METHODOLOGY FOR THE CALCULATION OF DISCOUNTED NET REVENUES Expert Group Meeting, 26 September 2013

E MPOWERMENT Article 54 (3) (b) of the CPR provides for the following empowerment. The Commission shall be empowered to adopt delegated acts, in accordance with Article 142 laying down the method referred to in point (b)" Delegated Act for the Methodology for Discounted Net Revenues Implementing Act for the CBA methodology DA linked to IA by provisions related to Financial Analysis

C ONTENT OF THE D ELEGATED A CT Article 54 (3) (b) of the CPR refers to: /…/"Calculation of discounted net revenue of the operation, taking into account the reference period appropriate to the sector or subsector applicable to the operation, the profitability normally expected of the category of investment concerned, application of the polluter-pays principle and, if appropriate, considerations of equity linked to the relative prosperity of the Member State or region concerned'.

CALCULATION OF DISCOUNTED NET REVENUE TO DETERMINE THE FUNDING GAP The following formula shows the calculation of funding gap and the funding gap rate: DEE = DIC – DNR = FG FGR = (DIC-DNR) / DIC = 1- DNR/DIC In order to establish the decisional amount and the Union contribution, the following standard calculation shall be used: DA = EC * (1-DNR/DIC)= EC*FGR whereDA stands for decisional amount EC is the eligible cost EU grant = DA * maxCFpa maxCFpa stands for maximum co-financing rate of the priority axis or measure(%)

REVENUES, COSTS AND RESIDUAL VALUE Incremental methode Only revenues and costs attributable to the operation 'Additional' contributions – not only new revenues Recalculation only for new sources of revenues, Art. 54 (b) Investment costs = eligible and ineligible capital costs for construction Operating and maintenance costs fixed and variable (linked to consumption) Replacement costs to assure technical functioning of the operation during the reference period Residual value- net present value of cash flow in the remaining life years Residual value to be considered if DNR >0

REFERENCE TO PRINCIPLES 1.Polluter pays principle 2.Pollution costs and costs of preventive measures are borne by those who cause the costs 3.Full cost recovery 4.Tariff aims in recovery of capital+ operational + maintenance/replacement costs with regard to reference period 5.'Affordability' and 'Proportionality ' to be respected

REFERENCE PERIODS Derogations must be justified Different periods for sectors not covered by Annex 1 possible Sector Reference period (years) Railways30 Water supply/sanitation30 Roads25-30 Waste management15-30 Ports and airports25 Energy15-25 Research and Innovation15-25 Broadband15-20 Industry10

CHANGES IN COMPARISON TO THE FINANCIAL ANALYSIS PRESENTED IN JUNE Financial discount rate (originally proposed: 5%, now 4%) Calculation of Residual value (originally proposed: 'calculated as a cash-inflow in the last year of the reference period as the residual (non-depreciated) accounting value', now 'by computing the net present value of cash flows in the remaining life-years of the project') One definition of replacement costs (previously we also had 're- investment costs' category)

Main changes to Guidance Note on Article Delegated Act on calculation of discounted net revenue COCOF Guidance note on Article 55 Reason for change Reference periods provided for all main sectors Reference periods missing for some sectors such as research and innovation, broadband Complete sectorial coverage Definition of a 4% discount rate as an indicative benchmark Foot note 8 refers to CBA guidance and indicative benchmark of a 5% discount rate Definition of a rate which is based on the current long term rate of return from an international portfolio of investments calculated as the mean of the returns from the assets of 3% adjusted upwards by 1% which equals the extent to which the average long term government bond yield in the EU area has fallen since the financial discount rate for the programming period was set. Legal actGuidance documentEstablish better legal certainty on guiding principles and calculation methods