| FC 93/24(c)
|
| FC 93/24(c)
|
Ninety-third Session |
Rome, 13 - 17 September 1999 |
Amendment of Financial Regulations 6.9 and 7.1 to provide for the Establishment of a Revolving Fund for FAO Products and Related Services (other than Information Products) |
II. DESCRIPTION OF RECENT EXAMPLES OF SEMI-COMMERCIAL PRODUCTS
III. DIFFICULTIES ARISING IN THE CASE OF SEMI-COMMERCIAL PRODUCTS
BACKGROUND
The Programme Committee, at its Eighty-first Session in May 1999, in considering the Programme Evaluation Report for 1998-99, "requested that proposals of Secretariat regarding the handling of the semi-commercial products eventually developed under the FAO programmes be presented for the Guidance of the Governing Bodies"1.
The attached document has been prepared for the consideration of the Finance Committee at its Ninety-third Session (Rome, 13 - 17 September 1999). The views of the Finance Committee will be presented to the CCLM in order that the CCLM may consider the proposed amendments of Financial Regulations.
DRAFT DOCUMENT TO BE CONSIDERED BY THE FINANCE COMMITTEE
1. Financial Regulation 7.1 provides that all receipts other than contributions to the budget, direct refunds of expenditures made during the financial period, advances to the Working Capital Fund, or receipts directly related to Trust or Special Funds, should be classed as Miscellaneous Income for credit to the General Fund. An exception is made in the case of the proceeds of sales of information products and revenue from advertising in and sponsorship of such products, which are to be paid into a Information Products Revolving Fund established under Financial Regulation 6.9, thus allowing for the ploughing back of such proceeds into the further development of information products.
2. FAO is becoming increasingly involved in the development of semi-commercial products, other than information products, derived from innovations in the course of work on approved programmes and projects. Examples are the Microbanker software and a new technology for the processing of coconut water. The maintenance and further development of such products entail additional expenses, which can be met from sales of the products, most commonly in the form of commercial or semi-commercial licensing arrangements, without endangering the public interests of the Organization. There may also be expenses involved in the protection of intellectual property rights over such products, particularly where patenting is involved, which could similarly be covered by the proceeds of sales and licensing arrangements. Such products fall outside the purview of the Information Products Revolving Fund and thus proceeds from sales or licensing arrangements cannot be ploughed back into the maintenance and further development of such products.
3. The Programme Evaluation Report for 1998-99 presented to the Programme Committee at its Eighty-first Session in May 1999 drew attention to this difficulty, noting that while it may often be appropriate to turn over such activities to the private sector, there are circumstances where, in the interest of development, FAO needs to maintain the service. For such cases, the Programme Evaluation Report concluded that the existing internal financial and administrative mechanisms are not appropriate and suggested that proposals should be made to the Conference for an appropriate FAO revolving financial facility to be established on a trial basis, enabling such products to be marketed and supported with funds ploughed back for their development and maintenance, with carry over of working capital. In considering the Programme Evaluation Report, the Programme Committee2 "requested that proposals of the Secretariat regarding the handling of the semi-commercial products eventually developed under the FAO programmes be presented for the Guidance of the Governing Bodies".
4. The present proposal, developed in response to the request of the Programme Committee, recommends extending the scope of Financial Regulation 6.9 to provide for a new Revolving Fund for FAO Products and Related Services other than Information Products. Such extension would require an amendment to Financial Regulation 6.9, and a consequential amendment to Financial Regulation 7.1, to be adopted by the FAO Conference.
5. The Microbanker software was developed by FAO some ten years ago under a project in order to assist financial co-operatives and small rural banks. The software, over which FAO holds the copyright, has proved very successful and popular and is used by 1100 small rural banks3. It is now felt that this DOS-based software is antiquated and there are demands to improve the product in order to make it more versatile and user-friendly. GTZ agreed to finance the first stage of the production of a Windows version, now under way, which copyright will be jointly owned by FAO and GTZ.
6. Meanwhile, FAO and GTZ have been approached by a company which produces banking software [Banking Partners International (BPI), with offices in Berlin and Singapore]. This company expressed its willingness to finance software development beyond what is being currently done under the arrangement with GTZ. The additional investment required would be some 4-5 Million Deutschmarks. In return for the investment BPI proposes the following licensing mechanisms and market segmentation for the distribution of the new product. Sales to banks with total assets of more than US$ 500 Million would be made by BPI without restriction; with a small royalty being paid to FAO. Sales to smaller banks of assets of US$ 500 Million or less would be the prerogative of FAO/GTZ, with a small royalty share being paid to BPI. Under this arrangement, FAO would be able to ensure that the Microbanker software is maintained and made available to rural banks and to developing Member Nations on concessional terms. AGS is proceeding with negotiations with GTZ and BPI on the basis of the foregoing and a draft tripartite agreement is under preparation.
7. During the course of a project in Dominica, a new technology has been developed for the processing of coconut water through a cold filtration process. Coconut water produced in this fashion is a natural and popular sports drink. FAO has applied for patent protection on this process in four potential market countries and is now developing a licensing policy. The objectives of patenting the process have been described as: to ensure that the process remains available to small companies in developing countries and is not taken over by large corporations (defensive patenting); to provide publicity for FAO and enhance its image and reputation as a "Centre of Excellence" with Member States and the private sector; and to produce revenue for FAO. One possible strategy for the licensing policy may be:
8. One of the problems causing concern in the management of both the Microbanker and the Coconut Water innovations, is the restriction in the Financial Regulations concerning the use of moneys received from sales or under commercial licensing arrangements. While both innovations were being managed under projects, the proceeds of sales or licensing arrangements could be ploughed back into the appropriate trust fund to support the costs of further development and intellectual property protection, where appropriate.4 Where the innovation is being managed under the Regular Programme, however, the situation is different.
9. Under Financial Regulation 7.1,5 all moneys received from sales or under commercial or semi-commercial licensing arrangements are automatically classified as "Miscellaneous Income" to be credited to the General Fund. As such, these moneys are subject to the provisions of Financial Regulations 4.1 and 4.2, cannot be programmed outside the Regular Programme budget of the Organization, cannot be carried over from one financial period to the next, and thus cannot be ploughed back into the further development and maintenance of the FAO generated innovation.
10. Faced with a similar problem of managing publications and other information products, the Conference established a Information Products Revolving Fund under Financial Regulation 6.9 in order to allow for the proceeds of the sale of information products to be ploughed back into the development of further information products and for the carrying forward of proceeds from one biennium to another. Financial Regulation 6.9 reads as follows:
"6.9 There shall be established an Information Products Revolving Fund to which shall be credited the proceeds of sales of information products and the revenue from advertising in and sponsorship of such products, except that where extra-budgetary funds are used to finance those information products, the proceeds of sales may be credited to such funds. The Fund shall be used only for the following purposes:
Any balance at the end of each financial period in excess of such sums as may be approved by the Finance Committee to cover commitments in respect of expenditures proposed by the Director-General for the following biennium shall be transferred to Miscellaneous Income."
11. The wording of Financial Regulation 6.9 as it currently stands, would not cover products of the type of Microbanker or the coconut water technology. It is thus proposed that Financial Regulation 6.9 be expanded to provide for the establishment of a Revolving Fund for FAO Products and Related Services other than Information Products as follows:
"6.9 There shall be established
(a) an Information Products Revolving Fund to which shall be credited the proceeds of sales of information products and the revenue from advertising in and sponsorship of such products, except that where extra-budgetary funds are used to finance those information products, the proceeds of sales may be credited to such funds. The Fund shall be used only for the following purposes:
- to meet the direct costs of reproducing those information products for the sale of which there is a demand or reproducing new information products;
- to pay, from within the resources available to the Fund, the direct costs, including costs of human resources and equipment, not covered by the Programme of Work and Budget, required for the sale and marketing of all such information products; and
- to credit the originating divisions with such proportion of the proceeds credited to the Fund, up to 20 percent thereof, as may be determined by the Director-General, to be utilized within the biennium in which it is credited.
Any balance at the end of each financial period in excess of such sums as may be approved by the Finance Committee to cover commitments in respect of expenditures proposed by the Director-General for the following biennium shall be transferred to Miscellaneous Income.
(b) a Revolving Fund for FAO Products and Related Services other than Information Products to which shall be credited the proceeds of sales of such products as well as proceeds derived from licensing and other arrangements for their use, except that where extra-budgetary funds are used to finance the development of such products, such proceeds may be credited to such funds. The Fund shall be used only for the following purposes:
(i) to meet the direct costs of maintaining and further developing such products and making them widely available, and for developing new products;
(ii) to pay for direct costs of the production, sale and marketing of all such products, and protection of the property rights of these products.
Any balance at the end of each financial period in excess of such sums as may be approved by the Finance Committee to cover commitments in respect of expenditures proposed by the Director-General for the following biennium shall be transferred to Miscellaneous Income."
12. Consequential amendments to Financial Regulation 7.1 would be as follows:
Regulation VII
Other income
7.1 Contributions from Associate Members and all receipts other than:
(a) contributions from Member Nations to the budget;
(b) direct refunds of expenditures made during the financial period;
(c) advances by Member Nations to the Working Capital Fund or deposits to Trust and Special Funds and other receipts directly related to those funds; and
(d) proceeds of sales of information products and the revenue from advertising in and sponsorship of such products, and proceeds of sales of FAO products, and related services other than information products, developed by FAO, and proceeds derived from licensing and other arrangements for their use,
shall be classified as Miscellaneous Income, for credit to the General Fund. Interest or other income derived from any Trust or Special Fund accepted by the Organization shall be credited to the fund to which it relates, unless provided for otherwise by the terms of the applicable Trust or Special Fund agreement.
13. The Committee is invited to review the above proposal and to recommend to the Conference, through the Council, the approval of the proposed amendment to Financial Regulations 6.9 and 7.1.
1 Report of the Eighty-first Session of the Programme Committee, para 21.
2 Report of the Eighty-first Session of the Programme Committee, para 21.
3 At present, Microbanker is sold under license from FAO, as follows: US$ 800 for the regular version, US$ 8,000 for the developer version and US$ 50,000 for an unlimited number of site licenses.
4 In this connection it should be noted that no expenses are involved in claiming copyright protection, but that the costs of applying for patent protection and maintaining such protection may be substantial.
5 Financial Regulation 7.1 provides as follows:
"Contributions from Associate Members and all receipts other than:
(a) contributions from Member Nations to the budget;
(b) direct refunds of expenditures made during the financial period;
(c) advances by Member Nations to the Working Capital Fund or deposits to Trust and
Special Funds and other receipts directly related to those funds; and
(d) proceeds of sales of information products and the revenue from advertising in and
sponsorship of such products shall be classified as Miscellaneous Income, for credit to
the General Fund. Interest or other income derived from any Trust or Special Fund accepted
by the Organization shall be credited to the fund to which it relates, unless provided for
otherwise by the terms of the applicable Trust or Special Fund agreement.
