EXCLUSIVE: EU transfers €500m Turkey aid project to IFRC – but mulls exit strategy

‘This is a meaningful shift.’

A refugee child holds a prototype bank card issued by the EU-funded Emergency Social Safety Net programme to provide money transfers to refugees in Turkey.
A refugee child holds a prototype bank card issued by the ESSN programme to provide money transfers to refugees in Turkey. (Jonny Hogg/WFP)

The European Commission has picked a new partner to run the most valuable humanitarian aid contract in the world. Out goes the UN World Food Programme, in comes the International Federation of Red Cross and Red Crescent Societies, which will handle €500 million allocated for cash allowances for refugees in Turkey.

Under the new deal, for which the funds are now contracted, according to a document on the EU’s website, the IFRC will take over a project that provides about 1.6 million – mainly Syrian – refugees in Turkey with monthly cash allowances; 61 percent are children.

The New Humanitarian understands that the IFRC will take over from the WFP in April 2020. The EU issued a bridging extension to the WFP in August.

The IFRC was selected to take over the scheme – known as the Emergency Social Safety Net, or ESSN – after a three-way tendering process that began in January and included the World Bank as well as the WFP.

The three agencies confirmed they were bidding after TNH obtained a batch of internal European Commission documents on the bidding process and the strategic aims of the project earlier in the year. 

For the IFRC to win the bid is something of an upset in the aid contracting world, where the WFP and the UN’s refugee agency, UNHCR, have grown dominant in cash transfer projects, at the expense of NGOs.

“This is a meaningful shift,” said cash aid expert Paula Gil Baizan. “Basically, a donor is sending out the message that a local organisation in the shape of the Red Cross is as able to manage the world’s largest project as a UN agency.”

The IFRC declined to comment, citing a publicity embargo. A European Commission official confirmed that the IFRC would be the next partner for the ESSN.

“Basically, a donor is sending out the message that a local organisation in the shape of the Red Cross is as able to manage the world’s largest project as a UN agency.”

How the scheme works

The ESSN operates as an extension of the Turkish government's social welfare system and relies on the services of a state-owned bank, Halkbank.

Eligible refugees – about one third of the total living in Turkey – get a bank debit card that is topped up monthly with about 120 Tukish lira (about $20) per person that they can choose to spend as they wish.

Much of the day-to-day implementation is done by the Turkish Red Crescent, the Ministry of Family, Labour and Social Services, and local charitable foundations. 

The project has reported success in preventing refugee families from sliding into destitution and in addressing “negative coping practices” that could include child labour, poor diets, or debt.

The ESSN is the world’s largest single humanitarian project and the flagship of the European Commission’s Turkey portfolio. Now entering a new phase under IFRC management, it accounts for almost a third of the bloc's global €1.6 billion 2019 emergency aid budget.

The IFRC is the Geneva-based alliance of 191 national Red Cross and Red Crescent societies, but the new project will dwarf any previous IFRC grant, representing more than its entire 2018 expenditure of about 347 million Swss francs (€315 million).

Cutting overheads

According to the internal documents, the IFRC initially bid a much lower overhead rate than its two rivals. Letters from the Commission dated 15 February to the three bidders asked for clarification, including on the justification for the indirect support costs, which were listed as follows – IFRC: €8.7 million; World Bank: €21.9 million; World Food Programme: €33 million. 

Agencies hoping to win the contract “should make efforts to minimise operational overheads and deliver the best value for money (efficiency and effectiveness)”, a European Commission official said, on condition of anonymity, in response to a question from TNH earlier this year.

ECHO came under fire in a 2018 European Commission audit report for its ESSN spending, and was given until the end of 2020 to tighten up. The audit criticised the seven percent (later reduced to 6.5 percent) overhead fee the WFP was receiving on the total value of the project.

The report found that “no supporting evidence was provided to demonstrate that this cost was reasonable.” The WFP told TNH earlier in the year that it simply follows the financial rules set by its executive board, comprised of member states, many of which are EU members. 

In common with other aid grants, the ESSN pays its contractor the indirect overhead rate above and beyond the direct costs of the specific project.

These unrestricted overheads allow aid agencies to cover general expenditure, which may range from rent at HQ to senior management costs and legal compliance. In this case, given the size of the overall grant, the auditors objected to the €64 million paid to the WFP over three years for unspecified purposes.

The European Court of Auditors also questioned if the European Commission should have given the WFP 80 percent advances. This led to the UN agency earning bank interest on two tranches (€278 million and €520 million) of project funding – some received a year before it was spent. 

“The level of pre-financing paid is not appropriate,“ the audit found, while also criticising a one percent “cash transfer fee” paid to a “local implementing partner”, later confirmed in the European Parliament as the Turkish Red Crescent

Letters to the three bidders seeking to win the renewed contract also asked about “indicative amount and use” of any bank interest earned on EU-supplied funds.

Exit strategy

As well as being costly, the ESSN has political significance for Europe.

The EU dramatically stepped up aid to Turkey after the peak in Syrian and other refugee arrivals in 2015. Billions of euros was promised, much of it linked to limiting the flow of refugees

The Commission’s auditors urged ECHO to find an exit strategy, but their report acknowledged that “a successful handover is ultimately dependent on the Turkish authorities’ willingness to take over the project and to allocate sufficient resources to fund it.” 

Disruption to the ESSN could spark unrest in Turkey and fuel renewed migration to the European Union, according to the internal EU papers.

A November 2018 briefing – prepared for Christos Stylianides, the head of ECHO, and other senior EU officials – said a “brutally interrupted” ESSN could have an “impact on social cohesion in Turkey”. It added that a poorly managed exit could also change the “incentives for onward migration”, if refugees faced reduced support.

The EU plans to spend some €840 million in the next two years on the ESSN, according to the internal documents. However, it hopes to find ways to lower the need for EU support in future, for example by helping refugees find work.

The internal documents show that Brussels is seeking to pass responsibility back to the Turkish government, while attempting to avoid any unrest or renewed refugee flows into Europe.

Asked by TNH for more information on this exit strategy, a European Commission spokesperson said: “We never comment on alleged leaks.”

However, replying to a separate question by email in August, the spokesperson indicated that talks on the issue were ongoing: “The EU is in discussions with the Turkish authorities for the long-term sustainability of the major projects, including the ESSN, primarily in the possible integration of part of the projects into the existing Turkish welfare system.”

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