Regional Policy Requirements and application of ARTICLE 55 Lisbon, 19 April 2013 Michaela Brizova DG REGIO.F1: Operational Efficiency

Regional Policy Legal basis programming period Council Regulation (EC) No 1083/2006 Article 55 Revenue-generating projects - Definition - Threshold - Estimation of revenues in advance - Monitoring of revenues - Exception

Regional Policy Simplification of Article 55 Application difficulties signalled by the Member States Disproportioned administrative burden 2 amendments of Council Regulation 1083/2006 (2008, 2010) Threshold EUR 1 million for ERDF and CF Non-application to ESF Simplified monitoring of revenues

Regional Policy Article 55(1): Definition Revenue-generating project means a) any operation involving an investment in infrastructure the use of which is subject to charges borne directly by users or b) any operation involving the sale or rent of land or buildings or c) any other provision of services against payment

Regional Policy Article 55(1) what it means in practice Analysis based on cash flows Always net revenue (i.e. revenue – costs) Generally, it is an estimated value for future period extending after project’s completion It is calculated for a project being financed, i.e. incremental revenue and costs

Regional Policy 6 Cash in-flows Revenue: cash in-flows directly paid by users Other cash in-flows Charges borne directly by users for the use of infrastructure, sale or rent of land or buildings, or payments for services Private and public contributions and/or financial gains that do not stem from tariffs, tolls, fees, rents or any other form of charge directly borne by the users Funding-gapFinancial Profitability of the National Capital Article 55(1): Classification of Cash In-Flows

Regional Policy Article 55(1): Net revenue Only projects generating positive net revenue (already without residual value) can be regarded as revenue-generating projects in the sense of Article 55(1) Negative net revenue – not a revenue-generating project (financial sustainability of the project to be checked) Net revenue = revenues – operating costs (+ residual value)

Regional Policy Article 55(2): Funding gap method “Funding gap”: part of the investment costs which cannot be financed by the project itself, i.e. by the net revenues expected to be generated Single calculation methodology for establishing the maximum level of public support Sound financial management: money not wasted on projects which do not need grant assistance “Eligible expenditure on revenue-generating projects shall not exceed the discounted investment cost less the discounted net revenue from the investment over a specific reference period”

Regional Policy Grant calculation (I) 3 steps to determine the EU grant: 1) Find the funding-gap / funding-gap rate 2) Set the project's "decision amount" 3) Set the EU grant (contribution from ERDF/CF)

Regional Policy Grant calculation (II) 1)Funding gap rate: R = (DIC-DNR)/DIC DIC: discounted investment cost DNR: discounted net revenue i.e. (revenue - operational costs +residual value) 2)Set DA = EC*R DA: decision amount EC: eligible cost 3)Set EU grant = DA*CRpa CRpa: co-financing rate fixed for the priority axis in the Commission's decision adopting the operational programme

Regional Policy Grant calculation (III) What is “eligible expenditure”? Not eligible according to art. 56, (e.g., paid before 2007 or not eligible according to MS or Funds eligibility rules) Not eligible according to art. 55 Eligible expenditure to be used as a basis for calculating the contribution from the Funds Non-eligible expenditure (1) Net revenue (apportioned with eligible/ineligible costs) (2) Eligible expenditure (3) Eligible cost Total investment cost

Regional Policy Article 55(2): Estimation of revenues Funding gap method to be applied: Projects where it is possible to estimate the revenues in advance (tariffs & demand) + Projects which generate positive net revenue

Regional Policy Article 55(3) Where it is objectively not possible to estimate revenues in advance due to: Lack of data (for tariff & demand) Unforeseeable demand (new demand might be generated by supply) …the net revenues generated within 5 years after the completion of an operation shall be deducted from the expenditure declared to EC

Regional Policy Article 55(4) Where an operation has generated net revenue, which has not been taken into account under: Article 55(2): revenues known Article 55(3): revenues initially not known …the net revenues generated shall be deducted at the latest at the closure. Please note for Article 55(3): deduction done within 5 years or at closure, whichever comes first

Regional Policy Article 55(4) Deductions required: New sources of revenue Changes in the tariff policy Deductions not required in principle Changes in demand or other external economic factors Systematic underestimation of revenues constitutes irregularity

Regional Policy Monitoring System should be in place for monitoring of revenues Objective: Prevent over-financing (by correct application of funding gap methodology, etc.) Contribute to effective allocation of resources Early detection of possibility to reallocate funds prevents losses at closure DEDUCTIONS at closure = NET LOSS (unless overbooking)

Regional Policy Article 55(5) » limits application of provisions on revenue-generating projects to: ERFD and CF (ESF excluded) Projects above EUR 1 million (total cost) For projects below the threshold or projects generating revenues outside the scope of Article 55: Principle of sound financial management Project revenue to be understood as income reducing the investment cost NATIONAL RESPONSIBILITY

Regional Policy Articles 55(6) and 44a Provisions on revenue-generating projects do not apply to: projects subject to State aid rules within the meaning of Article 87 of the Treaty (following Leipzig- Halle judgment of the Court of Justice of EU, more infrastructure projects could be considered within the ambit of State aid) operations covered by financial engineering instruments under Article 44 of Council Regulation 1083/2006

Regional Policy Closure Guidelines Adopted on 20 March Provide basic principles related to Article 55 More detailed technical questions to be addressed in the Question and Answer document (under preparation)

Regional Policy Guidance documents Note COCOF 07/0074/09: Guidance Note on Article 55 of Council Regulation (EC) No 1083/2006: Revenue-generating Projects Note COCOF 08/0012/03: Guidance Note on Article 55(6) of Council Regulation (EC) No 1083/2006 DG REGIO working document n°4: Guidance on the Methodology for carrying out Cost-Benefit Analysis Guide to Cost-Benefit Analysis of Investment Projects, DG Regional Policy, July 2008

Regional Policy For more information InfoRegio: ec.europa.eu/inforegio PT unit of DG REGIO: contact point