The funding gap rules work the same for all revenue-generating infrastructure projects, whether PPP or not, because they relate to revenue generation and not the financing structure of the project27. Therefore in principle there should be no difference in the grant rate for a project funded under a PPP or a different structure - the EU and national grant funding would need to make up for the whole funding gap - which is essentially driven by an affordability constraint.
The funding gap in a revenue generating project is a key determinant of the amount of grant finance that will be available to a project. The calculation consists of applying the co-financing rate to the part of investment costs that are not covered by the user charge revenues generated by the project. The expenditure eligible for grant finance is calculated as the investment cost minus the discounted net revenue generated by the project and the residual value of the assets. This constitutes the funding gap. The co-financing rate of the operational programme is then applied to the funding gap. If the expected user charge revenue is found to be higher than the investment costs and the operating costs, the project is not eligible for EU funding. The EU grant can only fund a project up to the point at which its grant funding, combined with national grant co-financing, enables profitability and sustainability to be achieved.
In revenue generating projects which have user charges as the only source of revenue, and which may be structured as a PPP, the private sector would only be willing to fund investment up to the amount matched by the discounted net revenue stream - e.g. by using loan or equity funding with the expectation of repayment, with suitable return, from the net revenues of the project. Therefore any private funding may be considered to be "matched" against the net revenue generated by the project, and not part of the funding gap. However, the level of future revenues is subject to risks (demand) and policy (tariffs, alternatives); both of these risks have to be addressed as part of the PPP structure.
The private partner will not be interested in financing the capital and operational expenditures over and above those backed by the user charge revenue without being assured of a return on their investment. This means that the funding gap between the funds the private partner is willing to commit to the project and the total financing demand has to be filled by public funds, with EU grant funding being one of the options. The public financing can be structured in several different ways, including participation in capital expenditures, shadow tolls, or availability payments to the private partner.
Availability charges would not be considered as "revenues" for the purpose of Article 5528 and therefore in such projects the level of co-financing is not dependent on the existence or not of the funding gap. The availability payments (unlike say toll revenue) would enable the project to support public co-financing of eligible costs and so would not result in lower grant rates due to the nature of the revenue stream.
Additionally, Article 55 provides for the possibility of claw-back in the case of revenues higher than forecasted due to changes in the tariff regime (though not from macro-economic changes or trends not forecast at the time of project preparation).
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27 More detailed information on funding gap is available in "Guide to Cost Benefits Analysis of Investment Projects", document prepared for Evaluation Unit DG Regional Policy European Commission.
28 As confirmed in the COCOF Note 07/0029/01-EN.