624. Based on the recommendations of external experts (KPMG) and the Joint Inspection Unit (JIU), as well as the recognition that investment in modern technology and infrastructure is a pre-requisite to maintaining the Organization’s comparative advantage, a process was initiated which lead to Conference Resolution 10/2003 being approved by the 32nd FAO Conference, establishing a systematic approach to managing and financing capital expenditure.
625. The Resolution defined capital expenditure as being: expenditures on tangible or intangible assets with a useful life in excess of FAO’s financial period of two years and which generally require a level of resources which cannot be funded within the appropriation for a single biennium. The Resolution established a Capital Expenditure Facility to integrate capital expenditure planning into the existing planning and financial framework, by:
626. With the above authorization for the establishment of the Capital Expenditure Facility, the review of related proposals becomes part of the Regular Programme planning cycle. The Medium Term Plan 2006-11 provides the first opportunity for the Organization to develop a Capital Expenditure Plan outlining appropriate projects envisaged over the six-year medium term planning period, which could make use of this facility. The next Programme of Work and Budget (PWB) will include further detail in the form of a Capital Expenditure Budget for 2006-07 under Chapter 8. The Finance Committee has the mandate and responsibility to review the Capital Budgeting section of the MTP and, subsequently, the more detailed proposals included in the PWB.
627. Thus, this facility integrates Capital Budgeting into the corporate planning process moving from the Strategic Framework through the Medium Term Plan to the more detailed PWB. As such, it should, once fully established, obviate the need to undertake Capital Expenditures only when fortuitous savings arise or when funding from extra-ordinary arrears become available. In providing an assured multi-biennium funding mechanism, it will allow the Organization to ensure that essential Capital Expenditures are funded when they need to be. In the end, this should lead to FAO delivering its programme in a more cost effective and efficient manner.
628. Below is a brief set of definitions, which underlie this process and the structure of the facility supporting it:
- increased through Regular Programme appropriations, voluntary contributions or through recoveries via charges to users for the delivery of capital investment services; and
- decreased as a result of full or partial utilization of the balance to fund expenditures in the current biennium.
629. The Facility does not in actual fact represent a new source of funds; rather, through the use of the Capital Expenditure Account, it is a vehicle enabling the Organization to budget capital expenditure over a number of biennia. This is an essential characteristic as, by definition, the expenditure in question cannot be met in a single biennium.
630. As the Facility currently stands at zero and the creation of an initial balance in the Capital Expenditure Account is made difficult by the fact that the Organization has recently suffered substantial cuts to its Regular Budget, a narrow definition of capital expenditure has been applied in this MTP so as to limit the number of proposals. For this initial plan, the lower limit established for an eligible proposal was put at US$ 500,000 over the useful life of the capital investment. Furthermore, the accumulation of lower value items such as desktop PCs and printers was excluded. This will allow for the Organization to gain some experience in operating the Facility and accumulating resources to support future capital expenditure proposals.
631. Attention is drawn to the fact that the current Use of Arrears as authorized by Conference Resolution 6/2001 includes many items which fall under the definition of Capital Expenditure. Examples include the modernization of FAOSTAT, the development of PIRES, the replacement of WAICENT's hardware/software platforms, the relocation/renovation of the Computer Centre and the development of the HRMS. Thus, in a sense, the use of Chapter 9 to account for the Use of Arrears is, at least in part, a precursor of the Capital Expenditure Facility and therefore, it is appropriate that any unspent balance on the former should be transferred to the latter as at 31st December 2005. As certain projects originally authorized under the Use of Arrears now foresee that they will run beyond 2005, approval in principle for this proposal is sought from the Finance Committee and Council.
632. The table overleaf presents the capital expenditure proposals for 2006-11. They have their origins in the Strategic Framework, as each proposal relates to one or more of the six Strategies to Address Cross-Organizational Issues (SACOIs). In view of the restricted conditions used to develop the initial proposals, those presented below largely relate to the SACOI Continuing to improve the management process although the Human Resources Management System (HRMS) also contributes to Ensuring excellence and Enhancing inter-disciplinarity. A brief description of each major area of capital expenditure follows the table below.
Capital Budgeting Proposals in the Medium Term Plan | |||||||
|
Amount in US$ 000s | ||||||
Category/Item |
Frequency (yrs) |
Next due |
2006-2007 |
2008-2009 |
2010-2011 |
Total | |
| |||||||
1. Telephony services |
|
|
150 |
2,000 |
150 |
2,300 | |
| |||||||
1.1 HQ and Regional Office PABX Systems |
|
|
150 |
2,000 |
150 |
2,300 | |
1.1.1 |
HQ PABX (hardware) |
10 |
2008 |
1,500 |
1,500 | ||
1.1.2 |
Regional Office PABXs (hardware) |
10 (spread) |
2008 |
125 |
250 |
125 |
500 |
1.1.3 |
PABX software (HQ and RO) |
5 |
2006 |
25 |
250 |
25 |
300 |
2. Shared data services |
|
|
1,545 |
5,165 |
3,530 |
10,240 | |
2.1 Corporate Administrative Applications |
|
|
950 |
4,885 |
1,715 |
7,550 | |
2.1.1 |
Administrative application servers (Windows) |
4 (spread) |
2006 |
150 |
150 |
150 |
450 |
2.1.2 |
Administrative applications, web/application/DB UNIX servers |
6 |
2011 |
1,465 |
1,465 | ||
2.1.3 |
Administrative applications network storage |
8 |
2009 |
1,435 |
1,435 | ||
2.1.4 |
Oracle RDBMS licences/maintenance (administrative) |
6 or spread |
2008 |
100 |
100 |
200 | |
2.1.5 |
Administrative applications software upgrades (Oracle Financials, FAS and HRMS) |
4 |
2009 |
2,700 |
2,700 | ||
2.1.6 |
Administrative applications software upgrades (Travel System) |
8 |
2007 |
800 |
800 | ||
2.1.7 |
Administrative applications software upgrades (DataWarehouse) |
8 |
2008 |
500 |
500 | ||
| |||||||
2.2 Corporate Technical Applications |
|
|
0 |
0 |
1,260 |
1,260 | |
2.2.1 |
Technical applications DB (UNIX) |
6 |
2011 |
790 |
790 | ||
2.2.2 |
Oracle RDBMS licences/maintenance (Technical) |
6 or spread |
2006 |
170 |
170 | ||
2.2.3 |
WAICENT/Technical Application Infrastructure upgrades |
6 or spread |
2008 |
300 |
300 | ||
| |||||||
2.3 Windows Server software and Client Access Licences for HQ and ROs |
|
|
595 |
280 |
555 |
1,430 | |
| |||||||
3. IT support to meetings |
|
|
1,000 |
0 |
0 |
1,000 | |
| |||||||
3.1 HQ Meeting Room Systems |
|
|
1,000 |
0 |
0 |
1,000 | |
3.1.1 |
Simultaneous interpretation and audio visual equipment |
10 |
2006 |
1,000 |
0 |
0 |
1,000 |
| |||||||
4. Human Resource Management System (HRMS) |
|
|
3,900 |
0 |
0 |
3,900 | |
| |||||||
4.1 HRMS Project |
|
|
3,900 |
0 |
0 |
3,900 | |
4.1.1 |
Project implementation |
2,900 |
2,900 | ||||
4.1.2 |
Post-implementation |
1,000 |
1,000 | ||||
| |||||||
|
Total Capital Value |
|
|
6,595 |
7,165 |
3,680 |
17,440 |
633. Telephony Services (US$ 2.3 million). FAO headquarters installed its first digital PABX system more than ten years ago and the system is not expected to be supported beyond the current 5-year maintenance contract which expires in 2008. Regional Offices PABXs are proposed to be included in the cycle allowing FAO to improve efficiency by standardising systems across the Organization, and by ensuring a common approach to the adoption of emerging voice technologies. Replacing the PABX will be a major and costly undertaking but by including this item in the Capital Fund, the continuation of reliable phone services for HQ and Regional Office users will be ensured over the medium and longer term.
634. Shared Data Services (US$ 10.2 million). Shared data services include Corporate Administrative Applications, Corporate Technical Applications and Windows Server Software. Corporate Administrative Applications cover the periodic software upgrade requirements for the Oracle systems (both Oracle Financials and the Oracle Human Resources Management System (HRMS)), as well as the various satellite systems such as the Field Accounting System (FAS), the Data Warehouse and the Atlas travel system. The Corporate Technical Applications cover all the corporate systems that fall under the WAICENT umbrella.
635. The cost of cyclically upgrading the current software and replacing the IT hardware has not been fully factored into the regular budget and represents a major capital expense that has been met in the past from fortuitous savings and other sources which are not predictable, reliable or sustainable. Including this item in the Capital Budget will ensure the continued development and maintenance of systems such as the Financial and Human Resource Management applications that underpin the Organization’s capacity to manage the essential administration processes.
636. Server software (Windows Server operating system and Exchange Server software) becomes obsolete after approximately 4 years of life and needs to be regularly updated in order to guarantee proper and reliable functioning of FAO network services. Server software updates include acquisition of licences and roll-out of the new software. Server licences are required for each Windows server and Microsoft application, while client access licences are required for each end-user of the system. The inclusion of this item in the Capital Fund will ensure the provision of well-supported Microsoft server software for all headquarters and Regional Office users.
637. IT Support to Meetings (US$ 1.0 million). Headquarters meeting rooms communications systems cover audio-visual hardware and simultaneous interpretation (SIE) equipment. Following the initial installations which have been funded by sponsoring governments, there has been no provision for periodic update or replacement of equipment. Including this item in the Capital Fund will ensure the continuation of reliable audio-visual and SIE services in HQ Meeting Rooms.
638. FAO Human Resource Management System (HRMS) (US$ 3.9 million). The FAO HRMS has a central role in future human resource management. The proposal covers funding requirements up to the amount provided under the current Resolution for the Use of Arrears. However, the attention of the Finance Committee and the Council is drawn to the fact that this is less than had originally been estimated for the project. In practice, the problem is that the project is at a critical stage and it will not be until an analysis of the gaps between what the Organization needs and what the package can provide, that it will be possible to provide a reliable estimate of the total cost of the project. To the extent that the gap analysis will indicate the need for additional resources, it is noted that this plan does not have an immediate solution for their funding. In addition, the provision includes an amount for one time ancillary implementation costs in 2007.
639. Creating an initial pool of funding is always difficult unless it coincides with a windfall gain which can be applied to the facility. It is particularly so for FAO at the present time given the recent severe budgetary cuts which have removed much of the flexibility from the system. The following table illustrates a tentative proposal for funding capital expenditure over the next three biennia.
|
Carry-forward at 31/12/05 |
2006-07 |
2008-09 |
2010-11 |
A. Planned Inflows and Outflows | ||||
Planed additions to Capital Expenditure Account | ||||
Carry-forward from Arrears at 31/12/2005 |
2,900 |
|
|
|
Transfer from other Chapters to Chapter 8 at the end of each biennium |
1,000 |
1,000 |
1,000 |
1,000 |
Appropriation - source TBA (but could include charges for capital services, voluntary contributions, or one-time charge against RG) |
|
1,000 |
1,000 |
|
Net Appropriation for the Capital Expenditure Account |
|
2,000 |
4,000 |
6,000 |
Total addition to Capital Account |
3,900 |
4,000 |
6,000 |
7,000 |
Planned Capital Expenditure (see schedule above) | ||||
Total Utilization of the Capital Expenditure Account |
|
7,595 |
7,165 |
3,680 |
| ||||
B. Summary of Movement in the Capital Account | ||||
Opening Balance |
|
3,900 |
1,305 |
140 |
Planned addition to Capital Account |
|
4,000 |
6,000 |
7,000 |
Planned utilization of Capital Account |
|
-6,595 |
-7,165 |
-3,680 |
Closing Balance |
|
1,305 |
140 |
3,460 |
640. This proposal is explained as follows:
641. Carry-forward from Arrears at 31 December 2005 US$ 2.9 million. The Finance Committee is being requested to agree in principle to the carry-forward of the unspent balance on Resolution 6/2001 to the Capital Expenditure Account established under Resolution 10/2003. The amount involved is currently forecast as being US$ 2.9 million but the precise amount can only be determined at the end of 2005.
642. Transfers from other Chapters to Chapter 8 at the end of each biennium. It is not generally feasible to spend 100% of the Appropriation if the Organization is to avoid ever exceeding it. Therefore, surpluses of varying magnitude occur every biennium. The intention of this line is to seek the Finance Committee's support to approving transfers of amounts under-spent on other programmes to Chapter 8, so as to accelerate the effective establishment of the facility.
643. Appropriation - source to be advised. This is the estimated shortfall in each of the biennia 2006-07 and 2008-09. The source of funding has yet to be determined but possibilities are listed in the table. In addition, efficiency savings could be seen as a potential source of funds.
644. Net Appropriation for Capital Account. In the long run the Appropriation has to be the principal source of funding for Capital Expenditure - as it is now, in a somewhat haphazard way. The aim is to institutionalize this process so that there is a steady flow of income from the Appropriation to the Capital Expenditure Account. However, in order to avoid another budgetary shock to FAO units it is proposed to do this on a gradual basis, increasing the amount each biennium with a view to arriving at the targeted income flow by the end of this Medium Term Plan period. It is noted that this approach has not yet been implemented in the summary tables at the beginning of the document, pending consideration of the overall approach by the Finance Committee. Should the Finance Committee endorse the approach, the first appropriation adjustment for US$ 2 million will be made as part of the PWB 2006-07 exercise.
645. Summary of Movement in the Capital Account. The second part of the table summarizes the inflows and the outflows to/from the Capital Expenditure Account to arrive at a balance at the end of each biennium. On the assumptions applied, the account can operate for this minimal capital expenditure budget. It will, however, be a period of trial and error and it is expected that it will take several years to create a sustainable facility.
646. As agreed when the facility was being developed, the Finance Committee (FC) is the primary recipient of capital expenditure proposals. This proposal represents a first step in the practical establishment of the facility. The FC's endorsement of the approach, amended as it thinks fit, is sought. In addition, as mentioned above, the Committee's approval in principle, for the carry forward of any unused balance of arrears as at 31 December 2005 to the facility is also sought.
AF Administration and Finance Department
AFD Office of Assistant Director-General, AF
AfDB African Development Bank
AFF Finance Division
AFH Human Resources Management Division
AFI Information Systems and Technology Division
AFS Administrative Services Division
AGP Plant Production and Protection Division
AGS Agricultural Support Systems Division
CCA Common country assessment
CCRF Code of Conduct for Responsible Fisheries
CEE Central and Eastern Europe
CFS Committee on World Food Security
CGIAR Consultative Group on International Agricultural Research
CGRFA Commission on Genetic Resources for Food and Agriculture
CIS Commonwealth of Independent States
COAG Committee on Agriculture
COFI Committee on Fisheries
CPs Continuing Programme Activities
CPF Collaborative Partnership on Forests
CSs Continuing Services
CSO Civil society organization
DW Data Warehouse
ECDC Economic Co-operation among Developing Countries
ECOM PAIA on Strengthening Capacity for Integrated Ecosystem Management
EMPRES Emergency Prevention System for Transboundary Animal and Plant Pests and Diseases
ERP Education for Rural People
ETHI PAIA on Ethics in Food and Agriculture
EU European Union
FAOR FAO Representative
FAOSTAT Corporate Database for Substantive Statistical Data
FAS Field Accounting System
FC Finance Committee
FIGIS Fisheries Global Information System
FIRMS Fisheries Resources Monitoring System
FIVIMS Food Insecurity and Vulnerability Information and Mapping System
FORIS Forest Information System
FPMIS Field Programme Management Information System
FRA Forest Resources Assessment
GAP Good Agricultural Practices
GDP Gross domestic product
GEF Global Environment Facility
GEND PAIA on Gender and Development
GFAR Global Forum on Agricultural Research
GI General Affairs and Information Department
GIC Conference, Council and Protocol Affairs Division
GIEWS Global Information and Early Warning System on Food and Agriculture
GIS Geographical Information System
GL General ledger
GPA Global Plan of Action
GS General Service
HACCP Hazard Analysis Critical Control Point (System)
HQ Headquarters
HR Human Resources
HRMS Human Resources Management System
IAAH International Alliance Against Hunger
IAEA International Atomic Energy Agency
ICSC International Civil Service Commission
ICT Information and communication technology
IFAD International Fund for Agricultural Development
IGO Intergovernmental Organization
IPC International NGO/CSO Planning Committee for Food Sovereignty
IPGRI International Plant Genetic Resources Institute
IPM Integrated pest management
IPPC International Plant Protection Convention
IPTRID International Programme for Technology and Research in Irrigation and Drainage
ISP Investment Support Programme
IUU Illegal, Unreported and Unregulated Fishing
MCS Monitoring, control and surveillance
MDG Millennium Development Goal
MO Major Output
MSS Management Support Service
MTP Medium Term Plan
NEPAD New Partnership for Africa's Development
NGO Non-governmental Organization
NT/TC Non-technical and technical cooperation
OCD Office for Coordination of Normative, Operational and Decentralized Activities
OECD Organisation for Economic Co-operation and Development
PAIA Priority Area for Inter-disciplinary Action
PBE Office of Programme, Budget and Evaluation
PGR Plant genetic resources
PGRFA Plant genetic resources for food and agriculture
PIR Programme Implementation Report
PIRES Programme Planning, Implementation Reporting and Evaluation Support System
PWB Programme of Work and Budget
RBB Results-based budgeting
RG Real growth
SACOI Strategy to Address Cross-Organizational Issues
SD Sustainable Development Department
SO Strategic Objective
SPs Support services to Members and other partners
SPFS Special Programme for Food Security
SPS Sanitary and Phytosanitary Measures
TC Technical Cooperation Department
TCA Policy Assistance Division
TCDC Technical Co-operation among Developing Countries
TCDS Resources and Strategic Partnerships Unit
TCE Emergency Operations and Rehabilitation Division
TCI Investment Centre Division
TCO Field Operations Division
TCOT Technical Cooperation Programme Service
TCP Technical Cooperation Programme
TP Technical Project
TS Technical services agreement
UN United Nations
UNAIDS Joint United Nations Programme on HIV/AIDS
UNCCD United Nations Convention to Combat Desertification in those Countries Experiencing Serious Drought and/or Desertification, particularly in Africa
UNCED United Nations Conference on Environment and Development
UNDAF United Nations Development Assistance Framework
UNDG United Nations Development Group
UNESCO United Nations Educational, Scientific and Cultural Organization
UNFCCC United Nations Framework Convention on Climate Change
WAICENT World Agricultural Information Centre
WAN Wide area network
WFP World Food Programme
WFS World Food Summit
WFS:fyl World Food Summit: five years later
WHO World Health Organization
ZRG Zero real growth
