Funding for regional development and for strengthening economic and social cohesion is the second to the Common Agricultural Policy largest part of the EU budget. In the current Financial Perspective (2000 to 2006), EU grant funding amounts to some €240 billion. This funding takes a number of different forms. Those most relevant to the provision of infrastructure and government services are: the Structural Funds (particularly the European Regional Development Fund and the European Social Fund); the Cohesion Fund for member states; and the PHARE and ISPA for accession and candidate countries.
It appears that there is a perception gap between the views of member states, where there is scepticism as to whether the EU is willing to see EU grants and private sector funding combined, and the EU where the Commission has stated that private co-financing is acceptable, so long as various requirements are satisfied. A review of the fundamental principles and objectives of the EU, as set out in the Treaty of the European Union and other EU documents (including the Guidelines for Successful PPPs), shows that there are no fundamental contradictions between these principals and objectives and the utilization of PPP approaches, or the use of private finance as a means of co-financing EU funded projects.
The challenge of combining PPPs with grant financing is outlined in the Guidelines for Successful PPPs.19 The Guidelines summarize the key issues, which should be taken into account when developing and procuring projects, as follows:
• ensuring open market access and competition;
• protecting the public interest;
• ensuring full compatibility between PPP arrangements and state aid;
• defining the right level of grant contribution;
• selection of the most suitable PPP type;
• ensuring an active partnership - that is, requiring a degree of flexibility from both the public and private sides;
• timing - that is, involvement of all parties (including the Commission) at an early stage;
• ensuring recognition of EU grant financing objectives and ensuring the best use of grant financing; and
• the need to develop institutional capacity in the public sector and to develop private sector investment facilitation mechanisms.
When outlining the general trends and recommendations for the development of PPP legislative and institutional frameworks, there is a need to take account of the multiple issues of existing EU procurement rules, statistical and accounting treatment of PPPs, state aid issues and the development of EU-sponsored financial instruments. The need for an overall EU regulation/policy formulation, given the impact such a formulation would have on PPP development, is emphasized in several studies (for example, the report, Developing PPPs in New Europe by Price Waterhouse Coopers plc (PwC). 20