Draft COMMISSION DECISION of on the 2008 Annual Action Programme of Accompanying Measures for Sugar Protocol Countries in favour of Trinidad and Tobago to be financed under Article 21.060300 of the general budget of the European Communities THE COMMISSION OF THE EUROPEAN COMMUNITIES, Having regard to the Treaty establishing the European Community, Having regard to Regulation (EC) No 1905/2006 of the European Parliament and of the Council of 18 December 2006 establishing a financing instrument for development cooperation 1 (hereafter "DCI Regulation"), and in particular Article 17.2 second subparagraph and 22 (3) thereof, Whereas: (1) The ACP Sugar Programming is by its very nature a sui generis programme, for which the implementation should continue to be done in analogy with geographic programming pursuant to Articles 18 (1) and 22 of the DCI Regulation. The analogy to geographic programmes derives from the fact that the accompanying measures to be adopted under the sugar programme are country specific and aim at supporting the country's adjustment process. This way of proceeding further reflects, and ensures seamless continuity with, established practice under Regulation 266/2006 establishing accompanying measures for Sugar Protocol countries affected by the reform of the EU sugar regime which expired at the end of 2006 and also with the principle of a single decision for all projects introduced by the new financial instruments for EC external assistance adopted by the Council for the period 2007-13. (2) The Commission has adopted the EC Multi-Annual Adaptation Strategy for the period 2007-2013 for Trinidad and Tobago and the Multiannual Indicative Programme for the period 2007-2010 2, point 2.1, which provides for the following priorities: 1. economic diversification and 2. mitigation of the possible social and environmental impact of the reforms. (3) Commission Decision (C2007) 5852 approving the Multi-annual Indicative Programme for Trinidad and Tobago further provides that it constitutes the guiding framework for the drawing up of Annual Action Programmes. 1 2 OJ L 378, 27.12.2006 p.41 C(2007) 5852 EN 1 EN
(4) The objectives pursued by the Annual Action Programme are to assist the Government in its efforts to diversify the economy from the sugar sector to other productive sectors of the economy, as well as mitigating the adverse socio economic and environmental impacts of the restructuring in that sector. (5) The present decision constitutes a financing decision within the meaning of Article 75 of Council Regulation (EC, Euratom) No 1605/2002 of 25 June 2002 on the Financial Regulation applicable to the general budget of the European Communities 3 and Article 90 of Commission Regulation (EC, Euratom) No 2342/2002 of 23 December 2002 laying down detailed rules for the implementation of the Financial Regulation applicable to the general budget of the European Communities 4 and article 15 of the Internal Rules 5 on the implementation of the general budget of the European Communities (Commission section). (6) The present decision covers any possible interest due for late payment on the basis of articles 83 of the Council Regulation (EC, Euratom) No 1605/2002 and 106(5) of Commission Regulation (EC, Euratom) No 2342/2002. (7) The Commission is required to define the term substantial change in the meaning of Article 90 (4) of Regulation (EC, Euratom) No 2342/2002 to ensure that any substantial change in this decision shall follow the same procedure as the initial decision. The measures provided for in this decision are in accordance with the opinion of the DCI Committee set up under Article 35 of Regulation (EEC) No 1905/2006. HAS DECIDED AS FOLLOWS: Article 1 The 2008 Annual Action Programme of Accompanying Measures for Sugar Protocol Countries in favour of Trinidad and Tobago, the text of which is set out in the attached Annex, is approved. Article 2 The maximum contribution of the Community to the Annual Action Programme is set at EUR 9,974,000 to be financed from budget line 21.060300 of the general budget of the European Communities for 2008. This decision shall also cover any possible interest due for late payment. 3 4 5 OJEU L 248 of 16.09.2002 p. 1. OJEU L 357 of 31.12 2002, p.1. Commission Decision C(2008) 773 of 05.03.2008. EN 2 EN
Article 3 Within the indicative budget for technical assistance and studies, cumulated changes not exceeding 20% of that budget allocation shall not be considered substantial, provided that they do not significantly affect the nature and objectives of the Annual Action Programme. The authorising officer may introduce non substantial changes to the Annual Action Programme in accordance with the principles of sound financial management. Done at Brussels, [ ] For the Commission [ ] Member of the Commission EN 3 EN
ANNE 1. IDENTIFICATION Title Total cost 9,974,000 Aid method / management mode 2008 Annual Action Programme of Accompanying Measures for Sugar Protocol Countries in favour of Trinidad and Tobago CRIS reference DCI-SUCRE/2008/20105 Sector Policy Support Programme: - Sector budget support (centralised management) 9.774.000 - Project mode (centralised direct) 200.000 DAC-code 31162 Sector Industrial/export crops 2. RATIONALE AND COUNTRY CONTET 2.1. Country context and rationale for SPSP 2.1.1. Economic and social situation and poverty analysis Trinidad and Tobago has one of the highest per capita incomes in Latin America and the Caribbean. The energy sector accounts for over 40.0 percent of Gross Domestic Product (GDP), about 90.0 percent of exports and more than 50.0 percent of government revenues. Surging energy prices, the exploitation of new gas fields and an expansion of industrial capacity helped sustain robust economic activity, contributed to a strengthening of the external accounts and to excess liquidity in the financial system. However, there are signs that the economy is operating at full potential. Capacity constraints are emerging in some sectors, notably construction. The labour market has tightened with unemployment falling below 5.0 percent in early 2008 - an all time low. In 2007, real GDP grew by 5.5 percent, the nonenergy sector grew by 6.7 percent. The growth in the non-energy sector is being supported by high public infrastructure spending and rapid credit growth which has fuelled private spending and inflation. Headline inflation measured 9.3 percent in April 2008 mainly due to the rise of 19.5 percent in food prices and core inflation, has stabilized at 5.2 percent. There have been calls for price controls to address rising food prices, rents, construction costs and real estate prices. The current favourable environment of high energy prices presents both opportunities for economic development and challenges for macroeconomic management. This country has experienced spectacular economic growth over the last five years. Nevertheless, the gap between its GDP and its actual state of development would not seem to be decreasing. The 2006 Poverty Survey states that 17% of the population lives below the poverty line. This is especially visible in the remote and rural areas such as the ones targeted by this programme. 2.1.2. National development policy A team led by the Ministry of Agriculture, Lands and Marine Resources including members from Ministry of Trade and Industry and Ministry of Planning, Housing and Environment was established to work with the externally-hired consultants to finalize the Trinidad and Tobago National Sugar Adaptation Strategy (T&T NAS), which was approved by the Government of the Republic of Trinidad and Tobago (GORTT). This team was also engaged in producing the EC response strategy. Various stakeholder consultations were organised and a number of academics and institutes were interviewed. EN 4 EN
The overall goal of the T&T NAS is to contribute to the realization of four (4) of the priorities established in the National Development Plan to become a developed nation by the year 2020. The Vision 2020 priorities are to create an environment of competitiveness, innovative people, a caring society and an improved government. 2.2. Sector context: policies and challenges The T&T NAS is a sector policy document which is incorporated in the national development process and which is based on the Government s decision in 2003 to disengage from sugar cultivation and to end subsidies to the sugar industry in Trinidad and Tobago by the end of 2007. Important measures have been taken and a significant part of the cost relating to the sugar sector reform has been spent since 2003 through: 1. exit of the Government from cultivation of sugarcane in August 2003 (closure of the state owned company Caroni (1975) Ltd, with the payment of termination benefits for 9007 daily and monthly paid employees of Caroni; 2. establishment of the Sugar Manufacturing Company Ltd. (SMCL) to provide for a transitional period for sugar manufacturing for the benefit of private cane farmers; 3. training for former employees of Caroni; 4. development of 17 agricultural estates, 30 residential estates and 10 industrial estates; 5. pension plan for former Caroni employees; 6. sale of assets of the sugar factory and rum distillery; and 7. financial compensation for private farmers. The EC Support strategy aims at: 1. promoting economic diversification of sugar dependent areas; 2. addressing broader impacts related to social, environmental, community and areabased issues. The EC s objective is also to monitor and evaluate the measures taken by GORTT in the restructuring process of the sugar industry since 2003 in order to ensure the quality of the measures taken. A framework contract tender was launched by the EC in July 2008 to evaluate the progress made since the May 2006 Public Finance Management (PFM) study, which was positive. The GORTT is also considering introducing a Medium Term Framework (MTF) of expenditure to link annual budget with sustainability and longer term development goals. IDB provides grant and loan support for various programmes in the field of Public Administration Reform. To ensure the stability of the financial system the Central Bank conducts regular inspections of the operations of licensed financial institutions through its Financial Institutions Supervision Department since 1968. Since then the Department has evolved from compliance based and transaction-testing examinations to risk based examinations. Reform of the Central Statistical Office is long overdue and is now scheduled to be completed in 2010. However, the Central Bank has its own independent statistics department. A white paper on public procurement was introduced but remains under discussion for the time being. The taxation reform underway is to introduce one revenue authority according to the Canadian model. Implementation of the Trinidad and Tobago Revenue Authority is scheduled for 2009. The reform would include streamlining and simplification of the taxation policy and should increase the tax collection capacity of the GORTT. 2.3. Eligibility for budget support It can be concluded from the preceding sub-chapters that the three eligibility criteria for sector budget support are met. 1. A defined sector policy is in place Cabinet adopted the T&T NAS and is already implementing some of the strategy s elements EN 5 EN
2. There is macroeconomic stability (s. chapter 2.1.1.) 3. The Public Finance Management (PFM) was deemed satisfactory The EC Delegation assessed the PFM based on the study from May 2006 which stated that the PFM was deemed satisfactory. In addition to the progress made since then (s. 2.2.), a FWC tender has been launched in July 2008 to review the PFM during the second semester 2008. 2.4. Lessons learnt In light of past record of less than satisfactory overall project-based implementation of development assistance and slow disbursements, the significant amounts involved and the positive results of the 2006 PFM Review, detailed in the Memorandum to the DCI committee, sector budget support is considered the appropriate instrument for the EC sugar related assistance. In 2006, it started becoming clear that the overall divestment from the agricultural sector was having an adverse impact on inflation of food products, which rose to three times higher levels than core inflation. In addition to world wide patterns in food prices and to the improvement of the purchasing power of consumers, this was also due to the decrease of the supply as a result of the exodus of farmers to other economic sectors, e.g. construction. These new trends have not influenced the GORTT in its decision of exiting the subsidies in the sugar sector. However, the GORTT has now plans to boost agricultural production by encouraging, among others, the establishment of big estates mega farms and is also engaged in developing agricultural estates on the former Caroni lands. A Ministerial Committee for food prices and inflation was established and meets on a monthly basis in order to set in place measures to expand domestic food supply, facilitate the cultivation of food crops on former Caroni lands and strengthening the policy environment. In November 2007, General Elections took place and in April 2008 the responsibility for implementation of all cooperation relating to the T&T NAS was transferred from the Ministry of Agriculture, Lands and Marine Resources to the Ministry of Finance. A National Strategic Management Group in the Office of the Prime Minister, which was in charge of restructuring Caroni 1975 Ltd under the guidance of a high level Ministerial Committee will assist the Ministry of Finance and act as a Programme Coordinating Unit (PCU). With the cooperation of this PCU, the T&T NAS was finally adopted by Cabinet in April 2008. A Cabinet appointed Ministerial Committee, comprised of representatives from several line ministries will continue to hold oversight responsibility for monitoring. 2.5. Complementary actions The EC response builds on various ongoing and past EC initiatives in Trinidad and Tobago in the fields of poverty reduction, support for small and medium enterprises and forestry. It is consistent with the 10 th EDF CSP focal sector support to Economic Diversification and builds on the IDB programme on land tenure reform. 2.6. Donor coordination GORTT ensures coordination of all loan and grant funds. A Ministerial Committee comprising relevant stakeholders in the field will give general guidance to the implementation of the T&T NAS and EC support and will review progress reports, evaluation reports and reports of consultancies undertaken under the Programme. 3. DESCRIPTION 3.1. Objectives The general objective of the EC Sugar related assistance is to mitigate the adverse effects for the sugar growing areas of the EC Council of Ministers decision to cut the guaranteed price EN 6 EN
for the Sugar Protocol Countries by 36.0 percent, during a four year period starting in 2006, while supporting the GORTT in the realization of the priorities established in its Vision 2020. 3.2. Expected results and main activities The purpose of the EC support for the T&T NAS is to assist the Government in the diversification of the economy from the sugar sector to other productive sectors of the economy, including agriculture, as well as in the mitigation of the adverse socio-economic and environmental impacts of the restructuring. Independently from the EC decision for the AMSP, GORTT decided in 2003 that it would end all support to the sugar sector, the 2007 crop was the last one subsidised. Various measures have been taken to promote economic diversification of sugar dependent areas and addressing broader impacts related to social, environmental, community and area-based issues corresponding to the 2 strategic objectives of the EC support strategy. However, very few monitoring or evaluation measures seem to be in place and the steps taken by GORTT are mainly focussing on the restructuring of the former state-owned sugar company and its employees. The Government is committed to have completed by June 2009 all arrangements subject to an audit to be conducted by an independent auditor firm which has already been contracted by GORTT relating to the following: 1. termination of compensation payments to former employees of Caroni; 2. purchase of pension annuities for all former employees of Caroni; 3. delivery of at least 2,000 leases for residential lots; 4. delivery of at least 5,000 leases for agricultural plots; 5. completion of training for at least 3,000 former employees; 6. disposal of the assets of the sugar manufacturing company and the rum distilling company; and 7. payments made to more than 3,000 private cane farmers. 3.3. Risks and assumptions The main assumption is that the GORTT is committed to implementing the strategy, the reforms and support programmes envisaged in it. Further, action plans taken by the Government need to adequately permeate to operational levels to bear fruit. Some of the regulatory reforms listed in the strategy will need adequate preparation and strong government support to be successful. 3.4. Stakeholders The restructuring plan for Caroni (1975) Ltd. foresees a detailed plan for compensation measures for its former employees pension plans, training measures, allocation of agricultural/residential land. On September 25 2007 representatives of independent cane farmers had reached an agreement on a compensation package with the GORTT. 3.5. Crosscutting Issues Although the sugar industry in Trinidad and Tobago is male dominated, there is indirect impacts for dependent women and family as well as those engaged in other farming activities. Additional fallout effects could be expected, should males challenge current female occupational opportunities in the absence of traditional sugar occupations. The EC Multi- Annual Indicative Programme foresees a Strategic Environmental Assessment. The Environmental Management Authority (EMA) was associated in drafting the Terms of Reference for the Assessment and will be involved in its conduct. EN 7 EN
Item Directly Targeted Significant Indirect impact Not targeted Poverty Reduction Good Governance Environment Gender Human Rights 4. IMPLEMENTATION ISSUES 4.1. Method of implementation Direct centralised management. 4.2. Procurement procedures All contracts that are not under Sector Budget Support must be awarded and implemented in accordance with the procedures and standard documents laid down and published by the Commission for the implementation of external operations, in force at the time of the launch of the procedure in question. 4.3. Budget and calendar Trinidad and Tobago has been allocated 9,974,000 for 2008 under the Measures for Sugar Protocol Countries. The budget for the 2008 allocation is divided as follows: Disbursement Fixed tranche 3.774.000 Approx. by end of July 2009 Disbursement Variable tranche 6.000.000 Estimated by end of 2009 Technical Assistance, Studies 200.000 Commitments starting June 2009 Total 9.974.000 The operational duration of this Sector Policy Support Programme is 36 months from the signature of the Financing Agreement by the last party, followed by a closure period of 24 months resulting in an overall period of execution of 60 months. 4.4. Performance monitoring and criteria for disbursement The 2008 assistance will be disbursed in two tranches; a fixed tranche and a variable tranche. Payment of both tranches is subject to the Commission s assessment that the general conditions are met. The fixed tranche of 3.774.000 is payable upon request after signature of the AAP by the last party. The variable tranche of 6.00.000 will be payable upon materialisation of the process indicators that were agreed with GORTT. The PCU (National Strategic Management Group) will update the EC on the progress in implementation of the indicators on a regular basis and submit quarterly reports. Moreover, GORTT foresees an audit of its actions taken since 2003 before June 2009. 4.5. Evaluation and audit In the framework of the evaluation of the general EC assistance under the Accompanying Measures for Sugar Protocol Countries, the EC assistance to the T&T NAS will be evaluated in 2010 and before the decision for the 2010-2013 allocation will be made. An audit and evaluation on technical assistance will be conducted using funds from the AMSP 2007. EN 8 EN
4.6. Communication and visibility By using funds from AMSP 2007, the following communications activities are scheduled before the end of 2009: Comprehensive information on the programme on the EC webpage Signature ceremony for the 2008 allocation and, press release and media coverage of the event EN 9 EN