FC 108/7

Finance Committee

Table of Contents

I. Introduction

II. Implementation of the Support Cost Reimbursement Regime

III. Application of Support Cost Policy to the Decentralized Cooperation Programme (DCP)

IV. Conclusion

I. Introduction

1. This annual report provides information to the Committee on the implementation of the FAO support cost reimbursement policy for the last 12 months. In light of experience in its application, it draws the attention of the Committee to developments in the application of the support cost policy to projects. This document also reports on the situation surrounding projects financed through the Decentralized Cooperation Programme.

II. Implementation of the Support Cost Reimbursement Regime

2. The FAO policy for setting Project Servicing Costs (PSC) rates was endorsed by the Council in November 2000¹ and minor modifications were made in September 2001 and September 2002.² The policy is established on the principle that there should be a reasonable alignment of charges to actual costs, taking due regard of existing arrangements and the need for a simple and transparent approach.

3. Project Servicing Costs on Trust Funds may vary from the 13% ceiling when the variable indirect support costs on the project are expected to be lower. The function of appraising variations from standard rates is entrusted to the Office of Programme, Budget and Evaluation. The categories of projects to which PSC rates apply are defined as follows: Technical Assistance; Emergency Assistance, Normative Programmes and Jointly Funded Activities. Within each category and funding source, circumstances that merit a departure of PSC rates from the applicable ceiling rates are clearly spelled out.

4. The statistics in the table below cover the period 1 June 2003 through 31 May 2004, during which time FAO opened 575 Trust Fund projects. The table provides a categorised distribution of the PSC rates applied to these projects in terms of both project numbers and lifetime budgets. It is noted that all projects have been charged at rates which fall within the currently approved policy. TeleFood projects have been included for the first time in this table for the sake of completeness.

Table 1. Distribution of the categories of PSC rates applied

5. The above table demonstrates that the vast majority of projects are charged at their ceiling/recommended rates (i.e. lines 1-4 inclusive account for 99% of cases by value) and therefore that the policy’s flexibility is not being abused. As mentioned above, the remaining 1%, while resulting in reduced rates, do so within the approved policy.

6. The Committee’s attention is also drawn to the PIR 2002-03 (C 2005/8) where, under the Chapter on Organizational Performance, there is a substantial section on the Cost of Field Programme Support. This examines TSS and AOS costs for the last two biennia as well as the proportion recovered through PSC charges.

III. Application of Support Cost Policy to the Decentralized Cooperation Programme (DCP)

7. In line with one of the key strategies identified in the Strategic Framework 2000-2015, Broadening partnerships and alliances, the Director-General has taken steps to develop collaborative arrangements with a wide range of non-state actors in view of their increasing importance in development cooperation. These efforts follow a world-wide call for action at all levels to solve the most pressing problems of mankind, in particular the persistence of hunger and under-nutrition, as endorsed at the highest political levels by the World Food Summit in 1996 and the World Food Summit: five years later in 2002.

8. The Decentralized Cooperation Programme (DCP) focuses on local entities and sub-national government institutions at regional, provincial and municipal levels in developed and developing countries. The role and potential of these institutions in contributing to the achievement of world development goals is increasingly recognized by central governments and international agencies. Decentralized activities involving local governments in both developed and developing countries are rapidly becoming an important modality for international cooperation.

9. At its present initial stages, FAO action is mainly geared to mobilizing decentralized cooperation support from European countries which operate with a decentralized structure and delegation of competence to sub-national authorities, in particular Italy, France, Spain and Germany.³ FAO’s role is to support partnerships between North and South decentralized entities.

10. DCP projects are of an eminently practical nature, focusing on areas related to food security, such as as water harvesting and management, urban and peri-urban agriculture, microgardens, crop diversification and improvement of local markets. The emphasis is on direct people-to-people cooperation and joint work including project identification, formulation, implementation and evaluation. Efforts will be made to broaden project partnerships so as to include other actors, such as the private sector.

11. In view of the limited sums involved and the need to encourage civil society and local institutions to become active partners for development in the key areas of world food security and rural development, the Secretariat is seeking all means to minimize the project support costs applied to these technical assistance projects within the existing policy on PSC rates. This applies in particular to the contributions from local entities (so far only the Government of Italy co-finances projects) which are often raised directly from the citizenship in a similar fashion to TeleFood resources, for which support costs were waived by the Conference.

12. Based on the initial experience, the Secretariat will assess the extent of its involvement in providing administrative and operational support to such projects in order to ascertain if the rates should be adjusted due to the special circumstances of the DCP. However, the intent would be to minimize or eliminate the charge on the contributions of local administrations and to charge the co-financing partner(s) as applicable under the policy approved for the project in question. The Committee will be kept informed of any proposals arising from this activity.

IV. Conclusion

13. The Committee is invited to note the experience in the application of the policy on support cost reimbursements rates as well as the experience to date with projects under the DCP.

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¹ CL 119/13 Annex II, Review of Support Costs – Summary of Proposals, refers

² CL 121/4 Report of the Ninety-seventh Session of the Finance Committee, paragraphs 21-23 and FC 100/5 refer

³ The central governments of Italy, France and Spain provide extra-budgetary resources for the promotion and management of DCP. Discussions with Germany are underway and first reactions are very positive. At present, two projects co-financed by the Italian Ministry of Foreign Affairs and local Italian administrations are in operation (average size US$ 510 000, over a two to three-year period) and ten more are in the active pipeline. Five project proposals are under discussion with various “collectivités locales” in France.