Sigitas Cemnolonskis And Dr Eugene Stuart November 2014

Transcription

1 HARMONISATION OF PUBLIC PROCUREMENT SYSTEM IN UKRAINE WITH EU STANDARDS NOTE ON KEY CALCULATIONS RELATED TO STATE AID CONTROL Sigitas Cemnolonskis And Dr Eugene Stuart November 2014 A Project funded by the European Union and implemented by a Consortium led by Crown Agents Ltd

2 The contents of this Report are the sole responsibility of the Crown Agents and its consortium partners and the opinions expressed in this Report are not to be understood as in any way reflecting an official opinion of EUROPEAID, the European Union or any of its constituent or connected organisations. 2

3 ABBREVIATIONS AMCU ECT ENAP EU SME TFEU PCA WTO Anti-Monopoly Committee of Ukraine Energy Community Treaty European Neighbourhood Action Plan European Union Small and Medium-sized Enterprise Treaty on the Functioning of the European Union Partnership and Cooperation Agreement World Trade Organisation 3

4 TABLE OF CONTENTS 1. Introduction and Background 5 2. Notion of Grant Equivalent 7 Page 3. Examples of calculations of grant equivalent of State aid and the intensity of State aid 10 4

5 1. Introduction and background The EU funded Project Harmonisation of Public Procurement System in Ukraine with EU Standards commenced work in Kiev on 11 November The general objective of the Project is to contribute to the development of a solid and consistent public finance management through the establishment of a comprehensive and transparent regulatory framework for public procurement, an efficient public procurement institutional infrastructure, the accountability and integrity of public authorities in regard to public procurement and the development of the Ukrainian State aid system. The Project is currently providing priority assistance in regard to State aid legislation in Ukraine, preparations for the entry into force of the Law on State Aid to Undertakings of July 2014, the strengthening of the AMCU as the main institution responsible in the State aid system of Ukraine and training and awareness-raising across the government system. State aid is essentially about the impact on competition and trade of subsidies, tax breaks and other forms of government concessions which benefit some firms and, therefore, can impact negatively on other firms. In the modern era of free trade, these types of state economic intervention are now regarded as problematic when they have a significant impact on trade and competition. With the opening up of trade and the international position of a country (including EU integration, WTO and Energy Community Treaty membership) a key consequence is that international rules concerning state support to economic activity (and the interests of new trading partners in the impact of state aids and subsidies on trade and competition) need to be taken fully into account. The legal necessity to control State aid in Ukraine arises from a number of Ukraine s international obligations. First, the EU-Ukraine Partnership and Cooperation Agreement (PCA) (1998) required gradual approximation of law to EU standards in a range of fields, including the regulation of State aid. The PCA dealt with State aid regulation as part of competition policy. In the context of the later European Neighbourhood Policy (which includes Ukraine), the bilateral European Neighbourhood Action Plan (ENAP) of 2005 elaborated the PCA requirement further by requiring continuing progress in the establishment of control of state aid and providing that Ukraine must develop legislation and a control regime compatible with that of the EU. Separately and in parallel, Ukraine became a member of the WTO in 2008 and joined the Energy Community Treaty in The WTO Agreements require a range of disciplines on subsidies and membership of the Energy Community includes a commitment to ensure the application of EU compatible rules as regards State aid in the energy sector. More recently, the EU-Ukraine Association Agreement s State aid provisions require Ukraine, within a specified transitional period, to accomplish a range of important steps towards the full operation of a State aid control system which would be fully compatible with EU standards. Further, the EU-Ukraine Association Agenda replaced the ENAP in 2009, creating a new mechanism for the prioritization of agreed reforms. The latest updated version of the Association Agenda (of 24 June 2013) specifies the following in regard to State aid: The Parties shall cooperate in the establishment of an effective system of State aid control and monitoring in Ukraine and implement the corresponding institutional reform program (IRP) under the Comprehensive Institutional Building (CIB) programme. On 1 July 2014 the Parliament of Ukraine adopted the Law On State Aid to Undertakings in order to 5

6 comply with Ukraine s pre-existing commitments under the Partnership and Cooperation Agreement and the Energy Community Treaty together with the more detailed obligations envisaged in the EU- Ukraine Association Agreement signed in July In its present form, the Law is essentially a framework law, leaving many matters to be regulated in detail by secondary legislation over a three transitional period from the date of publication (2 August 2014) to the date the Law will fully enter into force (2 August 2017). In line with international commitments and best practices, the intention is to apply strong rules in Ukraine; emphasising the importance of well-targeted State aid measures and programmes which clearly address market failures and, at the same time, avoid unduly negative effects on competition. It is also essential that significant institutional development takes place in the context of the Law and during its three transitional period. This will involve organizational development and capacity building at the AMCU, policy review and operational structuring on the part of main stakeholders (especially economic line Ministries) and intensive training for all stakeholders. Tracking the process of the modernisation of the State aid system in the EU is also of importance to the Ukrainian State aid system as the EU State aid legislative acts (regardless of their form: notices, guidelines, frameworks etc.) will be the primary basis for the extensive secondary legislation needed to elaborate and implement the provisions of the Law on State Aid to Undertakings of Ukraine. The Project is providing an initial programme of support for the period 2014 into early 2015 in the State aid field. Consistent with the present operational context, this includes training for the AMCU and other key stakeholders. As part of this support, a six-week FOUNDATION TRAINING PROGRAMME ON STATE AID LAW AND POLICY was prepared by the Project and delivered to a training group of some 50 officials in the period 17 September to 22 October Among the matters addressed at the Training were the methods for calculating the State aid content of different types of State support measures. In line with the EU approach, this needs to focus on a grant equivalent calculation which allows value and the commercial benefit of State aids not in the form of grants to be expressed in a manner that can be compared with typical subsidies/grants. At the conclusion of the Training, it was requested that the Project publish a Note on the calculation methodology with examples as a reference document for the AMCU and other stakeholder organisations. This Note responds to this request. 1 A full Report on this Training Programme is accessible at the Project s website: 6

7 2. Notion of grant equivalent While State aid includes the obvious case of direct subsidies, i.e., direct payments to undertakings (typically grants), State aid also arises via other less direct measures of support. For this reason, the main EU Treaty rule on State aid in Article 107 of the Treaty on the Functioning of the European Union (TFEU) refers to an advantage derived from aid granted in any form whatsoever. While the Treaty does not define the forms of granting State aid, there are different forms which may include subsidies, low-interest loans, the provision of loan guarantees, tax rebates, special taxation exemptions or reliefs, capital injections on favourable terms etc. In practice the forms of state aid can be grouped into 4 separate groups. Indeed, in the EU system, all reports submitted to the European Commission are required to identify the group (A, B, C or D) to which state aid belongs. The four groups are the following. EU System State aid Groups A. Grants and tax exemptions, including: Grants Interest subsidies received directly by the recipient Tax credits and other tax measures, where the benefit is not dependent on having a tax liability (i.e. if the tax credit exceeds the tax due, the excess amount is repaid) Tax allowances, exemptions, and rate relieves where the benefit is dependent on having a tax liability Reductions in social security contributions. Grant equivalents e.g. sale or rental of public land or property at prices below market value. B. Equity participation. C. Soft loans and tax deferrals, including: Soft loans whether from public or private sources. Participatory loans from public or private sources. Advances repayable in the event of success. Deferred tax provisions (reserves, free or accelerated depreciation, etc.). D. Guarantees. Depending on how it is provided, State aid may be more or less transparent. Transparent State aid measures includes subsidies, investment grants to undertakings, grants for research and development activities, training supports and capital injections to state or municipal entities. Less transparent State aids include: preferential loans and State guarantees; consultative advice; tax deferrals, tax reductions and exemptions; write-offs of current losses of State and municipal entities; assistance in preparing undertakings for privatisation; undertakings to guarantee or to protect a firms market share. Regardless of the form of State aid (and the above are just some examples of relatively common forms of State aid), the value of a State aid measure needs to be calculated in a common way in order to 7

8 provide a common base for comparison, for the calculation of the benefit or commercial advantage obtained by one or more undertakings arising from a State aid measure and to establish whether or not these amounts are within the limits allowed for certain categories of State aid measures. In EU practice, everything gets re-calculated to a common basis as if every State aid measure was actually a grant. This is the core calculation methodology in EU State aid control where acceptable limits and the value and benefit of specific State aid measures are expressed in the form of Grant Equivalent (or GE). While it is most relevant where the form of State aid is not a grant, when it is in the form of a grant, the GE obviously is the total value of grants received. In the case of tax deferrals, the State aid element is calculated on the basis of the interest (at a set reference rate ) payable (but of course not actually paid) for the deferral period discounted back to current values see calculation example in Section 3 below) In the case of a special tax allowance or exemption, the State aid element is the total amount of tax exemption or allowance. With respect to reductions, reliefs and exemptions from social security contributions the same approach applies. The State aid element is the total estimated amount of exemption or relief. In the case of equity investments, the State aid element is the estimated value of the benefit to the aid beneficiary calculated based on the differences between the arrangements for return on capital in comparison with the normal terms expected by a private investor. The table below shows the general approach to the identification of the State aid element for a selection of different State aid instruments. Table: Identification of State aid element for various state aid instruments Group Instrument Aid element A1 Grants Total value of the grant received. A1 A1 Interest rate subsidies received directly by the recipient Remission of loan-related debts for operating undertakings Total value of the subsidies received (or unpaid interest). The value of the written-off debt. A1 Compulsory settlement and bankruptcy of undertakings The estimated decreased settlement payment or the recovered value from the bankruptcy estate with respect to other creditors due to willfully caused deterioration in the position of the State as a creditor in the settlement or bankruptcy procedure. A2 Tax deferrals Interest payable for the deferred period calculated at current values and based on the reference interest rate. A2 Tax remission, tax relieves, exemptions and allowances A2 Reductions in social security contributions, relieves and exemptions thereof This does not include general tax credits but only allowances which are specific for a particular undertaking or a group of undertakings (e.g. advantages for undertakings employing disabled persons); the State aidelement is the total amount of tax exemption or allowance. With respect to reductions, reliefs and exemptions from social security contributions, the same principle as for tax exemptions applies State aid does not arise in respect of general allowances - the State aid element is the total estimated amount of exemption or relief. 8

9 B1 Equity investments The State aid element is present in all State investments the primary objective of which is not the creation of profit; the State aid element is the estimated benefit value for the State aid beneficiary. B1 Conversion of debt into equity participation B1 Sale of State property on favourable terms The State aid arises where the state is in a less favourable position than that of other creditors; the State aid element is the estimated benefit/ value to the beneficiary firm resulting from the less favourable position of the State. The State aid element is the balance between the market value of the property and its sales price. B1 Participation in a company's profits The share in the distributed profit deriving from the equity share held by the State in the undertaking and which the State renounces, represents in full the amount of State aid. C1 Soft (or subsidised) loans The State aid element is the balance between the loan costs (interest) with a reference interest rate and the more favourable interest rate and the calculation is made for the whole period of the loan and relates to its current value. C1 Loans to the firms in difficulty The State aid element of loans to (restructure) firms in difficulty which cannot obtain loans on the market, is calculated as 20% of the loan value, irrespective of whether the loan was paid off on market terms or on the basis of less favourable conditions C2 All other instruments The estimated value of the aid (e.g. tax debt) D Guarantees The balance between the price of the market guarantee and the cost of the State guarantee which is lower and the State aid element is calculated on the basis of the guaranteed debt amount and the reference risk rate. D Revoked guarantees payments Full payments of guaranteed obligations In the EU State aid regulatory system, the European Commission and EU Member States use dedicated reference and discount rates, which are updated from time to time. The reference and discount rates are applied as a proxy for the market rates and in order to measure the grant equivalent of State aid; in particular when it is disbursed in several instalments and to calculate the aid element resulting from interest subsidy schemes. (For the purposes of this note, interest rates of the Bank of Ukraine are taken as equivalent to EU reference rates). In the examples given in the next Section, we consider how to calculate the grant equivalent of subsidised loans (with and without a grace period where no interest is paid), tax deferrals and loan guarantees. The methods to calculate the limits of certain State aid measures in accordance with the State aid limits set by the EU Regional Aid Guidelines (essentially concerning State aid for business investments in under-developed regions) are also illustrated by worked examples. 9

10 3.Examples of calculation of grant equivalent of the aid and state aid intensity A. State aid in the form of a subsidised loan to a business undertaking. Assume that the average annual interest rate charged upon five s maturity loan will be a reference rate. In this case the aid shall be expressed as a difference between the average annual interest rate charged upon five s maturity loan announced by the Bank of Ukraine and the rate actually charged upon the beneficiary. The grant equivalent (further - GE) of state aid granted in the form of a subsidized loan shall be calculated as shown below. The GE shall also depend upon the terms of repayment of the loan, also on whether any grace period is provided for a specific loan. Therefore the GE shall be calculated taking into account the following alternatives: 1) The calculation of the GE where a subsidised loan is repaid in straight line mode and no grace period is provided. OPTION 1 - The GE of the subsidised loan is calculated as shown below. Assume that a loan of 500,000 UAH has been given for a period of 10 s at a 6 percent annual interest rate and let s assume that the average annual interest rate for five- loans announced by the Bank of Ukraine is 8%. The calculation of the grant equivalent of the subsidized loan over the 10 period is done on the assumption that the reference interest rate for five loans remains unchanged for the entire period of the loan. Therefore at the start of the loan ( 1) the GE is the total of grant equivalents calculated per each using the formula: p GE = GE i ; i=1 In practical terms, the calculation involves the sum of the following calculations for each : GE 1 = 500,000 X ( ) (1+0.08) 1 = 9,259 UAH; GE 2 = 450,000 X (0.02) (1.08) 2 = 7,716 UAH; GE 3 = 400,000 X (0.02) (1.08) 3 = 6,351 UAH; GE 4 = 350,000 X (0.02) (1.08) 4 = 5,145 UAH; GE 5 = 300,000 X (0.02) (1.08) 5 = 4,083 UAH; GE 6 = 250,000 X (0.02) (1.08) 6 = 3,151 UAH; GE 7 = 200,000 X (0.02) (1.08) 7 = 2,334 UAH; GE 8 = 150,000 X (0.02) (1.08) 8 = 1,621 UAH; GE 9 = 100,000 X (0.02) (1.08) 9 = 1,000 UAH; GE 10 = 50,000 X (0.02) (1.08) 10 = 463 UAH. In this particular case the GE or State aid in monetary terms is 41,123 UAH. 10

11 OPTION 2 - As an alternative to the above calculation method, the GE for a subsidised loan may be calculated as a unit gift element for each one percent of interest rebate. The interest rebate is the difference between the average annual interest rate charged for five- loans announced by the Bank of Ukraine (assume that this rate is 8%) and the actual interest charged for the loan to the beneficiary. On this basis, the GE is calculated using the formula: GE = Q X(i-i )X PE, Where i is the average annual interest rate charged for five- loans, announced by the Bank of Ukraine; I is the subsidised interest rate for the period of the loan; Q is the -amount of the loan and PE is the estimated unit gift element as a percentage. The Table below sets out the basis for this alternative calculation method on a loan of 100,000 UAH and the interest subsidy is 1% point vs. a prevailing Bank of Ukraine rate of 8%. Table: Calculation of unit gift element, when aid is repaid in straight line mode, and there is no grace period Period 2 * End of 1 st End of 2 nd End of 3 rd End of 4 th End of 5 th End of 6 th End of 7 th End of 8 th End of 9 th End of 10 th Unit gift element, % Loan: balance outstanding Rebate percent in Benefit obtained Discount factor Discounted (present) value subsidy* % (1) (2) (1)x(2) (3) (1)x(2)x(3) 100 1% 1 1 (1+0.08) % (1+0.08) % (1+0.08) % (1+0.08) % (1+0.08) % (1+0.08) % (1+0.08) % (1+0.08) % (1+0.08) % (1+0.08) % of 2 Discounting starts at the beginning of the first. 11

12 2) The calculation of the GE where a subsidised loan is repaid and a grace period is provided. In this example, the other conditions are the same as in the first example but a pre-determined grace period is applied to the loan. With a grace period of two s, the capital is repaid only from the start of the third. The loan will be repaid in constant annual installments over the remaining period of eight s i.e. 62,500 UAH annually. The formula to be applied here is: GE = Q X (1-i i) X (1+(r p -r F ) (i X (P-F)) Where i is the average annual interest rate charged for five- loans announced by the Bank of Ukraine (assume that the rate is 8%); i is the subsidised interest rate for the entire loan period; r is 1 (1+i); P is the period of the loan (in the number of repayment intervals); Q is the amount of the loan; F is the grace period, i.e. the period during which no repayments of the principal are made, only interest is paid with respect to the entire amount of the loan. (F=O, when there is no grace period). Here the GE is calculated with respect to the entire amount of the loan as follows: GE 1 = 500,000 X ( ) (1+0.08) 1 = 9,259 UAH; GE 2 = 500,000 X (0.02) (1.08) 2 = 8,573 UAH; GE 3 = 500,000 X (0.02) (1.08) 3 = 7,938 UAH; GE 4 = 437,500 X (0.02) (1.08) 4 = 6,432 UAH; GE 5 = 375,000 X (0.02) (1.08) 5 = 5,104 UAH; GE 6 = 312,500 X (0.02) (1.08) 6 = 3,939 UAH; GE 7 = 250,000 X (0.02) (1.08) 7 = 2,917 UAH; GE 8 = 187,500 X (0.02) (1.08) 8 = 2,026 UAH; GE 9 = 125,000 X (0.02) (1.08) 9 = 1,251 UAH; GE 10 = 62,500 X (0.02) (1.08) 10 = 579 UAH. In this particular case the GE or State aid in monetary terms is 48,018 UAH. B. State aid in the form of a deferred tax payment by a business undertaking. This is the case where State aid to an undertaking is granted in the form of tax deferrals - the aid element is calculated based on the interest which would otherwise be payable for the deferred period discounted back to current values and using a common reference interest rate. Assuming that the annual interest rate charged for a five loan is the reference rate; then the GE of the tax deferral is calculated using the formula: GE = Q X (1-1 (1+i/12) m ) Where i is the average annual interest rate charged for the five- loan, Q is the amount of the tax deferral and m is the period of months (the duration of the tax deferral). 12

13 C. State aid in the form of a loan guarantee to a business undertaking. Where State aid to an undertaking is granted in the form of a loan guarantee, the State aid element is the difference between the market price of the guarantee and the price actually paid. For an individual guarantee, the cash grant equivalent of a guarantee is calculated as the difference between the market price of the guarantee and the price actually paid. Where the market does not provide guarantees for the type of transaction concerned, no market price for the guarantee is available. In that case, the aid element is calculated in the same way as the grant equivalent of a soft loan; i.e. the difference between the specific market interest rate this company would have borne without the guarantee and the interest rate obtained by means of the State guarantee after any premiums paid have been taken into account. If there is no market interest rate and if an EU Member State wishes to use the reference rate 3 as a proxy, the European Commission stresses that the conditions laid down in the applicable Communication on reference rates are valid to calculate the aid amount and percentage level in respect of an individual guarantee. For guarantee schemes, the cash grant equivalent of each guarantee within the scheme is the difference between the premium effectively charged (if any) and the premium that should be charged in an equivalent non-aid scheme set up in accordance with the conditions laid down in point 3.4 of the Commission Notice on the application of Articles 87 and 88 of the EC Treaty to State aid in the form of guarantees 4. The premiums from which the State aid element is to be calculated have to cover the normal risks associated with the guarantee as well as the administrative and capital costs. This way of calculating the grant equivalent is aimed at ensuring that, also over the medium and long term, the total State aid granted under the scheme is equal to the money injected by the public authorities to cover the deficit of the scheme. Since, in the case of State guarantee schemes, the specific features of the individual cases may not be known at the time when the scheme is to be assessed, the State aid element must be assessed by reference to the provisions of the scheme. The grant equivalent (GE) of State aid is the difference between the outstanding loan sum guaranteed, adjusted by the probability of default and any premium paid by beneficiary GE = (outstanding sum X risk) premium. The risk factor is derived from the experience of default on loans in similar circumstances. The State Aid element in guarantee schemes can also be calculated through methodologies already accepted by the European Commission following their notification under a regulation adopted by the Commission in the field of State aid, provided that the approved methodology explicitly addresses the type of guarantees and the type of underlying transactions at stake. 3 The details regarding the calculation of the reference rate are set out in the Communication from the European Commission on the revision of the method for setting the reference and discount rates (2008/C 14/02). 4 European Commission Notice on the application of Articles 87 and 88 of the EC Treaty to State aid in the form of guarantees (2008/C 155/02) 13

14 Only in cases clearly evidenced and duly justified by an EU Member State may the European Commission accept a deviation from these rules. A risk-based approach still has to be respected in such cases 5. D. Calculation of State Aid Intensity State aid Intensity refers to the maximum limits for state aid of different categories and these are set out in various EU instruments implementing the State aid rules at EU level. State aid intensity is based on the amount of state aid in relation to production costs or the costs of investment of the company or project that receives the State aid. Examples of the calculation of state aid intensity are given below. D.1. State aid Intensity of a regional development State aid measure Where State aid is provided in an area which is covered by Article 107 (3) (a) of the TFEU a relatively high State aid intensity is allowed for the purposes of regional development unless the assisted activity is a large investment project (see D.2 below). For the purposes of this example, the level of GDP per capita in this area is less than 45% of the EU average. The State aid intensity is calculated by using the following formula: State aid intensity = state aid total eligible costs X100% Where the eligible costs are the part of the costs that may be taken into account for the calculation of the State aid under the applicable State aid rules 6. A GRANT - If, for example, the cost of the investment is 500,000 and the company that undertakes the investment receives a subsidy of 100,000 the state aid intensity is 20% (i.e. 100, , 000 X 100). This intensity falls below the maximum limits of permissible state aid for such a region. The applicable limits are fixed by the European Commission s Regional Aid Guidelines. According to the current Guidelines, if this is an area in which GDP per capita is less than 45% of the EU average, the maximum limit of regional aid for large enterprises is 50% (this example is not dealing with large investment projects). The actual ceiling that applies to each region of the EU or within a particular EU Member State is indicated in the regional aid map for each Member State 7. A SOFT LOAN FOR AN INVESTMENT - In a case of a loan that is related to an investment and provided, for example, to buy machinery, the grant equivalent needs to be calculated. Thus, if a Government grants a 3 loan for an investment of 3,000,000 at an interest rate of 6% instead of market rate of 8% (and the loan is to be repaid in linear instalments plus interest starting at the end of the first ) the determination of the State aid intensity of this measure must be calculated in order to show the amount of the subsidy or grant equivalent which is included in the subsidised loan. 5 Other information on the calculation of the State aid element in cases when guarantees are provided is set out in: European Commission Notice on the application of Articles 87 and 88 of the EC Treaty to State aid in the form of guarantees. 6 All EU secondary State aid rules indicate the eligible costs that may legitimately be taken into account in respect of an assisted activity or project. This is to avoid entirely ancillary or irrelevant costs being included, thereby distorting the calculation. 7 The current Regional State Aid Maps are accessible at the Commission Guidelines on regional State aid for OJ C209,

15 Thus, the subsidy amount of the first is the principal sum multiplied by the difference in the interest rates (2%) and then discounted to the beginning of the when the State aid (subsidised loan for the investment) is given: 3,000,000 X ( ) = 55, The subsidy for the second discounted back to the first is: 2,000, 000 X ( ) 2 = 34, 293. The subsidy for the third discounted back to the first is: 1,000,000 X ( ) = 15,877. Accordingly, the total amount of the subsidy discounted back to the it is granted is 105,727 (55, , ,877). A LOAN GUARANTEE MEASURE - If instead of a grant or a subsidised loan, the Government provided a loan guarantee, there can still be an element of State aid involved. The grant equivalent (GE) of such State aid is the difference between the outstanding loan sum guaranteed, adjusted by the probability of default and less any premium paid by the beneficiary. As noted earlier: GE = (outstanding sum X risk) premium. (Where the risk factor is derived from experience of default on loans in similar circumstances). D.2. State aid Intensity of a regional development State aid measure involving a large investment project Regional state aid ceilings ( intensities or limits) established under the terms of every EU Member State s regional aid map apply to investments with total eligible costs of less than 50 million. For larger projects (i.e. those where the eligible costs related to the investment exceed 50 million), the State aid limits are lower. For large investment projects intensities are lower because these projects are less affected by the regional handicaps of under-developed areas and there is higher risk of distortive effects (on competitors and adjoining regions). For large investment projects, the maximum amount of State aid that can be granted, expressed as a percentage of the project's eligible costs or the "maximum State aid intensity" in these cases, is reduced based on the so-called adjustment formula. The adjusted State aid amount (the maximum permissible State aid amount for a large investment project), is calculated according to the formula: Maximum aid amount = R X ( X B X C) Where: R is the maximum aid intensity applicable in the area concerned, excluding the increased aid intensity for SMEs; B is the part of eligible costs between 50 million and 100 million and C is the part of eligible costs above 100 million. Accordingly, if we assume that there is a project in an Article 107(3)(a) TFEU region where GDP per 8 The Grant Equivalent here means that if one were to invest 55,557 in the bank (long term account) at 8% and leave it for a, at the end of the it would grow to 60,000 EUR which is equal to 3,000,000 X2%. 15

16 capita is less than 45% of the EU average with eligible costs of 75 million, and, according to the relevant regional state aid map the maximum amount of state aid in this region for large undertakings is 50%, the calculation and maximum state aid amount is the following: 50 X ( X 25) = million To sum up, for projects with eligible costs not exceeding 50 million, the full maximum allowable regional State aid limits in a particular region in line with the approved regional State aid map is applicable. For large investment projects with eligible costs exceeding 50 million and up to 100 million, the maximum state aid intensity is 50% of the normal limit allowed for the region in line with the relevant regional State aid map, and for projects with eligible costs exceeding 100 million only 34% of the normal limit which is allowed for the region according to the regional State aid map is applicable. 16