RAPPORTEUR GROUP

Programme, Budget and Administration

GR-PBA(2017)8

21 September 2017[1]

Unpaid contributions – Special measures Item to be considered by the GR-PBA at its meeting on 28 September 2017

 

1.         In accordance with Article 39 of the Statute, the full amount of the contributions due by the Russian Federation should have been paid by 30 June 2017. As of that date, the Russian Federation had paid €10 772K out of a total due of €33 035K.

2.         By letter dated 3 July 2017, the Russian Federation informed the Chair of the Committee of Ministers that the Russian Federation decided to suspend payment of its contributions to the budget of the Council of Europe for 2017 until restoration of the credentials of the delegation of the Federal Assembly of the Russian Federation within the Parliamentary Assembly of the Council of Europe. At the same time, the Russian Federation stated that it continues to fulfil its commitments within the Organisation.

3.         No payments have been received since.

The outstanding balance therefore amounts to €22 263K (i.e. 67.4% of the total due for 2017). The detail of the outstanding balance per budget is set out in the Appendix 1.

4.         In accordance with the Financial Regulations, late payment interest is charged on the outstanding balance at a rate of 0.5% per month for the first six months (i.e. €111K per month from July to December 2017) and at a rate of 1.0% thereafter (i.e. €223K per month).[2]

5.         The outstanding balance is a financial obligation of the Russian Federation towards the Organisation and is recorded in the accounting system as an account receivable, together with the accrued late payment interest, until they have been settled by the Russian Federation.

6.         The immediate consequence of the suspension by the Russian Federation of the payment is a lower cash flow in 2017. The Council of Europe currently has sufficient treasury – mainly due to the time lapse between income and expenditure – to cope with this situation, at least in the short term, until the financial obligation is settled by the Russian Federation.

7.         However, it is uncertain how long the non-payment of this financial obligation may last. It was therefore considered necessary to examine what measures could be taken to ensure a wise management of the cash flow until the financial obligation is settled. It has to be noted that a substantial part of expenditure is already committed, thus reducing the margin of manoeuver.

8.         The approach has been to strike a balance between caution, visible good governance and risk management, and an over-reaction which would damage our Organisation during this period. For instance, all statutory and politically important meetings foreseen for the end of the year should continue to be held.   

Managing the treasury

9.         The decision by the Russian Federation to suspend payment of its financial obligation affects three separate treasury streams:

a. the European Youth Foundation (EYF) for €0.380M;

b. the Pension Reserve Fund (PRF) for €2.534M;

c. general treasury budgets for €19.350M (Ordinary Budget €18.043M, Extraordinary Budget €0.590M, Pompidou Group €0.207M, Venice Commission €0.378M, GRECO €0.132M).

 

10.       It would therefore be natural to deal with each category separately:

 

a. for the EYF, the gap in the cash flow will be covered by freezing the award of grants by the end of 2018.

 

b. for the PRF, transfers are only made to the bank account of the PRF once the member States have settled their contributions, together with any late payment interest that has accrued on the debt. This will be the case for the Russian Federation’s debt.

 

c. for the remaining €19.350M, in the measures which have been put in place with senior management, the Secretary General has given priority to identifying areas where expenditure can be postponed on special accounts, particularly certain building expenditure (€2.190M) and IT investment (€2.104M) which were planned for this year and in other special accounts funded through budgetary resources (€2.655M) (total €6.949M).

In addition, measures involving deferment of expenditure on the 2017 Ordinary Budget and partial agreements concerned (for example: postponement of certain missions, consultancy contracts, publications, certain working group meetings, slowing down on new recruitments and temporary reinforcement, reduction in staff training) have also been identified (cf. Appendix 2). This deferred expenditure amounts to around €3.027M on the Ordinary Budget and €0.223M on the partial agreements concerned and requires the approval of the Committee of Ministers for its transferal to a special account where the appropriation would be frozen pending the payment of the outstanding balance of the Russian Federation’s contribution.

This approach strikes a balance between deferral of expenditure to a future period (€10.199M) and use of the cash flow at the disposal of the Organisation (€9.151M), while preserving the maximum of activities of the Organisation, notably high priority activities such as monitoring visits, steering committee meetings and statutory activities.

11.       It is based on the assumption that a political solution will be found. The Secretary General will continue to monitor the situation closely and may take other measures in due course as necessary.

12.       This document will be presented to the Budget Committee at its meeting on 25 September 2017.

Appendix 1: Obligatory contributions of the Russian Federation to the 2017 budgets of the Council of Europe

(€K)	Total Contributions 2017	Outstanding balance	% unpaid	Comments
Ordinary Budget	27 229	18 043	66.3%
Pension Reserve Fund	2 534	2 534	100%
Extraordinary Budget	590	590	100%
Youth Foundation	380	380	100%
Cultural Routes	40	-	-	Fully paid
Pompidou Group	208	207	99.21%	(i.e. 2015 credit balance deducted)
Natural Disasters	302	-	-	Fully paid
Eurimages	1 040	-	-	Fully paid
Venice Commission	380	378	99.50%	(i.e. 2015 credit balance deducted)
GRECO	135	132	97.21%	(i.e. 2015 credit balance deducted)
EPAS	170	-	-	Fully paid
Total outstanding balance	33 035	22 263	67.40%

Appendix 2: Deferment of expenditure on the 2017 Ordinary Budget and partial agreements concerned by programme line (in €K)

Ordinary Budget[3]

Partial agreements concerned