(1)

Regulation (EU, Euratom) 2022/2434 of the European Parliament and of the Council (2) introduced the diversified funding strategy as a single funding method for the implementation of borrowing and debt management operations carried out by the Commission into Regulation (EU, Euratom) 2018/1046. The diversified funding strategy, except in duly justified cases, applies to programmes of financial assistance for which the basic acts have entered into force on or after 9 November 2022.

(2)

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

(3)

The methodology for allocating costs related to the implementation of the diversified funding strategy under NextGenerationEU (NGEU) was established [for the first time] by Commission Implementing Decision (EU) 2021/1095 (3). Commission Implementing Decision (EU, Euratom) 2022/2545 (4) has extended those arrangements to all borrowing and debt management operations carried out under the diversified funding strategy pursuant to Article 220a of Regulation (EU, Euratom) 2018/1046 via targeted adjustments to the cost allocation methodology.

(4)

The obligation to cover costs relating to the financial assistance should remain with the beneficiaries of the financial assistance, in compliance with Article 220(5), point (e), of Regulation (EU, Euratom) 2018/1046 and in line with the budgetary principles of sound financial management and equilibrium. All costs should be charged to the beneficiaries based on a single-cost allocation methodology that ensures transparent and proportional allocation of costs.

(5)

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

(6)

To ensure fair and equal treatment between beneficiaries, a common and unified methodology for costs should be implemented, applicable to all type of disbursements, namely those repaid by the general budget of the Union and those repaid by beneficiaries. Costs should be imputed to the beneficiaries on the basis of the share of proceeds received.

(7)

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

(8)

If financial assistance programmes, funded via the diversified funding strategy, have a different duration and structure to NGEU and the loans under Regulation (EU) 2022/2463 of the European Parliament and of the Council (5), it is appropriate to allow for additional flexibility via the amendment of the cost allocation methodology. Implementing Decision (EU, Euratom) 2022/2545 provides that the suitability of the NGEU costing methodology is to be reviewed in the case of adoption of new programmes of financial assistance having a different duration and structure.

(9)

To provide the desired flexibility, the cost allocation methodology should include the concept of programme compartments to organise and monitor the allocation of disbursements and related funding instruments per programme. This would allow for the assignment of funding instruments to programme-specific financial characteristics, and provide for tailored liability management through a calibrated choice of maturities. The introduction of programme compartments would avoid cross-subsidisation of costs from one programme to another.

(10)

This should also be in line with the framework of the governance system established by Commission Implementing Decision (EU, Euratom) 2023/2825 (6), which provides that the attribution of funding instruments across programmes is to be determined having regard to the respective maturity targets and the specific constraints of the different programmes.

(11)

The average maturity target and tentative amounts of funding operations should be indicated per programme via funding plan decisions adopted under Article 4 of Implementing Decision (EU, Euratom) 2023/2825. The targets set per programme, within the overall limits set by the annual borrowing decision, provide a non-binding orientation as to levels to be reached at the end of the funding period, assuming funding needs remain unchanged. During the period when a programme or time compartment is constituted, the weighted average maturity of funding instruments per programme might differ from the end-of-period objective. The Commission should allocate funding instruments to the different compartments over the relevant semesters, taking into account the remaining borrowing transactions planned for in the rest of the funding period. In doing so, the Commission should ensure, to the best of its ability, the equitable achievement of the different average maturity targets for each programme of financial assistance within the scope of Article 220a of the Regulation (EU, Euratom) 2018/1046, and non-repayable support under Article 5(1) of Council Decision (EU, Euratom) 2020/2053 (7), over the entire funding period. When executing borrowing operations, the Commission should prioritise the achievement of the most advantageous terms, and consider the equitable achievement of the respective average maturity targets across programme compartments at the level of the allocation as a secondary objective. The Commission should update and monitor the achievement of such targets on a regular basis.

(12)

A programme compartment should be created upon the entry into force of any new financial assistance programme which is to be financed by transactions implemented under the diversified funding strategy. Programme compartments should either be dedicated to one sole beneficiary or to several beneficiaries, depending on whether the basic act of a programme allows for only one or several beneficiaries of the financial assistance.

(13)

For programmes which allow the award of financial assistance to more than one beneficiary, disbursements and related funding instruments within the dedicated programme compartment should be further compartmentalised into time compartments to ensure that the cost of funding charged to the disbursement of that beneficiary is closely linked to the prevailing market rates at the time of the disbursement. The cost of funding is stabilized at the closure of the time compartment.

(14)

It is not necessary that a programme compartment related to a financial assistance programme designed to serve a single beneficiary is subdivided into time-compartments given that all costs accrue to the same beneficiary.

(15)

The addition of programme compartments under this Decision should not have an impact on the existing cost allocation for any of the programmes to which the existing cost allocation methodology already applies. To achieve this, disbursements made before the entry into force of this Decision, under NGEU, Regulation (EU) 2022/2463, and any other CAM programme in force before its entry into force, as well as funding instruments already allocated to existing time compartments under Implementing Decision (EU, Euratom) 2022/2545, should be bundled under a dedicated legacy programme compartment with time compartments. Such legacy programme compartment should include all the time compartments already established for the funding of those programmes as well as any future disbursements and related funding instruments relating to these programmes. This will ensure that the attribution of cost incurred by the Commission based on the existing allocation methodology remains unaffected by the new approach.

(16)

The calculation of the cost of funding that results from borrowing transactions should be derived from the costs arising from all borrowing operations within a programme compartment and, in the case of a multi-beneficiary programme, any corresponding time compartment. Loan beneficiaries or, for the external assigned revenue under Article 3(1) of Council Regulation (EU) 2020/2094 (8), the general budget of the Union should be charged on equal footing when the costs are allocated to the beneficiaries of a same compartment. This method where costs are determined over the duration of a programme or time compartment, avoids the ‘point-in-time’ arbitrariness that characterises the traditional back-to-back method where the costs for any particular beneficiary reflected the terms that could be obtained on the particular day that the borrowing took place.

(17)

A programme compartment should be active during the entire period in which disbursements of a dedicated programme take place. Within a multi-beneficiary programme compartment, there should only be one active time compartment at any point in time. As a rule, time compartments, when established, should run for a semester starting on 1 January or on 1 July. For the legacy programme compartment, the first time compartment should cover the period from 1 June 2021 until 31 December 2021 reflecting the timing for the launch of NGEU funding operations. As a general rule, the first time compartment of a given programme should be created in the period in which the first disbursement is made. Any time or programme compartment should remain active until the amount of long-term funding allocated to it matches the amount of disbursements. However, in the case of a mismatch at the end of the semester, a time compartment should remain active until the amount of disbursement and long-term funding match. In that case, it should be possible to temporarily continue allocating disbursements to the active time compartment, while simultaneously attribute funding instruments to the following time compartment.

(18)

While the cost of funding may vary during the period in which a programme compartment or, when applicable, time compartment, is active because of differences in funding conditions beyond the control of the Commission, the Commission should manage borrowing and debt management operations in order to ensure that each programme compartment and, when applicable, time compartment, achieve their respective maturity target to a comparable degree while always prioritizing the achievement of the most advantageous terms across programmes.

(19)

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

(20)

The amounts of disbursements in a programme compartment or, where applicable, a time compartment, should equal the amount of long-term funding instruments attributed to that particular programme compartment or time compartment. In most cases for the compartments of multi-beneficiary programmes, the disbursement of proceeds should occur in, and be attributed to, the same time compartment as the issuance of the long-term funding instruments used to raise the proceeds. However, unforeseen delays with disbursements might result in situations where the proceeds of the long-term funding have been raised but it is not possible to disburse them as initially scheduled. This possibility should be taken into account in the allocation of disbursement to the different time compartments.

(21)

It is appropriate to provide also for the possibility to anticipate, in the preceding time compartment, disbursement needs arising early in the life of the next time compartment. To cater for such situations and ensure funding on advantageous terms, there should be the possibility to attribute long-term funding instruments to the following time compartment.

(22)

The ability to manage liquidity of the funding operations by accessing short-term borrowing and holding cash for prudential purposes is a central and defining feature of the diversified funding strategy. This liquidity management should enable the Commission to meet all payment needs and adapt issuance to market conditions. It is appropriate to lay down methods for calculation of costs related to liquidity management referred to in Articles 6 and 8 of Implementing Decision (EU, Euratom) 2023/2825. They should include costs stemming from issuance of short-term funding instruments, holding some proceeds on a temporary basis on a liquidity account in order to guarantee the ability to make all payments on demand and the management of interest rate and other financial risk. Costs incurred in relation to buy backs and/or holding of own bonds for the purposes of liquidity management should also be considered as liquidity management costs. This Decision should establish a basis for calculating these liquidity costs and charging them on a fair and equitable basis to all relevant beneficiaries of proceeds over the course of the year in question.

(23)

Liquidity management operations should help to minimise liquidity management costs that may be incurred when holding cash for prudential purposes. The return on investment of liquidity holdings, resulting from secured or unsecured money market transactions, should comprise the daily interest in relation to each transaction and a potential trading fee or agio/disagio. The return on investment of these operations should be the sum of costs of issuing and holding such liquidity and any, return on investment of such holdings, should be attributed quarterly to outstanding disbursements on a pro rata basis.

(24)

Higher disbursements than the amount of long-term funding instruments allocated to the respective programme compartment or, where applicable, time compartment, or interest payments, might result in a liquidity deficit of that compartment. Lower disbursements than the amount of long-term funding instruments allocated to the respective programme compartment or, where applicable, time compartment, or redemption payments, might result in a liquidity surplus. Compensating these liquidity surpluses or deficits are unavoidable requirements of the implementation of the diversified funding strategy. These costs should not be borne by the respective compartments, but should be isolated and managed as part of a distinct liquidity management overhead. This Decision should establish a mechanism to disentangle costs arising from liquidity deficits or surpluses in order to allow their absorption by the wider funding programme in the form of liquidity management costs. The Commission should use the liquidity management compartment to level any positive or negative cash balances in the single beneficiary programme compartments or multi beneficiary time compartments to the total amount of disbursements.

(25)

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

(26)

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

(27)

Costs related to the set-up and capacity building of these operations have been incurred since 2021 and have already been attributed to beneficiaries of NGEU financial support programmes, through a specific set-up cost overhead. Therefore, the beneficiaries of other programmes of financial assistance within the scope of Article 220a of Regulation (EU, Euratom) 2018/1046 should not bear costs related to this previous capacity building but only future expenditure related to the maintenance of this infrastructure or its further development. The share of administrative costs of programmes of financial assistance within the scope of Article 220a of Regulation (EU, Euratom) 2018/1046, other than NGEU, should be determined by the share of the programme in proceeds raised though the diversified funding strategy during the year in which the relevant administrative costs were incurred.

(28)

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

(29)

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

(30)

Exceptionally, the Union may bear the cost of interests and administrative costs related to the borrowing and lending, such as for the financial assistance loans to Ukraine granted under Regulation (EU) 2022/2463, and Regulation (EU) 2024/792 of the European Parliament and of the Council (9). Under Regulation (EU) 2022/2463, the necessary resources are to be provided by contributions from Member States in accordance with Article 5(1) of that Regulation, insofar as those costs are not covered through other means. In such a case, the invoicing of costs should be aligned with the invoicing of costs in respect to disbursements as external assigned revenue under Article 3(1) of Regulation (EU) 2020/2094 and be grouped per quarter.

(31)

The Commission should issue a confirmation notice concerning each disbursement, including non-repayable support within the meaning of Article 2(2), points (a) and (c), of Regulation (EU) 2020/2094, repayable support to Members States within the meaning of Article 2(2), point (b), of Regulation (EU) 2020/2094, and loans to a Member State or third country under programmes for financial assistance within the scope of Article 220a of Regulation (EU, Euratom) 2018/1046.

(32)

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

(33)

The loan agreements should refer to this Decision as the method for calculating and charging the costs of the loans.

(34)

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

(35)

Given the urgent need to provide financial assistance, among other policy priorities, to Ukraine in July 2024 under the Ukraine Facility in the most adequate and advantageous manner, this decision should enter into force as a matter of urgency.