PURPOSE: to grant discharge to the Joint Undertaking for ITER and the Development of Fusion Energy for the financial year 2014.

NON-LEGISLATIVE ACT: Decision (EU, Euratom) 2016/2160 of the European Parliament on discharge in respect of the implementation of the budget of the European Joint Undertaking for ITER and the Development of Fusion Energy for the financial year 2014.

CONTENT: with this Decision, the European Parliament granted the Director of the European Joint Undertaking for ITER and the Development of Fusion Energy discharge in respect of the implementation of the Joint Undertaking's budget for the financial year 2014.

This decision is in line with the European Parliament's resolution adopted on 27 October 2016 and comprises a series of observations that form an integral part of the discharge decision (please refer to the summary of the opinion of 27 October 2016).

Among Parliament’s main observations made in the resolution accompanying the discharge decision, it noted that due to the challenges currently faced by the ITER Project, the new Director General of the ITER Organisation presented to the ITER Council an action plan including specific measures to address the main constraints that are currently affecting the development of the ITER project.

Parliament welcomed, however, the conclusions of the ITER Council meeting in June 2016 which confirmed that the ITER project is now going in the right direction.

The European Parliament adopted by 436 votes to 170, with 15 abstentions, a decision to grant discharge to the Director of the Joint Undertaking for ITER and the Development of Fusion Energy in respect of the implementation of the budget of the ENIAC Joint Undertaking for the financial year 2014.

At the same time, Parliament approved the closure of ITER’s accounts.

Parliament also adopted by 441 votes to 166, with 19 abstentions, a resolution containing a number of recommendations that form an integral part of the discharge decision granted in plenary.

The principal observations made by Parliament may be summarised as follows:

Positive developments : Parliament welcomed the conclusions of the ITER Council meeting of 15 and 16 June 2016 which confirmed that the ITER Project is now going in the right direction, in a way that will allow for a realistic and detailed proposal for schedule and associated costs. The conclusions indicated the successful completion of all project milestones to date, on or ahead of schedule. Parliament noted that the milestones set up at the ITER Council meeting of 18 and 19 November 2015 are well advanced and that four out of the six milestones attributed to Fusion for Energy (“F4E”) for 2016 have already been fulfilled. Lease agreements : Parliament noted that the issue of the lease of the premises of the Joint Undertaking has been solved, as the Spanish government offered a long-term lease agreement for the current premises and an extension of the current office space by one additional floor. Intellectual property rights : Parliament welcomed the fact that, as of 1 January 2016, the new Financial Regulation and new Implementing Rules of the Joint Undertaking entered into force. It acknowledged that the Joint Undertaking has established a working definition of fusion/non-fusion application that facilitates establishing the scope of the exclusive use of Intellectual Property rights generated within the contracts. Staff Regulations : lastly, Parliament noted the partial implementation of the Staff Regulations and encourages the Joint Undertaking to continue implementing the remaining regulations

The Committee on Budgetary Control adopted the second report by Marian-Jean MARINESCU (EPP, RO) on discharge in respect of the implementation of the budget of the ITER and the Development of Fusion Energy for the financial year 2014.

The committee called on the European Parliament to grant the Director of the European Joint Undertaking for ITER and the Development of Fusion Energy discharge in respect of the implementation of the Joint Undertaking’s budget for the financial year 2014 .

In parallel, Members called on the Parliament to close the accounts of the Joint Undertaking for 2014.

They made a series of specific recommendations which may be summarised as follows:

Positive development : Members welcomed the conclusions of the ITER Council of 15 and 16 June 2016 which confirmed that the ITER Project is now going in the right direction , in a way that will allow for a sound, realistic and detailed proposal for schedule and indicated that the successful completion of all project milestones to date, on or ahead of schedule, is a positive indicator. They welcomed the position of the ITER Council that a sharp focus on the core elements through First Plasma should effectively reduce ITER Project risks and that the updated Integrated Schedule represents the best technically achievable path forward. Members noted that the milestones set up at the ITER Council meeting of 18 and 19 November 2015 are well advanced and that four out of the six milestones attributed to Fusion for Energy (F4E) for 2016 have already been fulfilled. Lease agreements : Members noted that the issue of the lease of the premises of the Joint Undertaking has been solved, as the Spanish government offered a long-term lease agreement for the current premises and an extension of the current office space by one additional floor. Intellectual property rights : Members welcomed the fact that, as of 1 January 2016, the new Financial Regulation and new Implementing Rules of the Joint Undertaking entered into force. They acknowledged that the Joint Undertaking has established a working definition of fusion/non-fusion application which facilitates establishing the scope of the exclusive use of Intellectual Property rights generated within the contracts.

The European Parliament decided by 594 votes to 30, with 5 abstentions, to postpone the decision to grant discharge to the Director of the European Joint Undertaking for ITER and the Development of Fusion Energy for the financial year 2014.

It postponed the closure of the accounts of the Joint Undertaking (in accordance with Annex V, Article 5 (1)(b) to Parliament’s Rules of Procedure.

Parliament adopted by 570 votes to 55 with 7 abstentions, a resolution containing a series of recommendations, which form an integral part of the decision on discharge and which add to the general recommendations set out in the resolution on performance, financial management and control of EU agencies:

Budget and financial management : Parliament noted that the Court of Auditors, in its report, emphasised the fact that the Council, in 2011, had approved EUR 6.6 billion (in 2008 values) for the Joint Undertaking contribution to the ITER construction phase of the project. That figure is double the initial budgeted costs for this phase of the project and did not include EUR 663 million proposed by the Commission in 2010 to cover potential contingencies. Although the ITER Organization set up a Reserve Fund with the aim of providing a clearer mechanism that compensates the domestic agencies for design changes, Parliament called on ITER to adopt solutions that minimise costs in an attempt to rectify the weakness identified by 2013 ITER Management Assessment . Parliament considered that the significant increase of the project costs may put in danger other programmes which are also financed by the Union budget and may be contradictory to the ''value-for-money'' principle . It also noted with concern that the amount of the contribution to the construction phase of the project by the Joint Undertaking is exposed to significant risks of increase due to changes in the scope of the project deliverables and delays in the current schedule which was considered to be unrealistic . It also noted that the latest estimate of the shortfall (negative contingency) until the finalisation of the construction phase, calculated by the Joint Undertaking in November 2014, was EUR 428 million (2008 values). Parliament acknowledged that the Joint Undertaking is currently working on a more accurate and updated estimate through cost-containment measures and that cost control will continue to be a priority at global project management level under the leadership of the new Director General of the ITER Organization. Action plan : Parliament stressed that because of the problems currently faced by the ITER project, the new Director-General of the ITER Organisation presented an action plan setting out specific measures to tackle the main issues facing the project's progress. It noted that the Commission publically stated that it had “rejected” the proposed action plan made by the new Director General of the ITER Organization. It urged the new Director General of the ITER Organization to present publically the new ITER action plan which clearly avoids any further delay or additional costs to the ITER Project. It noted that the Joint Undertaking has implemented a central system to manage costing data in order to maintain close control of the evolution of the budget and to monitor cost deviations on a regular basis.

Parliament made a series of observations on conflicts of interest in the joint undertaking, procurement, the headquarters agreement with Spain, working conditions, controls in the joint undertaking, and its legal framework, as well as intellectual property rights in regard to exclusive exploitation rights over intellectual property produced in fields outside fusion.

The Committee on Budgetary Control adopted the report by Marian-Jean MARINESCU (EPP, RO) on discharge in respect of the implementation of the budget of the European Joint Undertaking for ITER and the Development of Fusion Energy for the financial year 2014.

The parliamentary committee calls on the European Parliament to postpone its decision to grant the Director of the joint undertaking the discharge in respect of the implementation of the joint undertaking's budget for the financial year 2014 .

Accordingly, Members call on Parliament to delay the approval the closure of the joint undertaking’s accounts.

They made, however, a number of recommendations that need to be taken into account when the discharge is granted. They may be summarised as follows:

Budget and financial management: Members note that the Court of Auditors, in its report, emphasised the fact that the Council, in 2011, had approved EUR 6.6 billion (in 2008 values) for the Joint Undertaking contribution to the ITER construction phase of the project. That figure is double the initial budgeted costs for this phase of the project and did not include EUR 663 million proposed by the Commission in 2010 to cover potential contingencies. Although the ITER Organization set up a Reserve Fund with the aim of providing a clearer mechanism that compensates the domestic agencies for design changes, Members call on ITER to adopt solutions that minimise costs in an attempt to rectify the weakness identified by 2013 ITER Management Assessment . Members consider that the significant increase of the project costs may put in danger other programmes which are also financed by the Union budget and may be contradictory to the ''value-for-money'' principle. They also note with concern that the amount of the contribution to the construction phase of the project by the Joint Undertaking is exposed to significant risks of increase due to changes in the scope of the project deliverables and delays in the current schedule which was considered to be unrealistic . They also note that the latest estimate of the shortfall (negative contingency) until the finalisation of the construction phase, calculated by the Joint Undertaking in November 2014, was EUR 428 million (2008 values). Action plan: Members stress that because of the problems currently faced by the ITER project, the new Director-General of the ITER Organisation presented an action plan setting out specific measures to tackle the main issues facing the project's progress. They note that the Commission publically stated that it had “rejected” the proposed action plan made by the new Director General of the ITER Organization. They urge the new Director General of the ITER Organization to present publically the new ITER action plan which clearly avoids any further delay or additional costs to the ITER Project.

Members make a series of observations on conflicts of interest in the joint undertaking, procurement, the headquarters agreement with Spain, working conditions, controls in the joint undertaking, and its legal framework, as well as intellectual property rights in regard to exclusive exploitation rights over intellectual property produced in fields outside fusion.

Having examined the revenue and expenditure accounts for the financial year 2014 and the balance sheet as at 31 December 2014 of the European Joint Undertaking for ITER and the Development of Fusion Energy, as well as the Court of Auditors' report on the annual accounts of the Joint Undertaking for the financial year 2014, accompanied by the Joint Undertaking's replies to the Court's observations, the Council recommended the European Parliament to give a discharge to the Director of the Joint Undertaking in respect of the implementation of the budget for the financial year 2014.

The Council welcomed the Court's opinion that, in all material respects, the Joint Undertaking's annual accounts present fairly its financial position as at 31 December 2014 and the results of its operations and its cash flows for the year then ended, in accordance with the provisions of the Joint Undertaking's Financial Regulation, and that the underlying transactions for 2014 are legal and regular in all material respects.

Nevertheless, the Council made the following observations:

financial programming : the Council noted with regret the low implementation rate for payment appropriations and called on the Joint Undertaking to further improve its financial programming and monitoring of the budget implementation. Even though the Council recognised the multiannual nature of the Joint Undertaking's activities and the important slippage of the entire ITER project, it maintained that it is of utmost importance to respect budgetary principles, such as the principle of annuality and to reduce the level of carry-overs to the strict minimum; control systems : the Council welcomed the progress made with regard to the Joint Undertaking's supervisory and control systems. However, it noted that weaknesses still persist as regards the monitoring and control of cost estimates and the degree of implementation of activities, the follow-up of internal audit recommendations, the monitoring and follow-up of contract implementation in the area of ITER buildings, the managing of risks related to contract management and delays in addressing the risks identified by the Fusion for Energy internal risk management system. The Council, therefore, urgently called on the Joint Undertaking to continue following up the identified risks and improving its supervisory and control systems; procurement and grant award procedures : the Council regretted that numerous weaknesses were detected by the Court. It called on the Joint Undertaking to maximise the competitiveness of its procurement procedures and grant contract management, to improve the information it provides on contract allocations in order to calculate cost deviations from the capped budget, to avoid deviations from the cost baselines identified, to more carefully assess financial offers, to respect the target dates for its procurement procedures and to improve its assessment of the scope of activities required and of the offers received under procurement procedures; intellectual property : the Council welcomed the fact that the Joint Undertaking has concluded contractual clauses ensuring that it maintains the right of access to the full intellectual property rights and that it remains able to transfer these rights, and it called on the Joint Undertaking to ensure that those clauses are observed; host state agreement : the Council encouraged the Joint Undertaking to pursue its negotiations with the host Member State to conclude a Host State agreement.

The Council noted with concern the Court's remarks about the significant risk of further increases in the cost of the ITER project, which has been estimated at EUR 428 million in November 2014 . Taking into account that the Council, in its conclusions of 7 July 2010, agreed to finance the construction phase of the ITER project with up to EUR 6.6 billion, the Council called on the Joint Undertaking to urgently establish the central and uniform system to integrate all the operational data and to allow regular monitoring and controlling of estimates that the Joint Undertaking is working on. The Council, reiterated its call on the Joint Undertaking to show the degree of advancement of the work in progress in its financial statements in order to appropriately reflect the status and value of the activities carried out by the Joint Undertaking so far.

PURPOSE: presentation of the EU Court of Auditors’ report on the annual accounts of Fusion for Energy Joint Undertaking for the financial year 2014, together with the Joint Undertaking’s replies.

CONTENT: in accordance with the tasks conferred on the Court of Auditors by the Treaty on the Functioning of the European Union, the Court presents to the European Parliament and to the Council, in the context of the discharge procedure, a Statement of Assurance as to the reliability of the annual accounts of each institution, body or agency of the EU, and the legality and regularity of the transactions underlying them, on the basis of an independent external audit.

This audit concerned, amongst others, the annual accounts of the F4E – ITER and the Development of Fusion Energy.

Statement of assurance : pursuant to the provisions of Article 287 of the Treaty on the Functioning of the European Union (TFEU), the Court has audited:

the annual accounts of the F4E, which comprise the financial statements and the reports on the implementation of the budget for the financial year ended 31 December 2014; the legality and regularity of the transactions underlying those accounts.

External auditor : it should be noted that 2014 is the first year whereby the annual accounts of F4E were verified by an independent external auditor (audit firm) according to Article 208(4) of the EU Financial Regulation and Article 107(1) of the new framework financial Regulation for agencies and other bodies. The Court’s opinion on these accounts considered the audit work performed by the independent external auditor and the action taken in response to the auditor’s findings.

Opinion on the reliability of the accounts : in the Court’s opinion, the Joint Undertaking’s annual accounts present fairly, in all material respects, its financial position as at 31 December 2014, and the results of its operations and its cash flows for the year then ended in accordance with the provisions of its financial rules and the rules adopted by the Commission’s accounting officer.

Opinion on the legality and regularity of the transactions underlying the accounts : in the Court’s opinion, the transactions underlying the annual accounts for the year ended 31 December 2014 are, in all material respects, legal and regular.

Cost control mechanism : the Court’s report also draws attention to the EU’s contribution to ITER’s construction phase. The cost fixed by the Council in 2010 amounted to EUR 6.6 billion. The Court considers that the complexity of F4E activities implies that this amount is exposed to significant risks of increase due to changes in the scope of the project deliverables and delays in the current schedule, which is considered unrealistic.

The latest estimate of the shortfall until the finalisation of the construction phase was EUR 428 million. The Joint Undertaking estimated the slippage for the construction phase of the project at the time of the audit (March 2015) to be at least 43 months. Bearing the risks in mind, the Joint Undertaking is developing a central and uniform system to allow regular monitoring and controlling of estimates and costs but has not updated the valuation of the Joint Undertaking contribution to the ITER project beyond the finalisation of the construction phase. It has an action plan with specific measures to address the main constraints that are currently affecting the development of the project.

The audit also revealed the following points:

budgetary and financial management : the budgetary implementation rate for commitment appropriations ranged between 90 % and 100 % for most Joint Undertakings including F4E and the rate for payment appropriations ranged between 74 % and 100 %; procurement : the Court notes that with regard to calls for proposals, the final rate of appropriations committed achieved a figure between 90 % and 100 %, including F4E;

Internal control : the Court of Auditors notes that significant progress has been achieved in many areas but that it still needs to increase the competitiveness of procurement procedures, which is essential for the implementation of the ITER project. Regarding grants, the average number of proposals received was only 1 per call.

Cross-cutting remarks for all the Joint undertakings : the monitoring and reporting of research results is laid down in the Seventh Framework Programme (FP7). In the grant agreements signed with members and other beneficiaries, the Joint Undertakings have included specific provisions governing intellectual property rights and the dissemination of research activities and results. The implementation of these provisions is monitored by the Joint Undertakings at different stages of the funded projects and significant progress has been achieved in 2014. However, in order to meet the requirements of Horizon 2020 and to better contribute to the dissemination of FP7 research results, the Court considers that cooperation between the Joint Undertakings and the Commission must be developed as much as possible with special regard to the further integration of some of the Joint Undertakings’ data into the Commission’s systems.

The Court also indicates that there is room to improve procedures, in particular in the implementation of the ex-post audit strategy, and cooperation with the Commission as regards the integration of the research results.

Replies of the Joint Undertaking: the Joint Undertaking replies point by point to all the technical remarks made by the Court of Auditors. It notes that in the past years F4E has been asked to implement a project with inherent technical challenges and management boundary conditions which have hardly any precedent worldwide: in the context of the already huge challenges of implementing a first-of-a-kind technically complex device like ITER, technical specifications are based on inputs largely provided by another entity, the ITER Organization (IO), and deviations to specifications, even during contract implementation, are extremely frequent. F4E has been at the receiving end of these, having to implement them mostly without any compensation.

The adoption in 2011 by the ITER Council of the so called ‘MAC-10 guidelines’, defining the responsibilities to be assumed for funding design changes and originally introduced with the objective to streamline decision making processes, has aggravated instead of improving the situation described above. This has led to a modest Systems/Value Engineering endeavour in the IO integration, with cost overruns and further tensions developing amongst IO and all Domestic Agencie s. This problem is severe for all Domestic Agencies, but in particular for F4E, where the impact of constant changes on components affects the buildings almost by ‘default’.

F4E also indicates that cost clearly depends on work scope (i.e. design), and even more so when alterations are required during the very construction phase. The fact that the latter is largely under the control of IO and its governance, and the former of F4E, clearly shows a misalignment of responsibilities .

This is one of the most challenging aspects of the ITER project, as identified in the European Parliament’s 2013 study on cost effectiveness of the ITER project by Ernst and Young. In short, due to the very set up of the agreement and its instruments, a significant fraction of the costs which F4E has to absorb are not under its direct control.

The Joint Undertaking notes that the capped budget for the current financial framework was established on the assumptions of the exercise carried out in 2008, but that this does not mean in any way that there is no system for monitoring costs . In fact there is already a fully operational system to control and monitor costs at the level of the procurement arrangement, but F4E did not have in place at the time of the audit (March 2015) all the data at level 6 (contracts). F4E did estimate costs in the individual project teams but not in a centralised and uniform manner.

With regard to the activities of the Joint Undertaking in 2014 , the report refers to the Joint Undertaking’s latest available annual activity report for 2014 available at the following address: http://www.fusionforenergy.europa.eu/ .

It should be noted that the budget for the Joint Enterprise was EUR 550.6 million of final revenue (payment appropriations) of which 77 % is funded by Community contribution.

PURPOSE: presentation by the Commission of the consolidated annual accounts of the European Union for the financial year 2014, as part of the 2014 discharge procedure.

Analysis of the accounts of the Fusion for Energy Joint Undertaking – ITER project.

CONTENT: this Commission document sets out the consolidated annual accounts of the European Union for the financial year 2014 as prepared on the basis of the information presented by the institutions, organisations and bodies of the EU, in accordance with Article 148 (2) of the Financial Regulation applicable to the EU's General Budget, including the F4E Joint Undertaking for the ITER project.

The document contains the figures on which the discharge procedure is based.

On this basis, the Financial Controller of the European Commission ensures the certification of the consolidated accounts as declared by the institutions, agencies and joint undertakings of the European Union.

Discharge procedure of the EU Joint Undertakings : the EU Budget finances a wide range of policies and programmes throughout the EU. In accordance with the priorities set by the European Parliament and the Council in the multi-annual financial framework (MFF), the European Commission carries out specific programmes, activities and projects in the field with the technical support of some specialised agencies.

The consolidated annual accounts of the EU provide information on the activities of the institutions, agencies and other bodies of the EU from a budgetary and accrual accounting perspective.

The consolidated reports on the implementation of the general budget of the EU include the budget implementation of all Institutions. Agencies and Joint Undertakings (JUs) do not have a separate budget inside the EU budget ; and they are partially financed by a Commission budget subsidy.

This document sets out how the Joint Undertakings spent and implemented their budget in 2014. Each JU is subject to its own discharge procedure.

F4E : in 2014, the tasks and budget of the Joint Undertaking were as follows:

F4E and ITER : the F4E Joint Undertaking, located in Barcelona (ES), is the technical and organisational structure to provide Euratom’s contribution to the ITER international project (whose main facilities are located in Cadarache - FR). The JU was set up under Council Decision 2007/198/Euratom for a period of 35 years. ITER involves the EU and China, India, Russia, South Korea, Japan and USA. It was created to manage the ITER facilities, to encourage the exploitation of the ITER facilities, to promote public understanding and acceptance of fusion energy, and to undertake any other activities that are necessary to achieve its purpose; accounts of the JU : the EU (Euratom) contribution to ITER International is given through the Fusion for Energy Agency , including also the contributions from Member States and from Switzerland. The total contribution is legally considered as a Euratom contribution to ITER since the Member States and Switzerland do not have ownership interests in ITER. As the EU legally holds the participation in the joint venture ITER International, the Commission must recognise the participation in its accounts. At 31 December 2014, the Commission held 40.61% of the ownership participation in ITER. The accounts of the JU for the year 2014 as presented by the Commission in its document on the consolidated annual accounts of the European Union are as follows:

Commitment appropriations :

- committed : EUR 1.169 billion;

- paid : EUR 1.169 billion;

- carried-over : 0.

Payment appropriations :

- committed : EUR 573 million;

- paid : EUR 507 million;

- carried-over : EUR 38 million.

Please also consult the final accounts of the Fusion4Energy Joint Undertaking .

PURPOSE: presentation by the Commission of the consolidated annual accounts of the European Union for the financial year 2014, as part of the 2014 discharge procedure.

Analysis of the accounts of the Fusion for Energy Joint Undertaking – ITER project.

CONTENT: this Commission document sets out the consolidated annual accounts of the European Union for the financial year 2014 as prepared on the basis of the information presented by the institutions, organisations and bodies of the EU, in accordance with Article 148 (2) of the Financial Regulation applicable to the EU's General Budget, including the F4E Joint Undertaking for the ITER project.

The document contains the figures on which the discharge procedure is based.

On this basis, the Financial Controller of the European Commission ensures the certification of the consolidated accounts as declared by the institutions, agencies and joint undertakings of the European Union.

Discharge procedure of the EU Joint Undertakings : the EU Budget finances a wide range of policies and programmes throughout the EU. In accordance with the priorities set by the European Parliament and the Council in the multi-annual financial framework (MFF), the European Commission carries out specific programmes, activities and projects in the field with the technical support of some specialised agencies.

The consolidated annual accounts of the EU provide information on the activities of the institutions, agencies and other bodies of the EU from a budgetary and accrual accounting perspective.

The consolidated reports on the implementation of the general budget of the EU include the budget implementation of all Institutions. Agencies and Joint Undertakings (JUs) do not have a separate budget inside the EU budget ; and they are partially financed by a Commission budget subsidy.

This document sets out how the Joint Undertakings spent and implemented their budget in 2014. Each JU is subject to its own discharge procedure.

F4E : in 2014, the tasks and budget of the Joint Undertaking were as follows:

F4E and ITER : the F4E Joint Undertaking, located in Barcelona (ES), is the technical and organisational structure to provide Euratom’s contribution to the ITER international project (whose main facilities are located in Cadarache - FR). The JU was set up under Council Decision 2007/198/Euratom for a period of 35 years. ITER involves the EU and China, India, Russia, South Korea, Japan and USA. It was created to manage the ITER facilities, to encourage the exploitation of the ITER facilities, to promote public understanding and acceptance of fusion energy, and to undertake any other activities that are necessary to achieve its purpose; accounts of the JU : the EU (Euratom) contribution to ITER International is given through the Fusion for Energy Agency , including also the contributions from Member States and from Switzerland. The total contribution is legally considered as a Euratom contribution to ITER since the Member States and Switzerland do not have ownership interests in ITER. As the EU legally holds the participation in the joint venture ITER International, the Commission must recognise the participation in its accounts. At 31 December 2014, the Commission held 40.61% of the ownership participation in ITER. The accounts of the JU for the year 2014 as presented by the Commission in its document on the consolidated annual accounts of the European Union are as follows:

Commitment appropriations :

- committed : EUR 1.169 billion;

- paid : EUR 1.169 billion;

- carried-over : 0.

Payment appropriations :

- committed : EUR 573 million;

- paid : EUR 507 million;

- carried-over : EUR 38 million.

Please also consult the final accounts of the Fusion4Energy Joint Undertaking .