 11 years || 12 to-20 years || 21 years ||

Total sensitivity of loans and micro hedging swaps || -25 || -47 || -90 || -117 || -62 || - || -341

Basis point value In EUR’000 || Money Market || Very Short || Short || Medium || Long || Extra Long || Total

As at 31.12.2011 || 1 year || 2 to 3 years || 4 to 6 years || 7 to 11 years || 12 to-20 years || 21 years ||

Total sensitivity of loans and micro hedging swaps || -20 || -28 || -60 || -78 || -53 || - || -239

3.4.2. Foreign exchange risk

Foreign exchange (“FX”) risk is the volatility in the economic value of, or in the income derived from, the Facility’s positions due to adverse movements of foreign exchange rates.

The Facility is exposed to foreign exchange risk whenever there is a currency mismatch between its assets and liabilities. Foreign exchange risk also comprises the effect of unexpected and unfavourable changes in the value of future cash flows caused by currency movements.

3.4.2.1 Foreign exchange risk and treasury assets

The IF’s treasury assets are denominated either in EUR or USD.

FX risk is hedged by means of FX spot or forward transactions, FX swaps or cross-currency swaps. The EIB’s Treasury Department can, where deemed necessary and appropriate, use any other instrument, in line with the Bank’s policy, that provide protection against market risks incurred in connection with the IF’s financial activities.

3.4.2.2 Foreign exchange risk and operations financed or guaranteed by the IF

Member States’ IF contributions are received in EUR. The operations financed or guaranteed by the IF as well as Interest Rate Subsidies can be denominated in EUR, USD or any other authorized currency.

A foreign exchange risk exposure (against the EUR reference currency) arises whenever transactions denominated in currencies other than the EUR are left un-hedged. The IF’s foreign exchange risk hedging guidelines are set out below.

3.4.2.2.1. Hedging of operations denominated in currencies other than EUR or USD

- IF loans disbursed in currencies other than EUR and USD shall be hedged through cross-currency swap contracts with the same financial profile as the underlying Loan, provided that a swap market is operational.

- For disbursements under IF Operations made in a currency other than EUR and USD, and for which a long-term hedging operation is not undertaken, the Treasury Department shall enter into a foreign exchange transaction two business days prior to the disbursement. The conversion rate applied to IF Operations shall correspond to the market exchange rate obtained by the Treasury Department. Similarly, for repayments received in a currency other than EUR and USD, the Treasury Department shall undertake an FX operation where necessary to convert the currencies received.

- Uncalled guarantees are not subject to any FX hedging. Guarantee calls in currencies other than EUR and USD will be hedged.

- Operations in currencies other than EUR and USD for which no FX hedging operation can be undertaken by the Treasury Department shall be left un-hedged. This also includes (synthetic) operations denominated in local currency but settled in EUR or USD. The IF shall remain exposed to the FX risk incurred thereby.

3.4.2.2.2. Hedging of operations denominated in USD

- The total outstanding amount of all IF Operations (except uncalled Guarantees) denominated in USD shall be hedged by means of USD/EUR FX swaps, rolled over on a periodic basis. At the beginning of each period, the cash flows to be received or paid in USD during the next period shall be estimated on the basis of planned or expected reflows/disbursements. Subsequently, the maturing FX swaps shall be rolled over, their amount being adjusted to cover at least the USD liquidity needs projected over the next period.

- A periodic calculation of the overall USD exposure as per the accounting records will be undertaken to adjust, if necessary, the hedge on the next FX swap roll.

- If deemed operationally convenient by the Treasury Department, cross-currency swaps can also be used to hedge specific USD Loans.

- Within a roll-over period, unexpected USD liquidity deficits shall be covered by means of ad hoc FX swap operations while liquidity surpluses shall either be invested in treasury assets or swapped into EUR.

- At all times, the total outstanding un-hedged amount from USD transactions (in nominal terms) shall never exceed USD 5 000 000 (five million US dollars). This limit shall be adjusted annually. In case of breach of this limit, the Treasury Department shall bring the exposure back within limits by means of an FX operation.

3.4.2.3 Foreign exchange position

The following tables show the Facility’s foreign exchange position (in EUR’000):

At 31 December 2012 || EUR || USD || KES || ACP/OCT Currencies || Total

|| || || || ||

ASSETS || || || || ||

Cash and cash equivalents || 424 647 || 41 921 || - || - || 466 568

Derivative financial instruments || 1 064 || -949 || - || - || 115

Loans and receivables || 513 231 || 508 412 || 60 348 || 64 289 || 1 146 280

Available-for-sale financial assets || 66 509 || 259 694 || - || 6 798 || 333 001

Amounts receivable from contributors || 87 310 || - || - || - || 87 310

Held-to-maturity financial assets || 99 029 || - || - || - || 99 029

Other assets || - || - || - || 224 || 224

Total assets || 1 191 790 || 809 078 || 60 348 || 71 311 || 2 132 527

|| || || || ||

LIABILITIES AND CONTRIBUTORS’ RESOURCES || || || || ||

Liabilities || || || || ||

Derivative financial instruments || -675 814 || 682 849 || - || - || 7 035

Deferred income || 37 560 || 248 || - || - || 37 808

Amounts owed to third parties || 312 040 || 46 || - || - || 312 086

Other liabilities || 905 || 19 || 14 || 215 || 1 153

Total liabilities || -325 309 || 683 162 || 14 || 215 || 358 082

Contributors’ resources || || || || ||

Member States Contribution called || 1 561 309 || - || - || - || 1 561 309

Fair value reserve || 5 366 || 59 144 || - || 3 924 || 68 434

Retained earnings || 144 702 || - || - || - || 144 702

Total Contributors’ resources || 1 711 377 || 59 144 || - || 3 924 || 1 774 445

Total liabilities and Contributors’ resources || 1 386 068 || 742 306 || 14 || 4 139 || 2 132 527

Currency position as at 31 December 2012 || -194 278 || 66 772 || 60 334 || 67 172 || -

|| || || || ||

As at 31 December 2012: || || || || ||

COMMITMENTS || || || || ||

Un-disbursed loans and available-for-sale financial assets || 794 475 || 171 639 || - || - || 966 114

Guarantees drawn || - || - || - || 6 224 || 6 224

Interest subsidies and TA || 204 555 || - || - || - || 204 555

|| || || || ||

CONTINGENT LIABILITIES || || || || ||

Guarantees undrawn || 20 000 || - || - || - || 20 000

At 31 December 2011 || EUR || USD || CAD || ACP/OCT Currencies || Total

|| || || || ||

ASSETS || || || || ||

Cash and cash equivalents || 416 384 || 35 895 || - || - || 452 279

Derivative financial instruments || 13 419 || -12 985 || - || - || 434

Loans and receivables || 477 340 || 501 923 || - || 53 897 || 1 033 160

Available-for-sale financial assets || 54 287 || 186 525 || 4 303 || 6 545 || 251 660

Amounts receivable from contributors || 87 310 || - || - || - || 87 310

Other assets || 50 || - || - || 366 || 416

Total assets || 1 048 790 || 711 358 || 4 303 || 60 808 || 1 825 259

|| || || || ||

LIABILITIES AND CONTRIBUTORS’ RESOURCES || || || || ||

Liabilities || || || || ||

Derivative financial instruments || -641 758 || 654 460 || - || - || 12 702

Deferred income || 32 689 || 314 || - || - || 33 003

Amounts owed to third parties || 329 598 || 62 || - || - || 329 660

Other liabilities || 691 || 19 || - || 403 || 1 113

Total liabilities || -278 780 || 654  855 || - || 403 || 376 478

Contributors’ resources || || || || ||

Member States Contribution called || 1 281 309 || - || - || - || 1 281 309

Fair value reserve || 41 750 || - || - || - || 41 750

Retained earnings || 125 722 || - || - || - || 125 722

Total Contributors’ resources || 1 448 781 || - || - || - || 1 448 781

Total liabilities and Contributors’ resources || 1 170 001 || 654 855 || - || 403 || 1 825 259

Currency position as at 31 December 2011 || -121 211 || 56 503 || 4 303 || 60 405 || -

|| || || || ||

As at 31 December 2011: || || || || ||

COMMITMENTS || || || || ||

Un-disbursed loans and available-for-sale financial assets || 761 319 || 204 340 || - || - || 965 659

Guarantees drawn || - || - || - || 7 909 || 7 909

Interest subsidies and TA || 209 223 || || - || - || 209 223

CONTINGENT LIABILITIES || || || || ||

Guarantees undrawn || 20 000 || - || - || - || 20 000

3.4.2.4 Foreign exchange sensitivity analysis (in EUR’000)

As at the reporting date the most significant net foreign currency exposure is the USD net exposure. As at 31 December 2012 a +/- 10 percent change in the USD conversion rate would result in a change of contributors’ resources amounting to EUR 6 682 respectively EUR -6 682 (31 December 2011: EUR 5 650 respectively EUR -5 650).

3.4.2.5 Conversion rates

The following conversion rates were used for establishing the balance sheet at 31 December 2012 and 31 December 2011:

|| 31 December 2012 || 31 December 2011

Non-EU currencies || ||

Dominican Republic Pesos (DOP) || 53.1220 || 49.8498

Fiji Dollars (FJD) || 2.3417 || 2.3630

Haitian Gourde (HTG) || 55.7265 || 52.1645

Kenya Shillings (KES) || 113.68 || 109.53

Mauritania Ouguiyas (MRO) || 393.99 || 372.52

Mauritius Rupees (MUR) || 40.19 || 37.43

Rwanda Francs (RWF) || 811.83 || 771.76

Uganda Shillings (UGX) || 3 549 || 3 205

United States Dollars (USD) || 1.3194 || 1.2939

Franc CFA Francs (XAF/XOF) || 655.957 || 655.957

South Africa Rand (ZAR) || 11.1727 || 10.4830

3.4.3. Equity price risk (in EUR’000)

Equity price risk is the risk that the fair values of equities decrease as the result of changes in the levels of equity indices and the value of individual equity investments.

The IF is exposed to equity price risk via its venture capital investments, i.e. investments in direct equity and venture capital funds.

Equity investments are subject to scoring. Each investment is assessed on several criteria ranging in three main categories: management, business plan and structure. Individual cores are then consolidated into a single overall score assigned to the investment and summarizing its global strength.

Equity risk exposures are also subject to limits, defined at both individual and cumulated levels. The size of such limits depends on the quality of the equity investments.

The value of privately held equity positions is not readily available for the purpose of monitoring and control on a continuous basis. For such positions, the best indications available include prices of any relevant valuation techniques.

The effects on the Facility’s contributors’ resources (as a result of a change in the fair value of the available-for-sale equity portfolio) due to a 10% decrease in equity indices and the value of individual equity investments, with all other variables held constant is EUR -33 300 as at 31 December 2012 and EUR -25 166 as at 31 December 2011.

4 Fair values of assets and liabilities

The table below sets out a comparison by category of the carrying amounts and fair values of the Facility’s assets and liabilities that are carried in the financial statements (in EUR’000):

|| Carrying value 31.12.2012 || Fair Value 31.12.2012 || Carrying value 31.12.2011 || Fair Value 31.12.2011

Assets carried at fair value || || || ||

Available-for-sale financial assets || 333 001 || 333 001 || 251 660 || 251 660

Derivative financial instruments || 115 || 115 || 434 || 434

Total || 333 116 || 333 116 || 252 094 || 252 094

|| || || ||

Assets carried at amortised cost || || || ||

Cash and cash equivalents || 466 568 || 466 568 || 452 279 || 452 279

Loans and receivables || 1 146 280 || 1 226 409 || 1 033 160 || 1 022 679

Amounts receivable from contributors || 87 310 || 87 310 || 87 310 || 87 310

Held-to-maturity financial assets || 99 029 || 98 805 || - || -

Other assets || 224 || 224 || 416 || 416

Total || 1 799 411 || 1 879 316 || 1 573 165 || 1 562 684

Total assets || 2 132 527 || 2 212 432 || 1 825 259 || 1 814 778

|| || || ||

Liabilities carried at fair value || || || ||

Derivative financial instruments || 7 035 || 7 035 || 12 702 || 12 702

Total || 7 053 || 7 053 || 12 702 || 12 702

|| || || ||

Liabilities carried at amortised cost || || || ||

Deferred income || 37 808 || 37 808 || 33 003 || 33 003

Amounts owed to third parties || 312 086 || 312 086 || 329 660 || 329 660

Other liabilities || 1 153 || 1 153 || 1 113 || 1 113

Total || 351 047 || 351 047 || 363 776 || 363 776

Total liabilities || 358 082 || 358 082 || 376 478 || 376 478

The following describes the methodologies and assumptions used to determine the fair value of the assets and the liabilities:

§ Assets for which fair value approximates carrying value

For assets and liabilities that are liquid or having a short term maturity less than three months, it is assumed that the carrying amounts approximate to their fair value.

§ Assets and liabilities recorded at their fair value

Published price quotations in an active market are the first source for determining the fair value of a financial instrument. Due to the investment scope of the Facility’s portfolio those are rarely available. For instruments without available market price, fair values are estimated using valuation techniques or models based whenever possible on observable market data prevailing at the balance sheet date.

The following table analyses financial assets designated at fair value by valuation method. The different levels have been defined as follows:

- Level 1:      quoted prices (unadjusted) in active markets;

- Level 2:      inputs other than quoted prices included within level 1 that are observable for the asset,                either directly (i.e. as                    prices) or indirectly (i.e. derived from prices);

- Level 3:      inputs for the asset that are not based on observable market data (unobservable inputs).

At 31 December 2012 In EUR’000 || Level 1 || Level 2 || Level 3 || Total

Financial assets || || || ||

Derivative financial instruments || - || 115 || - || 115

Available-for-sale financial assets || 11 001 || - || 322 000 || 333 001

Total || 11 001 || 115 || 322 000 || 333 116

|| || || ||

Financial liabilities || || || ||

Derivative financial instruments || - || 7 035 || - || 7 035

Total || - || 7 035 || - || 7 035

At 31 December 2011 In EUR’000 || Level 1 || Level 2 || Level 3 || Total

Financial assets || || || ||

Derivative financial instruments || - || 434 || - || 434

Available-for-sale financial assets || 15 214 || - || 236 446 || 251 660

Total || 15 214 || 434 || 236 446 || 252 094

|| || || ||

Financial liabilities || || || ||

Derivative financial instruments || - || 12 702 || - || 12 702

Total || - || 12 702 || - || 12 702

In 2012 the Facility did not make transfers from Level 1 to 2 or Level 2 to 1 of the fair value hierarchy.

The following tables present the changes in Level 3 instruments for the year ended 31 December 2012 and 31 December 2011:

In EUR'000 || Available-for-sale financial assets

Balance at 1 January 2012 || 236 446

Total gains or losses ||

- in profit or loss || 8 133

- in other comprehensive income || 15 041

Disbursements || 81 981

Repayments || -19 601

Balance at 31 December 2012 || 322 000

In EUR'000 || Available-for-sale financial assets

Balance at 1 January 2011 || 171 638

Total gains or losses ||

- in profit or loss || -3 206

- in other comprehensive income || 21 759

Disbursements || 67 829

Repayments || -21 574

Balance at 31 December 2011 || 236 446

5 Cash and cash equivalents (in EUR’000)

The cash and cash equivalents can be broken down between the funds received from the Member States and not yet disbursed and the funds from the Facility’s operational and financial activities.

|| 31.12.2012 || 31.12.2011

Member states contributions received and not yet disbursed || 117 622 || 195 205

Funds from the Facility’s financial and operational activities || 348 946 || 257 074

Total cash and cash equivalents || 466 568 || 452 279

6 Derivative financial instruments (in EUR’000)

The main components of derivative financial instruments, classified as held for trading, are as follows:

At 31 December 2012 || Fair Value || Notional amount

Assets || Liabilities

Cross currency swaps || 87 || -102 || 7 062

Cross currency interest rate swaps || - || -3 971 || 19 504

Interest rate swaps || 28 || - || 19 568

FX Forwards || - || -2 962 || 652 451

Total derivative financial instruments || 115 || -7 035 || 698 585

|| || ||

At 31 December 2011 || Fair Value || Notional amount

Assets || Liabilities

Cross currency swaps ||  434 || -953 || 29 376

Cross currency interest rate swaps || - || -5 355 || 38 158

FX Forwards || - || -6 394 || 585 000

Total derivative financial instruments || 434 || -12 702 || 652 534

7 Loans and receivables (in EUR’000)

The main components of loans and receivable are as follows:

|| Global loans  (*) || Senior loans || Subordinated loans || Total

Nominal as at 1 January 2012 || 225 365 || 716 350 || 128 679 || 1 070 394

Disbursement || 79 015 || 154 003 || - || 233 018

Write offs || -947 || -1 206 || - || -2 153

Repayments || -39 967 || -71 368 || -4 145 || -115 480

Interest capitalised || - || -117 || 9 739 || 9 622

Foreign exchange rates differences || -8 780 || -7 692 || -493 || -16 965

Nominal as at 31 December 2012 || 254 686 || 789 970 || 133 780 || 1 178 436

|| || || ||

Impairment as at 1 January 2012 || -7 609 || -16 372 || -24 835 || -48 816

Impairment recorded in statement of comprehensive income || -835 || -292 || - || -1 127

Impairment of write offs || 947 || 1 206 || - || 2 153

Reversal of impairment || 910 || 814 || - || 1 724

Foreign exchange rates differences || 93 || 348 || 480 || 921

Impairment as at 31 December 2012 || -6 494 || -14 296 || -24 355 || -45 145

|| || || ||

Amortised Cost || -1 641 || -3 984 || -82 || -5 707

Accrued interest || 5 246 || 9 244 || 4 206 || 18 696

Loans and receivables as at 31 December 2012 || 251 797 || 780 934 || 113 549 || 1 146 280

|| || || || ||

(*) including agency agreements

|| Global loans (*) || Senior loans || Subordinated loans || Total

Nominal as at 1 January 2011 || 246 500 || 542 322 || 123 910 || 912 732

Disbursement || 25 689 || 211 351 || 0 || 237 040

Write offs ||  0 ||  0 || -2 000 || -2 000

Repayments || -48 554 || -51 712 || -4 144 || -104 410

Interest capitalised || 0 || 459 || 10 053 || 10 512

Foreign exchange rates differences || 1 730 || 13 930 ||  860 || 16 520

Nominal as at 31 December 2011 || 225 365 || 716 350 || 128 679 || 1 070 394

|| || || ||

Impairment as at 1 January 2011 || -15 006 || -18 056 || -44 023 || -77 085

Impairment recorded in statement of comprehensive income || -1 746 || -1 514 || -773 || -4 033

Impairment of write offs ||  0 ||  0 || 2 000 || 2 000

Reversal of impairment || 9499 || 3263 || 18 723 || 31 485

Foreign exchange rates differences || - 356 || - 65 || - 762 || -1 183

Impairment as at 31 December 2011 || -7 609 || -16 372 || -24 835 || -48 816

|| || || ||

Amortised Cost || -1 700 || -3 428 || - 99 || -5 227

Accrued interest || 3 498 || 9 499 || 3 812 || 16 809

Loans and receivables as at 31 December 2011 || 219 554 || 706 049 || 107 557 || 1 033 160

|| || || || ||

(*) including agency agreements

8 Available-for-sale financial assets (in EUR’000)

The main components of available-for-sale financial assets are as follows:

|| Venture Capital Fund || Direct Equity Investment || Total

Cost as at 1 January 2012 || 182 692 || 36 565 || 219 257

Disbursements || 56 007 || 25 974 || 81 981

Repayments / sales || -19 570 || -31 || -19 601

Foreign exchange rates differences on repayments / sales || 1 581 || -678 || 903

Cost as at 31 December 2012 || 220 710 || 61 830 || 282 540

|| || ||

Unrealised gains and losses as at 1 January 2012 || 29 781 || 11 969 || 41 750

Net change in unrealised gains and losses || 29 540 || -2 856 || 26 684

Unrealised gains and losses as at 31 December 2012 || 59 321 || 9 113 || 68 434

|| || ||

Impairment as at 1 January 2012 || -6 887 || -2 460 || -9 347

Impairment recorded in statement of comprehensive income during the year || -7 976 || -951 || -8 927

Foreign exchange rates differences on impairment || 133 || 168 || 301

Impairment as at 31 December 2012 || -14 730 || -3 243 || -17 973

|| || ||

Available-for-sale financial assets as at 31 December 2012 || 265 301 || 67 700 || 333 001

|| Venture Capital Fund || Direct Equity Investment || Total

Cost as at 1 January 2011 || 142 932 || 33 350 || 176 282

Disbursements || 59 579 || 8 250 || 67 829

Repayments / sales || -20 236 || -4 735 || -24 971

Foreign exchange rates differences on repayments / sales || 417 || -300 || 117

Cost as at 31 December 2011 || 182 692 || 36 565 || 219 257

|| || ||

Unrealised gains and losses as at 1 January 2011 || 11 335 || 13 235 || 24 570

Net change in unrealised gains and losses || 18 446 || -1 266 || 17 180

Unrealised gains and losses as at 31 December 2011 || 29 781 || 11 969 || 41 750

|| || ||

Impairment as at 1 January 2011 || -2 || -6 022 || -6 024

Impairment recorded in statement of comprehensive income during the year || - 6 888 || - || -6 888

Use of impairment booked in the statement of comprehensive income during previous years || 2 || 3 714 || 3 716

Foreign exchange rates differences on impairment || 1 || -152 || -151

Impairment as at 31 December 2011 || -6 887 || -2 460 || -9 347

|| || ||

Available-for-sale financial assets as at 31 December 2011 || 205 586 || 46 074 || 251 660

9 Amounts receivable from contributors (in EUR’000)

The main components of amounts receivable from contributors are as follows:

|| 31.12.2012 || 31.12.2011

Member states contribution called but not paid || 87 310 || 87 310

Total amount receivable from contributors || 87 310 || 87 310

10 Held-to-maturity financial assets (in EUR’000)

The held-to-maturity portfolio is composed of quoted bonds which have a remaining maturity of less than three months at reporting date. The following table shows the movements of the held-to-maturity portfolio:

Balance as at 1 January 2012 || -

Acquisitions || 98 278

Amortisation of premium/discount || -210

Change in accrued interest || 961

Balance as at 31 December 2012 || 99 029

11 Other assets (in EUR’000)

The main components of other assets are as follows:

|| 31.12.2012 || 31.12.2011

Amount receivable from EIB || 7 || 59

Financial guarantees || 217 || 357

Amounts receivable with regard to TA disbursements || 337 || -

Impairment on amounts receivable with regard to TA disbursements (Note 20) || -337 || -

Total other assets || 224 || 416

12 Deferred income (in EUR’000)

The main components of deferred income are as follows:

|| 31.12.2012 || 31.12.2011

Deferred interest subsidies || 37 387 || 32 744

Deferred commissions on loans and receivables || 421 || 259

Total deferred income || 37 808 || 33 003

13 Amounts owed to third parties (in EUR’000)

The main components of amounts owed to third parties are as follows:

|| 31.12.2012 || 31.12.2011

Net general administrative expenses payable to EIB || 36 202 || 38 011

Other amounts payable to EIB || 8 904 || 219

Interest subsidies not yet disbursed owed to Member States || 266 980 || 291 430

Total amounts owed to third parties || 312 086 || 329 660

14 Other liabilities (in EUR’000)

The main components of other liabilities are as follows:

|| 31.12.2012 || 31.12.2011

Financial guarantees || 215 || 294

Other || 938 || 819

Total other liabilities || 1 153 || 1 113

|| ||

15 Member States Contribution called (in EUR’000)

Member States || Contribution to the Facility || Contribution to interest subsidies || Total contributed || Called and not paid (*)

Austria || 41 375 || 10 168 || 51 543 || 2 650

Belgium || 61 203 || 15 041 || 76 244 || 3 920

Denmark || 33 412 || 8 211 || 41 623 || 2 140

Finland || 23 107 || 5 679 || 28 786 || 1 480

France || 379 399 || 93 237 || 472 636 || 24 300

Germany || 364 722 || 89 630 || 454 352 || 23 360

Greece || 19 516 || 4 796 || 24 312 || 1 250

Ireland || 9 680 || 2 379 || 12 059 || 620

Italy || 195 788 || 48 115 || 243 903 || 12 540

Luxembourg || 4 528 || 1 113 || 5 641 || 290

Netherlands || 81 500 || 20 028 || 101 529 || 5 220

Portugal || 15 145 || 3 722 || 18 867 || 970

Spain || 91 180 || 22 407 || 113 588 || 5 840

Sweden || 42 624 || 10 4757 || 53 099 || 2 730

United Kingdom || 198 130 || 48 690 || 246 820 || -

Total as at 31 December 2012 || 1 561 309 || 383 691 || 1 945 000 || 87 310

Total as at 31 December 2011 || 1 281 309 || 383 691 || 1 665 000 || 87 310

(*) On 20 November 2012, the Council fixed the amount of financial contributions to be paid by each Member State by 21 January 2013.

16 Contingent liabilities and commitments (in EUR’000)

|| 31.12.2012 || 31.12.2011

|| ||

Commitments || ||

Undisbursed loans || 749 044 || 701 092

Undisbursed commitment in respect of available-for-sale financial assets || 217 070 || 264 567

Guarantees drawn || 6 224 || 7 909

Subsidies and TA || 228 175 || 209 223

|| ||

Contingent liabilities || ||

Guarantees undrawn || 20 000 || 20 000

|| ||

Total || 1 220 513 || 1 202 792

17 Net interest and similar income (in EUR’000)

The main components of interest and similar income are as follows:

|| From 01.01.2012 || From 01.01.2011

|| to 31.12.2012 || to 31.12.2011

Cash and cash equivalents || 1 678 || 5 518

Held-to-maturity financial assets || 36 || -

Loans and receivables || 64 060 || 50 800

Interest subsidies || 1 729 || 3 243

Total interest and similar income || 67 503 || 59 561

The main component of interest and similar expense is as follows:

|| From 01.01.2012 || From 01.01.2011

|| to 31.12.2012 || to 31.12.2011

Derivative financial instruments || -1 114 || -940

Total interest and similar expense || - 1 114 || -940

18 Net fee and commission income (in EUR’000)

The main components of fee and commission income are as follows:

|| From 01.01.2012 || From 01.01.2011

|| to 31.12.2012 || to 31.12.2011

Fee and commission on loans and receivables || 1 710 || 1 894

Fee and commission on financial guarantees || 191 || 255

Other || 33 || -

Total fee and commission income || 1 934 || 2 149

The main component of fee and commission expenses is as follows:

|| From 01.01.2012 || From 01.01.2011

|| to 31.12.2012 || to 31.12.2011

Commission paid to third parties with regard to available-for-sale financial assets || -292 || -144

Total fee and commission expenses || -292 || -144

19 Net realised gains on available-for-sale financial assets (in EUR’000)

The main components of net realised gains on available-for-sale financial assets are as follows:

|| From 01.01.2012 || From 01.01.2011

|| to 31.12.2012 || to 31.12.2011

Net proceeds from available-for-sale financial assets || 70 || 16 254

Dividend income || 975 || 974

Net realised gains on available-for-sale financial assets || 1 045 || 17 228

20 Impairment on other assets (in EUR’000)

During the reporting period the Facility made a technical assistance payment amounting to EUR 638 which due to fraudulent behaviour of the counterparty did not reach the final beneficiary. Following legal interventions, the Facility could recover EUR 301 and the remaining amount outstanding was recorded as a receivable. As at the reporting date the likelihood that the Facility will ever recover the outstanding amount is estimated to be low and the outstanding amount of EUR 337 was recorded as impairment in the Facility’s comprehensive income.

21 General administrative expenses (in EUR’000)

General administrative expenses represent the actual costs incurred by the EIB for managing the Facility less income generated from standard appraisal fees directly charged by the EIB to clients of the Facility.

|| From 01.01.2012 || From 01.01.2011

|| to 31.12.2012 || to 31.12.2011

Actual cost incurred by the EIB || -38 390 || -39 937

Income from appraisal fees directly charged to clients of the Facility || 2 188 || 1 931

Net general administrative expenses || -36 202 || -38 006

Following the entry in force of the revised Cotonou Partnership Agreement on the 1st of July 2008, general administrative expenses are not covered anymore by the Member States.

22 Subsequent events

There have been no material post balance sheet events which could require disclosure or adjustment to the 31 December 2012 financial statements.

ANNEX TO PART 1 – CHAPTER 2 (REPORT ON THE FINANCIAL IMPLEMENTATION): SITUATION BY COUNTRY AND BY INSTRUMENT

Notes to the tables:

· The figure "0.00" indicates that the corresponding amount is between EUR –4999 and EUR 4999. Where no figure is given, the amount is zero.     Countries with a nil balance in all columns are not listed in the tables.

· The heading "All ACP/OCT countries" refers to projects which cover a number of countries but are not financed by regional cooperation.

· The heading "Financial and administrative expenses" represents projects financed by EDF interest or the envelope covering administrative expenditure.

[1]         OJ L 247 of 09.09.2006

[2]       All figures are rounded into millions of euros. It should be noted that due to the rounding of figures, some financial data in the tables may not add up. Amounts shown as 0 represent figures of less than EUR 500 000. Amounts that equal to zero are shown as a dash (-).

[3] Current receivables excluding receivables relating to ordinary contributions and co-financing.

[4] Current liabilities excluding liabilities relating to ordinary contributions and co-financing.

[5] PIR - Regional Indicative Programme

[6] PIN – National Indicative Programme

[7]       In accordance with Article 153 of the 10th EDF Financial Regulation, the treasury is presented in the balance sheet of the 10th EDF. The nature of the various bank accounts is outlined in chapter 6, Financial Risk Management

[8]       This balance represents the amounts available for the Democratic Republic of the Congo in accordance with the provisions of Council Decision 2003/583/EC[8]. These funds are earmarked for a specific purpose and beneficiary state.

[9]       OJ L 156 of 29.05.1998 pp. 3-106

[10]      OJ L 247 of 09.09.2006

[11]      Council Decision 2011/315/EU of 23 May 2011 concerning the allocation of funds decommitted from projects under the ninth and previous European Development Funds for development cooperation in Southern Sudan.

[12]      OJ L 247 of 09.09.2006

[13]          The unallocated resources from the previous EDFs include the balance of the Sysmin funds, which by Decision 3/2000 of the ACP-EC Council of Ministers was set at EUR 410,926 million. Commission Decision PE/410/2001 includes these resources in programming for the national indicative allocations (part B) under the financial protocol to the ACP-EC Partnership Agreement.