Under the new Structural Fund Regulations which apply to the current programming period, the European Commission with the encouragement of the member states introduced a new financial discipline simply referred to as N+2. In effect what this means is that each Structural Fund Programme must formally declare a level of expenditure equivalent to its first 2 years Structural Fund allocation by 31 December 2003. In the case of the East of Scotland Objective 2 Programme, the target figure is €74m which converts to £53m at the June 2003 exchange rate. The current level of grant claims is £21m and although the position is improving week by week you will understand that both the Scottish Executive and the European Commission are extremely concerned over the considerable gap between the current payment level and the target figure.

Since October 2002 when we presented an N+2 Action Plan to the Programme Monitoring Committee we have been actively engaged in encouraging live project applicants to submit payment claims more frequently and more timeously. In addition, we are also proactively promoting and progressing a number of priority actions and options which will help generate additional spend before the end of this year. However, and notwithstanding the considerable effort that is currently being undertaken to achieve improved performance on expenditure within the Programme, we remain concerned that not enough priority and attention is being paid by project applicants to submit payment claims.

Accordingly, I would ask that where your organisation is implementing live projects under this Programme you personally intervene to determine current performance in submitting payment claims. Certainly, we are aware from project expenditure profiles that we should expect to see before the end of the year payment claims in relation to declared expenditure of the order of £60m. However, we are also aware that some projects are behind schedule for a variety of reasons and for these projects the current expenditure schedule will require to be re-profiled. At minimum we require this latest intelligence in order to have a better idea of forecast expenditure and the likely extent of the shortfall in declared expenditure.

As regards any shortfall in achieving the target payment figure is concerned, you should be aware that the amount of any shortfall will be lost to the Programme for the duration of the programming period. Should this prove to be the case the consequences both financial and political will be extremely uncomfortable for all concerned.

Once again I would appeal to you to treat this matter seriously and urgently and should you require any further information or indeed advice please do not hesitate to contact me or Nigel Thomas, Assistant Chief Executive. It is possible that we are already speaking to key members of your staff in this regard but if not we stand ready to respond as a matter of priority. Thanking you in anticipation for your co-operation in this matter.


GORDON McLAREN
CHIEF EXECUTIVE


20 June 2003