Explanatory Memorandum to COM(2011)483 - Amendment of Council Regulation (EC) No 1083/2006 as regards repayable assistance and financial engineering - Main contents
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| dossier | COM(2011)483 - Amendment of Council Regulation (EC) No 1083/2006 as regards repayable assistance and financial engineering. |
|---|---|
| source | COM(2011)483  |
| date | 01-08-2011 |
· Reasons and objectives for the proposal
Article 28(3) of Council Regulation (EC) 1260/1999 identified the various forms of assistance that could be provided through Structural Funds contributions, namely "non repayable direct assistance […] as well as other forms, such as repayable assistance, an interest-rate subsidy, a guarantee, an equity holding, a venture-capital holding or another form of finance". The Commission Regulation (EC) 448/2004 defined as the general eligibility rule that expenditure shall actually be paid out by final beneficiaries as supported by receipted invoices or by accounting documents of equivalent probative value (Rule no.
1) and defined further specific eligibility rules regarding Structural Funds contributions to venture capital and loan funds (Rule no.
8) and guarantee funds (Rule no.
9) also setting out that payments into such funds are treated as eligible expenditure actually paid out (Rule no. 1 paragraph 1.3). Member States have established during the 2000-2006 programming period for Structural Funds these forms of assistance by setting up specific funds in accordance with rules no. 8 and 9, and through repayable assistance delivered via other instruments. At least in one Member State, independent evaluation has recommended these instruments as good practice.
Council Regulation (EC) 1083/2006 does not, by contrast, provide a definition of assistance as either repayable or non-repayable. The Regulation contains in Article 44 provisions for 'Financial Engineering Instruments'. These provisions are, in the current programming period, rather narrow as they allow financing of expenditure in respect of an operation comprising contributions to support a) financial engineering instruments for enterprises, b) urban development funds and c) funds or other incentive schemes for energy efficiency and use of renewable energy in buildings. As a result, strictly speaking - and without prejudice to provisions of Article 11 of Council Regulation (EC) 1081/2006, which already provides that assistance can take the form of reimbursable grant – repayable assistance seems not to be covered by the applicable Regulation.
Member States have continued to use repayable forms of assistance based on the positive experience of the past programming period 2000-2006 and some also included descriptions of these systems in their 2007-2013 programming documents, which were approved by the Commission. Furthermore, such schemes have also been started anew in the current programming period in some Member States.
It is therefore necessary to introduce a general definition of repayable assistance in the Regulation (EC) 1083/2006 and further provide that the assistance repaid shall be kept in a separate account and reused to the same purpose or in line with the objectives of the programme. The 'repayable assistance' as defined covers reimbursable grants (i.e. grants which can be totally or partially reimbursed without interests) and credit lines managed by the managing authority via intermediate bodies (which are public financial institutions).
Moreover, as regards financial engineering, i.e. instruments covered by Article 44 of Regulation (EC) 1083/2006, it is a current practice of interpretation by the Commission that the rules on major projects, revenue generating projects and on durability of operations do not apply. Having regard to this current practice, for reasons of legal certainty, it is opportune to clarify in an appropriate legal text that the provisions on major projects, revenue generating projects and on durability of operations (Articles 39, 55 and 57 of Council Regulation (EC) 1083/2006) do not apply to the operations falling under Article 44. Indeed, in the case of financial engineering under Article 44, the operation is constituted by the financial contribution to the financial engineering instrument and by the subsequent assistance undertaken by the financial engineering instruments into final recipients. Such assistance is made through repayable support and the related resources returned to operations must be reused pursuant to the specific rules laid down by Article 78(7) of Regulation (EC) 1083/2006. It follows from the above that the application of Articles 39, 55 and 57 is neither necessary nor justified in respect of operations under Article 44.
In addition, having regard to the need to ensure a timely spending (for eligible expenditure) of the resources made available by the operational programmes to financial engineering instruments and an appropriate monitoring, by the Member States as well as by the Commission, of the implementation of financial engineering instruments which are established under Article 44, it is necessary to introduce: (i) a legal obligation for financial engineering instruments to spend, in line with Article 78(6) (a) to (e) of Regulation (EC) 1083/2006, the financial contribution paid by managing authorities in establishing or contributing to such funds within a timeframe of two years (if that is not the case, subsequent declarations of expenditure will be corrected acordingly by deducing the unspent amounts); (ii) a legal provision in respect of monitoring of the implementation, inter alia in order to allow the Member States to provide appropriate reporting to the Commission as regards the type of instruments put in place and the relevant actions undertaken by such instruments on the ground.
· General context
New forms of finance for assistance have been developed in the 2007-2013 programming period, moving away from traditional grant-base financing to revolving forms of finance. These new financial instruments are seen as catalysts of public and private resources, to achieve the investment levels needed to implement the EU 2020 strategy.
In terms of scope, currently revolving forms of finance are being used for a wider rage of activities than financial engineering. A modification of the regulation is necessary to include support for operations where it is foreseen that financial support is repaid and which do not have the characteristics of and fall outside the mechanisms of financial engineering instruments as defined in Article 44 of Council Regulation (EC) 1083/2006. This covers reimbursable grants and credit lines directly managed by the managing authority or intermediate bodies.
At the same time, in view of the increasing degree of implementation of financial engineering instruments under Article 44 on the ground and of the limited information available to the Commission so far on such instruments, a modification of the regulation is necessary to ensure that Member States as well as the Commission can properly monitor these forms of repayable assistance and report them to the Commission. This, at the same time, will provide the Commission with a useful tool for the global assessment of the performance of these types of assistance.
· Provisions in force in the policy sphere of the proposal
Article 44 of Council Regulation (EC) 1083/2006 defines the forms which financial engineering instruments can take in the current programming period as well as their scope of intervention: supporting SMEs access to finance, urban renewal and energy efficiency. Special provisions for reimbursement of expenditure paid by Member States or managing authorities and based on contributions to such instruments are contained in Article 78(6) of the above regulation.
Article 11 of Regulation (EC) 1081/2006 indicates the form of assistance provided by the ESF: non reimbursable individual or global grants, reimbursable grants, loan interest rebates, micro-credits, guarantee funds and the purchase of goods and services in compliance with public procurement rules.
· Consistency with other policies and objectives of the Union
Not applicable.
· Consultation of interested parties
The European Court of Auditors has identified the issue of repayable assistance outside Article 44 in its audits of ERDF operations, which led to this proposal of amendment of Council Regulation (EC) 1083/2006. The proposed modification has been initiated after a thorough mapping of the situation on the ground in the Member States and, as a result, has been evocated with Member States in the framework of COCOF meetings. Furthermore, based on the recommendation of the European Court of Auditors regarding monitoring of the financial engineering instruments, the current proposal includes separate provisions on timely and effective spending and on reporting of financial engineering instruments under Article 44.
· Procurement and use of expertise
Use of external expertise has not been necessary.
· Impact analysis
The present proposal will clarify the use of repayable forms of assistance at project level, a practice which has been well established in the programming period 2000-2006 and will give the use of structural funds a further boost and higher leverage.
The clarification of rules governing cohesion policy provides Member States with reassurance that the schemes based on repayable forms of assistance used successfully in the past programming period can be continued and built upon further. It will also have a positive impact on the pace of programme implementation, particularly by providing national, regional and local authorities a possibility to reuse funds for the same purpose.
The new obligation on timely spending (within two years of the payment into the fund) and on reporting of financial engineering instruments will provide the Commission with a useful tool for the monitoring and global assessment of the performance of these types of support.
The proposal aims to provide clarity about the legality of an existing legal practice; the main expected impact is thus the reduction of legal risk. The proposal will have only limited practical impacts, linked to increased reporting obligation on financial engineering instruments already in place. No new budget is requested.
Contents
· Summary of the proposed measures
The proposed modification builds on the wider scope of different forms of assistance as specified in Article 28(3) of Council Regulation (EC) 1260/1999 and provides necessary complements or adjustments to the current regulatory framework as described below in detail.
The proposed new point 8 of Article 2 provides for a definition of reimbursable grant as a direct financial contributions by way of donation which can be totally or partially reimbursable without interest.
The proposed new Section 3a under Title III, Chapter II introduces provisions on 'repayable assistance'. The new Article 43a seeks to establish that the Structural Funds may finance expenditure in respect of an operation comprising contributions to support repayable assistance. This provision covers reimbursable grants and credit lines managed by the managing authority through intermediate bodies which are 'in-house' public financial institutions. For the sake of clarity, the mechanism for declaration of expenditure and reimbursement for such repayable assistance remains the same as for non-repayable assistance (i.e. for outright grants), since it is based on receipted invoices or documents having equivalent probative value (as per Article 78 (1) to (5) of Regulation (EC) 1083/2006).
In addition the new Article 43b clarifies that the assistance repaid, to the body providing the assistance or to another competent public authority of the Member State shall be kept in a separate account and reused to the same purpose or in line with the objectives of the operational programme.
The proposed new Article 44a intends to clarify that provisions regarding major projects (Article 39), revenue generating projects (Article 55) and durability of operations (Article 57) shall not, as a matter of principle, apply to financial engineering instruments under Article 44, since these rules are rather conceived for other types of assistance.
In the same context, a new Article 67a on reporting of financial engineering instruments under Article 44 is introduced. This is done having regard to the need to ensure appropriate monitoring, by the Member States as well as by the Commission, of the implementation of financial engineering instruments, inter alia in order to allow the Member States to provide appropriate information to the Commission as regards the type of instruments put in place and the relevant actions undertaken by such instruments on the ground.
In the same context, the proposed new paragraph within Article 78(6) of Regulation (EC) 1083/2006 aims to introduce a legal obligation in order to ensure that the financial contribution paid by managing authorities for establishing or contributing to financial engineering instruments is spent for eligible expenditure within a timeframe of two years of the payment into the fund. If this is not the case, the subsequent statement of expenditure will have to be corrected accordingly by deducing the unspent amounts. This is with a view to avoiding that money remains parked in such funds and unspent for long periods.
The proposed new Article 78a inserts a general provision on the requirements of the statement of expenditure. With reference to Article 61 (2) of the Council Regulation (EC) 1605/2002 on the Financial Regulation applicable to the general budget of the European Communities, it shall allow the Commission the production of accounts which give a true image of the Communities assets and of the budgetary implementation.
· Legal basis
Council Regulation (CE) No 1083/2006 of 11 July 2006 laying down general provisions on the European Regional Development Fund, the European Social Fund and the Cohesion Fund and repealing Regulation (EC) No 1260/1999 defines the common rules applicable to the three Funds. Based on the principle of shared management between the Commission and the Member States, this regulation includes provisions for the programming process as well as arrangements for programme (including financial) management, monitoring, financial control and evaluation of projects.
· Subsidiarity principle
The proposal complies within the subsidiarity principle to the extent that it seeks to provide legal security at the level of European Union that support provided by Member States through Structural Funds to schemes based on repayable forms of assistance implemented lawfully in the previous programming period and/or started in the current period but not having the characteristics of financial engineering instruments are permitted and legitimate under the present Structural Fund regulations. In this context, it is necessary to also define at the European Union level the treatment of assistance repaid for these types of schemes not having the characteristics of financial engineering instruments.
Moreover, timely spending (within two years of the payment into the fund) and reporting obligations on financial engineering under Article 44 shall be introduced to allow the Member States to quickly implement the instruments and to provide appropriate information to the Commission as regards the type of instruments put in place and as regards the relevant actions undertaken by such instruments on the ground. This, at the same time, will provide the Commission with a useful tool for the global assessment of the overall performance of these types of assistance.
· Proportionality principle
The proposal conforms to the proportionality principle:
The current proposal is indeed proportionate since it does not go beyond the minimum required rules in order to provide legal security to Member States that schemes based on repayable assistance supported by Structural Funds but not having the characteristics of financial engineering instruments are permitted in the current programming period. In order to allow Member States benefit from the clarifications during the whole programming period it is necessary to apply it retroactively.
An obligation to spend the financial contribution of the managing authorities for establishing financial engineering instruments within two years of the payment of such contribution into the fund (if this is not the case, the subsequent statement of expenditure will have to be corrected accordingly by deducing the unspent amounts) and some reporting obligations are set out for financial engineering instruments only (unlike repayable assistance not having the characteristics of Article 44, they are implemented by means of 'funds'), and are established in order to provide only the necessary minimum flow of information from the Member States to the Commission as regards the timely and correct implementation on the ground of financial engineering instruments. In addition, the obligation to timely spend and the further reporting obligations are not applied retroactively.
· Choice of instruments
Proposed instrument: regulation.
Other instruments would not be appropriate for the following reasons:
The Commission has explored the scope for manoeuvre provided by the legal framework to declare the established practice of operations directly managed by intermediate bodies or managing authorities not having the characteristics of financial engineering instruments as compatible with the existing regulation on Structural Funds. However, after thorough internal consultations, it turned out, that for the sake of un-ambiguity an amendment of the Council Regulation (EC) 1083/2006 in this respect is required. The objective of these revisions is to further facilitate the mobilisation of Union resources for various projects falling outside the scope of Article 44 thereby increasing number of projects benefitting from Structural Funds support. Instruments set up under the provisions of Article 44 of this regulation could not be established for these non standard operations, as Article 44 limits itself to funds investing in favour of SMEs, urban renewal and energy efficiency.
Currently, there is no legal obligation to spend within a defined timeframe within the duration of the programme the financial contribution paid by managing authorities into financial engineering instruments, since the 'netting' of such contribution (in terms of verification of 'eligible expenditure') only takes place at the the closure of the operational programme; in addition, the monitoring and reporting on financial engineering instruments by Member States has only recently been introduced on a voluntary basis. This is not sufficient to allow the Commission to have an overall picture of the implementation of these repayable forms of assistance on the ground. In addition, the European Court of Auditors has recommended the Commission to carry out an appropriate check on the effective spending of the resources allocated to financial engineering instrument as well as an appropriate monitoring of the implementation of their actions. In view of the above, the current proposal includes separate provisions on (i) timely spending of the financial contribution paid into financial engineering instruments under Article 44 (if this is not the case, the subsequent statement of expenditure will have to be corrected accordingly by deducing the unspent amounts) and (ii) reporting of financial engineering instruments under Article 44.
There is no impact on commitment appropriations since no modification is proposed to the maximum amounts of Structural Funds financing provided for in the Operational Programmes for the programming period 2007-2013.
The Commission believes that the proposed measure may improve the implementation through increased legal security provided to the Member States.