Dear Mrs S.,
On 3 August 1998, you lodged a complaint with the European Ombudsman concerning a contract financed by the 7th European Development Fund. You claimed that no agreement could be reached with the European Commission to compensate for the losses incurred further to the devaluation of the Franc CFA (FCFA) in Chad in 1994.
On 4 November 1998, I forwarded the complaint to the President of the European Commission. The European Commission sent its opinion on 1 March 1999 and I forwarded it to you with an invitation to make observations, if you so wished. I received your observations on 4 May 1999. On 26 May 1999, I asked the Commission for additional information. The Commission's additional opinion was twice forwarded to you, on 6 August and 8 October 1999. You sent me your additional observations on 26 November 1999. On 13 December 1999, I asked the Commission to find a friendly solution in this case. The Commission's reply dated 10 March 2000 was forwarded to you on 17 March 2000. I did not receive any additional observations from you.
I am writing now to let you know the result of the inquiries that have been made.

THE COMPLAINT

The complainant, AEDES(1) asbl, a Belgian association, entered a technical assistance contract with the Chadian Government. This contract was financed by the European Development Fund (hereafter EDF). In January 1994 the Franc CFA (hereafter FCFA), currency used in several African States and in particular in Chad, underwent a 50% devaluation. According to AEDES, the association therefore incurred losses amounting to 6,546,259.00 Belgian Francs (estimated according to the rules set out by the Belgian tax authorities).
In similar cases the European Commission had compensated for the losses. AEDES thus asked to benefit from the same opportunity. Despite several letters to the Commission and its Delegation in Chad, AEDES never received any reply. No decision was taken on this issue.
On 3 August 1998, AEDES therefore lodged a complaint with the European Ombudsman and made following allegations:
1 The complainant alleged that the Commission failed to reply to its request for compensation. 2 The complainant alleged that the Commission failed to make a decision on its request for compensation and therefore asked for such a decision to be made.

THE INQUIRY

The Commission's opinion
The opinion of the European Commission on the complaint was in summary the following:
The complainant requested compensation for the devaluation of the FCFA, for which the Commission bears no responsibility. Nevertheless, the question of a possible compensation had at length been discussed with AEDES during several meetings. No agreement could be reached. AEDES insisted on a full compensation whereas the Commission was willing to discuss on the devaluation's actual consequences on the contract.
The Commission stated that:
(i) There was no contractual obligation for the Commission to compensate for the losses incurred by AEDES.
(ii) The contract legally binds AEDES and the Chadian government. It appears that AEDES had not asked its co-contractor to adapt the payments. The Commission was therefore bound by the amounts provided for in the contract.
(iii) More generally the Commission is neither responsible for the devaluation of the FCFA, nor for the calculation methods of the Belgian tax authorities or for the way in which AEDES manages its own funds.
(iv) 80% of the contract had to be paid in ECU and were therefore not affected by the devaluation. Furthermore, the hypothesis of an immediate doubling of all local expenditures must be rejected.
(v) In a longer term, the devaluation might indeed lead to an increase of local prices and costs. An adaptation of the prices provided for in the contract could therefore be envisaged. This had been done in other cases and was also offered to AEDES, which however failed to produce any convincing arguments in that connection.
The complainant's observations
The European Ombudsman forwarded the European Commission's opinion to the complainant with an invitation to make observations. AEDES' observations can be summarised as follows:
The Commission always acted as the only interlocutor for compensation issues and obviously had the leading role in the management of EDF contracts (point (i) & (ii) of the Commission's opinion). Meetings with Commission officials to discuss the issue of compensation had indeed taken place. Compensation had been paid on other occasions and the Commission even acknowledged in writing that compensation was owed. AEDES therefore gained the legitimate impression that the Commission was ready to compensate for the losses. AEDES regretted the lack of transparency in the compensation procedure.
The Commission had failed to put a figure on the sums owed. All the figures put forward by the complainant are certified by a sworn auditor and comply with the accounting rules of the Member States (points (iii) & (iv)). The complainant therefore wondered what arguments had to be presented to convince the Commission of the reality of the losses.
Finally, (point (v)) the complainant would agree with the revision of the contract. This had already been done for the period of time starting from 1 May 1994. The present discussion refers to a three-month period prior to that date. The revision for this period could be similar to the one applied from 1 May 1994.
AEDES concluded its observations with a concrete proposal for the compensation it requested:
· 60.100 € for delayed payments of invoices presented long before the devaluation and paid after the devaluation;
· 31.615 € for the aforementioned three-month period.

FURTHER INQUIRIES

The Commission was asked to set out the elements that it would consider appropriate for the estimation of the complainant's losses. The Ombudsman also inquired into the existence of a specific compensation procedure.
According to the Commission, problems originating in the devaluation of the FCFA were settled by a note of Directorate General for Development(2) of the Commission. It is only on the basis of this document that the losses incurred by AEDES could have been estimated.
The Commission refused to base a possible compensation on the new exchange rate. The payments in FCFA (i.e. 25% of the contract price at an exchange rate fixed by the contract) aimed at paying local expenses. Although the FCFA had devaluated of 50%, the prices on the local market did not immediately soar by 100%.
The consequences of the devaluation could have been compensated in accordance with the contractual provisions referring to the cost of living index or the local wage scales. The Commission regretted that no agreement could be reached with AEDES, which had insisted on compensation exclusively based on the new exchange rate.
The complainant was given the opportunity to comment on the Commission's additional opinion. AEDES mainly referred to its previous comments. It stressed that the Commission had committed itself to compensating for the losses. According to the principles of good administration and fair treatment, the Commission should therefore stick to its commitment. The complainant also rejected the Commission's method to assess the losses. Finally AEDES stressed that the Commission never entered the discussion on the concrete proposals it made and would therefore be ready to accept an independent estimation of the losses.

THE OMBUDSMAN'S EFFORTS TO ACHIEVE A FRIENDLY SOLUTION

The Commission neither commented on the proposed compensation sent to the Ombudsman by the complainant, nor put a figure on the amounts it would be ready to pay according to its own estimation. The Ombudsman therefore asked the Commission to consider the complainant's proposal and to find a friendly solution in this case. The Commission in summary handed in the following reply:
The Commission explained that it had made considerable efforts to meet AEDES' requests. Nevertheless, it concluded that AEDES had no claim for compensation.
Although there had been internal discussions favourable to AEDES, from a legal point of view they lead to no formal commitment. The dispute arose out of contract n°556/93/FED. A possible claim for compensation should not be based on other contracts with different terms, objectives and sources of funding. The Commission would have considered it legitimate for AEDES to seek compensation and an equitable burden sharing in a contract totally upset by the devaluation. However, the present contract already foresaw an equitable protection. 75% of the contract price expressed in FCFA had to be paid in ECU at a contractual exchange rate. The remaining 25% aimed at paying local expenses for which only the local rate of inflation is decisive and not the exchange rate.
Regarding the actual claim for compensation, the Commission considered it twofold.
(i) The first claim (60,100.00 €) related to the compensation for payments of services rendered in spring 1993 but only paid in December 1993 or January 1994. AEDES received the full value of what it was owed in ECU and in FCFA. For the present claim, the local inflation is irrelevant given that at that time the devaluation had not taken place. The delay in paying the invoices can be explained. In 1993, resources of the 6th EDF had run out. AEDES had therefore worked without contract during a period of time in 1993. With the 7th EDF, new resources became available and a retroactive contract had been signed in August 1993. Invoices handed in for that contract were processed and paid with due diligence. That the payments were made after the devaluation is an unforeseen conjunction of circumstances that does not amount to maladministration. Furthermore, the Commission considers "that it is neither a contract objective nor a Commission responsibility" to guarantee additional benefits that could have been made by AEDES out of exchange rate operations. The Commission considered the claim as unfounded.
(ii) The second claim (31,615.00 €) related to the 25% of the contract price to be paid in FCFA in the first three months of 1994. 75% of the contract price had been paid in ECU, at the non-devaluated exchange rate. Thus, the Commission had borne the full exchange rate related risk. According to the contract, there was no guarantee that the Commission should also carry the exchange rate related risk for the remaining 25%. Those were not intended to be converted into ECU but to be used on the local market. In that connection, nothing indicates that the local prices had soared. The Commission considered the claim as unfounded as well.
The complainant handed in no observations on the Commission's final statement.

THE DECISION

1 Failure to reply to the complainant's request for compensation
1.1 The complainant alleged that the Commission failed to reply to its request for compensation.
1.2 The Commission stated that the issue had been discussed at length with the complainant during several meetings.
1.3 In the course of the Ombudsman's inquiry, the complainant admitted that meetings had taken place with Commission officials. The issue of compensation had been discussed though not decided upon. The Ombudsman therefore found no instance of maladministration regarding this aspect of the case.
2 Failure to decide to compensate for the losses allegedly suffered by the complainant
2.1 The complainant alleged that the Commission failed to make a decision on its request for compensation and therefore asked for such a decision to be made.
2.2 The Commission rejected any contractual obligation to compensate for possible losses originating in the FCFA's devaluation. It stated that despite its willingness to find a solution, no agreement was reached with the complainant.
2.3 Although there appeared to be no contractual obligation, the Commission committed itself in principle to compensating for possible consequences of the devaluation. In an internal note(3), the Commission considered that the importance of the devaluation went beyond the normal risk and should not be borne alone by companies working on EDF contracts. The reason was to avoid further problems in the completion of EDF programmes. The internal note set the guidelines to estimate the losses.
2.4 In the course of the present inquiry, the Ombudsman asked the Commission to make a decision on the complainant's request.
2.5 The Commission decided that no compensation was due. The Commission explained that according to the complainant's contract a large part of the exchange rate related risks were already borne by the Commission. Furthermore, there is no evidence that AEDES had provided the Commission with the necessary evidence to support its claim for compensation.
2.6 The Commission has taken a duly reasoned decision in conformity with its internal guidelines which partially referred to contractual compensation provisions. The explanations for the Commission's refusal to pay compensation appear to be reasonable and accord with the principles of sound financial management. The Ombudsman therefore concluded that there is no evidence of maladministration as regards this aspect of the case.
3 Conclusion
On the basis of the European Ombudsman's inquiries into this complaint, there appears to have been no maladministration by the European Commission. The Ombudsman has therefore decided to close the case.
The President of the European Commission will also be informed of this decision.
Yours sincerely,
Jacob SÖDERMAN

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(1) Association Européenne pour le Développement de la Santé.

(2) "Note aux Délégations des Pays ACP concernés et aux services de la DG VIII" of 16 March 1994 : "Conséquences de la dévaluation du Franc CFA pour les marchés et appels d'offres ainsi que pour les devis-programmes FED".

(3) "Note aux Délégations des Pays ACP concernés et aux services de la DG VIII" of 16 March 1994 : "Conséquences de la dévaluation du Franc CFA pour les marchés et appels d'offres ainsi que pour les devis-programmes FED".