In the current budgetary period, revenue-generating projects will only receive a grant from the Structural Funds towards the 'funding gap' and the Commission has issued guidelines about how this gap has to be calculated.6 This is to ensure that the EU grant only funds a project up to the point at which its grant funding, combined with national grant co-financing, enables profitability and sustainability to be achieved.
The funding gap rules apply identically to all revenue-generating infrastructure projects, whether PPP or not, because they relate to revenue generation and not the financing structure of the project. Therefore in principle there should be no difference in the grant rate for a project funded under a PPP or a different structure. However, certain difficulties apply in the case of a PPP project:
• The funding gap approach implies that in the case of revenue-generating projects (e.g. waste incinerator) there must always be a national grant co-financing alongside the EU grant. This means that a revenue-generating project could never be fully funded by the private financing from the PPP and the EU grant. This is not understood by some Management Authorities which consider PPP as a solution which would not require national grant resources to be committed;
• In cases where a grant is approved under a structure with no forecast revenue generation (e.g. an un-tolled road) but the charging structure is later changed (e.g. the road is subsequently tolled), part of the grant funding would be clawed back. The revenue system must therefore be identified and kept in place during the life of the project;
• It may also be advisable to introduce up-side revenue sharing arrangements between the private and the public sector to avoid the reputational risks associated with windfall gains to the private sector in cases, in which revenues dramatically exceed initial forecasts. It should be noted that in the case of excessive private sector gains, the validity of the original projections could be challenged by the Commission during an audit, with a risk of clawback of grant;
• In a PPP the funding gap may be different for every bidder, in particular if the PPP is tendered using a selection criterion of the lowest tariff or toll, which impacts directly the amount of revenue and the funding gap. This makes it difficult for national authorities to present grant applications prior to the completion of PPP procurement (as often only then will the funding gap be known), and where applications are submitted before a PPP is awarded, it makes it difficult for the Commission to approve the proposed grant level. This may therefore imply a parallel process of PPP procurement and grant application steps, with well-defined interfaces, as well as consideration of tender award criteria, which do not impact the funding gap (e.g. the duration of a concession).
Generally, there is currently an absence of sufficient 'case law' on a number of these issues - this can lead to uncertainty for Managing Authorities, DG REGIO staff and the private sector. This may be particularly problematic in the case of a PPP where commercial lenders who are required to take project risk will require absolute certainty that sufficient funding has been put place to enable construction to be completed and operations carried out to the standards set out in the specification.
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6 Please also see Annex III. It should be noted that some countries argue that for projects subject to state aid rules, an exemption under Art. 55(6) applies. Otherwise, a different set of rules, quite often more relaxed, apply, in particular under the so called regional state aid guidelines.